<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the quarterly period ended March 31, 2000
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the Transition Period from to
---- ----
Commission File Number 0-18962
CYGNUS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2978092
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
400 Penobscot Drive, Redwood City, California 94063-4719
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (650) 369-4300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Number of shares outstanding of each of the registrant's classes of common stock
as of April 24, 2000:
Common Stock - 25,739,640 shares
Total pages: 25
Page number of exhibit index: 25
<PAGE>
CYGNUS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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<S> <C>
Item 1: Financial Statements
Condensed Statements of Operations for the three-month periods
ended March 31, 2000 and 1999 (unaudited).............................................2
Condensed Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999.................................................................3
Condensed Statements of Cash Flows for the three-month periods
ended March 31, 2000 and 1999 (unaudited).............................................4
Notes to the Condensed Financial Statements (unaudited).................................5
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................9
Item 3: Quantitative and Qualitative Disclosures About Market Risk .............................21
PART II. OTHER INFORMATION
Item 1: Legal Proceedings ......................................................................22
Item 6: Exhibits and Reports on Form 8-K .......................................................22
SIGNATURES................................................................................................24
</TABLE>
1.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CYGNUS, INC.
Condensed Statements of Operations
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
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<S> <C> <C>
Contract revenues $ 1,038 $ --
Costs and expenses:
Research and development 3,829 5,507
Marketing, general and administrative 1,908 1,027
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Total costs and expenses 5,737 6,534
Loss from operations (4,699) (6,534)
Interest income/(expense), net (316) (381)
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Loss from continuing operations before income tax $ (5,015) $ (6,915)
Provision for taxes (100) --
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Loss from continuing operations (5,115) (6,915)
Discontinued operations:
Income from operations of discontinued segment -- 99
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Net loss $ (5,115) $ (6,816)
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Net loss per share from continuing operations, basic and diluted $ (0.20) $ (0.32)
======== ========
Net income/(loss) per share from discontinued segment, basic
and diluted $ -- $ 0.01
======== ========
Net loss per share, basic and diluted $ (0.20) $ (0.31)
======== ========
Shares used in computation of net loss
per share, basic and diluted 25,527 21,733
======== ========
</TABLE>
(See accompanying notes.)
2.
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CYGNUS, INC.
Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 (unaudited) 1999
---------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 14,019 $ 28,677
Short-term investments 18,413 10,215
Trade accounts receivable 99 62
Prepaid expenses and other current assets 1,121 861
---------------------- ---------------------
Total current assets 33,652 39,815
Equipment and improvements:
Equipment and improvements, at cost 9,785 8,282
Construction in progress 3,495 4,417
---------------------- ---------------------
13,280 12,699
Less accumulated depreciation and amortization (6,908) (6,610)
---------------------- ---------------------
Net equipment and improvements 6,372 6,089
Unamortized portion of deferred financing costs and other
assets 1,031 1,072
---------------------- ---------------------
Total Assets $ 41,055 $ 46,976
====================== =====================
LIABILITIES AND NET CAPITAL DEFICIENCY:
Current liabilities:
Accounts payable $ 1,167 $ 2,002
Accrued compensation 1,380 2,919
Other accrued liabilities 932 640
Deferred revenue -- 900
Current portion of long-term debt 3,768 3,243
---------------------- ---------------------
Total current liabilities 7,247 9,704
Arbitration obligation, less current portion 23,000 23,000
Long-term portion of debt 1,764 3,088
Convertible Debentures, net of discount of $5,287 in 2000
and $5,595 in 1999 12,766 12,084
Other long-term liabilities 310 304
Stockholders' net capital deficiency:
Common stock 26 25
Additional paid-in-capital 179,831 177,576
Accumulated deficit (183,905) (178,790)
Accumulated other comprehensive income/(loss) 16 (15)
---------------------- ---------------------
Net capital deficiency (4,032) (1,204)
---------------------- ---------------------
Total liabilities and stockholders' net capital
deficiency $ 41,055 $ 46,976
====================== =====================
</TABLE>
Note: The condensed balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
(See accompanying notes.)
3.
<PAGE>
CYGNUS, INC.
Condensed Statements of Cash Flows
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,115) $ (6,816)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 276 477
Net decrease in assets 297 4,696
Net decrease in liabilities (2,639) (829)
------------------ -------------------
Net cash used in operating activities (7,181) (2,472)
------------------ -------------------
Cash flows from investing activities:
Capital expenditures (577) (1,332)
Purchases of investments (14,196) (2,701)
Maturity and sale of investments 6,000 3,702
------------------ -------------------
Net cash used in investing activities (8,773) (331)
------------------ -------------------
Cash flows from financing activities:
Issuance of common stock 2,096 2,015
Principal payments of long-term debt (800) (846)
Payment of capital lease obligations -- (105)
------------------ -------------------
Net cash provided by financing activities 1,296 1,064
------------------ -------------------
Net decrease in cash and cash equivalents (14,658) (1,739)
Cash and cash equivalents at beginning of period 28,677 10,219
------------------ -------------------
Cash and cash equivalents at end of period $ 14,019 $ 8,480
================== ===================
</TABLE>
(See accompanying notes.)
4.
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The condensed financial statements of Cygnus, Inc. (the "Company,"
"Cygnus," "us," "we," "our," etc.) as of and for the three-month periods ended
March 31, 2000 and 1999 included herein are unaudited, but include all
adjustments (consisting only of normal recurring adjustments) that the
management of Cygnus, Inc. believes necessary for a fair presentation of the
financial position as of the reported dates and the results of operations for
the respective periods presented. Interim financial results are not necessarily
indicative of results for a full year. The condensed financial statements should
be read in conjunction with the audited financial statements and related notes
for the year ended December 31, 1999 included in our 1999 Annual Report on Form
10-K.
Effective February 1, 2000, we dissolved our wholly owned subsidiaries,
which were inactive.
2. NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted
average number of shares of Common Stock outstanding. Shares issuable from stock
options, warrants and Convertible Debentures outstanding are excluded from the
diluted loss-per-share computation, as their effect is anti-dilutive.
3. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholders' equity
during a period except those resulting from investments by owners and
distributions to owners. Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" (FAS 130), requires unrealized gains and losses
on our available-for-sale securities to be included in other comprehensive
income or loss. Unrealized gains or losses for the three-month periods ended
March 31, 2000 and March 31, 1999 were not material and total comprehensive loss
approximated net loss for each of these periods.
4. CONVERTIBLE DEBT NOTES
In February 1998 we entered into Note Purchase Agreements with certain
institutional investors to issue and sell approximately $43.0 million of Senior
Subordinated Convertible Notes, which were restructured on October 28, 1998. The
restructured Notes, which totaled $24.5 million, were divided into three
tranches. The first and second tranches were fully converted into Common Stock.
The third tranche had an original principal amount of $12.5 million and could
not have been converted into Common Stock until July 1, 1999, at a conversion
price to have been determined then. In June 1999 we entered into two new
financing arrangements: a Convertible Debenture and Warrant Purchase Agreement
and a Structured Equity Line Flexible
5.
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Financing-Service Mark- Agreement in order to help finance the complete
redemption of the $12.5 million third tranche of the restructured Notes and to
provide additional capital.
CONVERTIBLE DEBT AGREEMENT
On June 29, 1999, we entered into a Convertible Debenture and Warrant
Purchase Agreement with institutional investors ("Investors") to issue and sell
$14.0 million principal amount of 8.5% Convertible Debentures Due June 29, 2004
("Convertible Debentures"). These Convertible Debentures are convertible into
shares of Common Stock at any time at a conversion price of $12.705 per share.
We received gross proceeds of $14.0 million from the issuance of the Convertible
Debentures and incurred debt issuance costs of $0.5 million. If we and the
Investors mutually agree, or if certain trading volume, pricing and other
conditions are met, we and/or the Investors will have the right to require the
sale to existing Investors of an additional $6.0 million in additional aggregate
principal amount of Convertible Debentures in two separate tranches of $3.0
million each (each an "Additional Tranche"), provided that the second Additional
Tranche notice date may not be earlier than sixty days after the first
Additional Tranche notice date. The conversion price for each Additional Tranche
will be the average of the closing bid prices for the ten trading days prior to
and including the respective Additional Tranche notice date and the ten trading
days subsequent to the respective Additional Tranche notice date ("Additional
Closing Price") multiplied by 110%. On September 29, 1999 we received $3.0
million in gross proceeds from the issuance of the first Additional Tranche due
September 29, 2004, with a conversion price of $11.8663 (determined by the above
market-based formula), and incurred debt issuance costs of $0.1 million. Neither
the June 29, 1999 nor the September 29, 1999 Convertible Debentures contained
any beneficial conversion features.
In conjunction with the issuance of Convertible Debentures in June 1999
and the first Additional Tranche in September 1999, we issued to the debenture
holders warrants to purchase approximately 606 thousand shares and 139 thousand
shares of Common Stock, at the exercise price of $13.86 per share and $16.18 per
share, respectively. Each tranche of warrants had a contractual term of five
years from the date of respective grant. At the respective dates of grant, the
fair values ascribed to these warrants were approximately $5.0 million and $1.1
million, respectively, based on a Black-Scholes valuation model, were recorded
as debt discount and are being amortized as additional interest expense over the
debt term. We recorded amortization of $0.3 million for the three months ended
March 31, 2000. As of March 31, 2000, the unamortized fair value amounted to
$5.3 million. We will be required to issue warrants if the second Additional
Tranche of the Convertible Debentures is sold. Such warrants will be priced at
150% of the respective Additional Closing Price. The number of additional
warrants to be issued will be determined by dividing 50% of the respective
Additional Tranche by the respective Additional Closing Price.
We also issued to the placement agent warrants to purchase 50 thousand
shares of Common Stock at the exercise price of $13.86 per share. At the date of
grant, the fair value ascribed to the warrants was approximately $417 thousand,
based on a Black-Scholes valuation model, and that amount was recorded as
deferred financing cost and is being amortized as additional interest expense
over the debt term. We recorded amortization of $21 thousand for the three
months ended March 31, 2000.
6.
<PAGE>
The Convertible Debentures have a stated interest rate of 8.5% and an
effective interest rate of 18.20%. The effective interest rate includes a
non-cash charge of $6.6 million for the amortization of the implicit value of
warrants issued in connection with the Convertible Debentures.
STRUCTURED EQUITY LINE NOTES
On June 30, 1999, we also entered into a Structured Equity Line
Flexible Financing Agreement ("Equity Line") with certain institutional
investors ("Investors"). The Equity Line is effective for two years ("Commitment
Period") and allows us, at our sole discretion, to sell Common Stock with a
maximum aggregate issue price of $30.0 million over the Commitment Period. On
June 30, 1999, we received net proceeds of approximately $3.8 million, after
deducting the issuance costs, from the sale of approximately 346 thousand shares
of Common Stock (the "Initial Investment"). The number of shares of Common Stock
for the Initial Investment was determined on the basis of the average closing
bid price for the ten trading days prior to June 30, 1999 ("Initial Investment
Purchase Price"). Under the terms of the Equity Line, over a period of eighty
trading days following June 30, 1999 ("Initial Period"), the Investors were
required to deliver purchase notices from time to time for the aggregate amount
of the Initial Investment ($4.0 million) to purchase shares of our Common Stock.
The per share price for each such purchase notice equaled 98% of the average of
the two lowest daily trade prices during the six trading days immediately prior
to the respective purchase notice. The number of shares originally issued was
subject to an upward adjustment, if required, to match the aggregate number of
shares covered by the $4.0 million of purchase notices. We issued an additional
92 thousand shares to reflect the actual purchase prices on the purchase
notices.
On September 29, 1999, we received net proceeds of approximately $3.9
million, after deducting the issuance costs, from the sale of approximately 361
thousand shares of Common Stock ("Additional Investment") pursuant to an
amendment to the Equity Line agreement, which allowed for an Additional
Investment period of 110 days ("Additional Period"). The terms for this
Additional Investment are similar to those applied to the Initial Investment,
and the number of shares was adjusted upwards at the end of the Additional
Period, resulting in the issuance of an additional 92 thousand shares of Common
Stock.
After the Initial Period and the Additional Period, the original terms
of the Equity Line allowed us, on a monthly basis ("Investment Period"), to
elect at our sole discretion to sell up to $1.5 million ("Company Election") in
additional shares of Common Stock. In addition to the above and upon our
approval, the Investors were also allowed to elect to purchase an additional
$1.0 million ("Investor Election") of Common Stock in each Investment Period. In
March 2000 the Equity Line was amended to increase the maximum monthly Company
Election to $4.0 million and the maximum monthly Investor Election to $3.0
million; however, the maximum aggregate issue price of $30.0 million over the
Commitment Period remained unchanged. In each Investment Period in which we
elect to sell additional shares, the Investors will from time to time issue
purchase notices for the aggregate amount of the Company Election and the
Investor Election, if applicable. The per share price of Common Stock to be sold
for each such purchase notice will equal 98% of the average of the two daily low
trade prices during the six trading days
7.
<PAGE>
immediately prior to the respective purchase notice. At the beginning of each
Investment Period, we can set a minimum trading price ("Floor Price") to be used
in determining the purchase price of our Common Stock. The Investors may require
the aggregate dollar amount of the Company Election and Investor Election for
any Investment Period to be less than requested, based on certain market trading
volume guidelines. In December 1999 we received net proceeds of approximately
$1.4 million, after deducting the issuance costs, from the sale of 100 thousand
shares of Common Stock pursuant to the Equity Line. In January 2000 we received
additional net proceeds of approximately $1.0 million, after deducting the
issuance costs, from the sale of approximately 59 thousand shares of Common
Stock pursuant to the Equity Line.
In conjunction with the Equity Line, in January 2000 we issued
five-year warrants to the Investors to purchase 95 thousand shares of Common
Stock at $11.51 per share. The price of the warrants is determined for each
calendar year and will equal 120% of the weighted average per share sales price
of all shares of Common Stock sold pursuant to the Equity Line that calendar
year. The number of shares will equal 1% of the aggregate proceeds received for
all shares sold pursuant to the Equity Line during the year. Warrants to
purchase a minimum of 120 thousand shares must be issued under the Equity Line
and, if at the end of the Commitment Period, warrants to purchase less than 120
thousand shares of Common Stock have been issued, we must issue a warrant to
purchase the number of shares equal to the difference at a price equal to 120%
of the average exercise price of all warrants previously issued pursuant to the
Equity Line.
5. STATEMENTS OF CASH FLOWS DATA
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------------------------------
(in thousands)
<S> <C> <C>
Supplemental disclosure of cash flows information
Interest paid $ 147 $ 285
Foreign tax paid $ 100 $ --
</TABLE>
8.
<PAGE>
6. DISCONTINUED OPERATIONS
On December 15, 1999, we completed the sale of substantially all of our
drug delivery business segment assets to Ortho-McNeil Pharmaceutical, Inc.
("Ortho-McNeil"), a Johnson & Johnson company. Under the terms of our agreement
with Ortho-McNeil, we received $20 million in cash at closing, and Ortho-McNeil
may pay up to an additional $55 million in cash, contingent on the achievement
of certain milestones. The contingent payments relate to the achievement of
certain technical, regulatory and commercialization milestones related to the
EVRA--Trademark--(Johnson & Johnson, New Brunswick, New Jersey) transdermal
contraceptive patch. We are eligible to receive up to $14.8 million of these
contingent milestones in the year 2000; however, because the achievement of
these milestones is not within our control, we cannot predict the likelihood or
timing of these contingent payments in the year 2000 and beyond. The drug
delivery business has been accounted for as a discontinued operation and the
prior period's financial statements have been restated to report only continuing
operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS,
INCLUDING, BUT NOT LIMITED TO, THOSE SPECIFICALLY IDENTIFIED AS SUCH, THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT ON FORM
10-Q THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT, INCLUDING WITHOUT LIMITATION STATEMENTS REGARDING OUR EXPECTATIONS,
BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS REPORT ON FORM 10-Q ARE BASED ON INFORMATION
AVAILABLE TO US ON THE DATE HEREOF, AND WE ASSUME NO OBLIGATION TO UPDATE ANY
SUCH FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN THE "RISK FACTORS"
CONTAINED IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND ELSEWHERE IN THIS REPORT ON FORM 10-Q.
General
We are engaged in the development and manufacture of diagnostic medical
devices, utilizing proprietary technologies to satisfy unmet medical needs cost
effectively. Our current efforts are primarily focused on the
GlucoWatch--Registered Trademark-- system and enhancements thereto. The
GlucoWatch system is a frequent, automatic and non-invasive glucose monitoring
device intended for detecting trends and tracking patterns of glucose levels in
adults, 18 years and older, who have diabetes. Our GlucoWatch system, with its
durable biographer and consumable AutoSensor, represents a potential advance in
glucose monitoring technology, as compared to the currently prevailing "finger
stick" blood monitoring methods. The GlucoWatch system is designed to measure
glucose frequently, automatically and non-invasively through the ease and
convenience of a biographer device worn like a wristwatch. The device is
intended for use at home and in healthcare facilities to supplement, not
replace, information obtained from standard blood glucose monitoring devices. In
1999, we sold substantially all of our drug delivery business to Ortho-McNeil
Pharmaceutical, Inc. and chose to focus on diagnostic medical devices, the first
of which is a glucose monitoring system.
9.
<PAGE>
In mid-1998 we established product specifications and manufacturing
processes for the GlucoWatch system that the United States Food and Drug
Administration (FDA) is currently reviewing. Since that time, we have developed,
and continue to develop, a number of enhancements to the GlucoWatch system and
our manufacturing processes. Certain of these product and manufacturing
enhancements will be submitted to the FDA in the form of one or more supplements
to our existing premarket approval (PMA) application shortly after PMA approval,
assuming the FDA approves our existing PMA. Future supplements will include
enhancements such as increasing product performance, increasing user
convenience, increasing manufacturing capacity, and lowering manufacturing
costs. We are in the early developmental stages for a future telemetric product
that allows both greater flexibility in the location of the glucose extraction
component and a new form of the monitor that stores and displays glucose data.
There have been no sales of our glucose monitoring systems to date; however, on
December 6, 1999, we received a unanimous recommendation for approval of our PMA
for the GlucoWatch system from the FDA's Clinical Chemistry and Clinical
Toxicology Devices Panel of the Medical Devices Advisory Committee subject to
certain conditions. The FDA still needs to issue its decision on approval of our
PMA. Also, in December 1999, we received a CE Certificate for the GlucoWatch
system, indicating that the product has met the essential requirements and other
criteria of the European Community Directive 93/42/ECC, Annex V, Section 3.2.
The CE Certificate is required for selling products in the European Community.
Our GlucoWatch system is a revolutionary product, and its commercialization will
depend on successful implementation of manufacturing, sales, marketing and
reimbursement plans.
Our results of operations vary significantly from year to year, and
from quarter to quarter, and in the past have depended on, among other factors,
the signing of new product development agreements and the timing of recognizing
payment amounts specified thereunder, the timing of recognizing license or
distribution fees and cost reimbursement payments made by pharmaceutical
licensees, and the demand for our products. The level of revenues in any given
period is not necessarily indicative of expected revenues for future periods. In
1999, 97% of our revenues were attributable to one customer. We have incurred
net losses each year since our inception and do not believe we will achieve
profitability in 2000. At March 31, 2000 our accumulated deficit and net capital
deficiency were approximately $183.9 million and $4.0 million, respectively.
Results of Operations
COMPARISON FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
CONTRACT REVENUES for the quarter ended March 31, 2000 were $1.0
million, compared to $0.0 million for the quarter ended March 31, 1999. The
increase in contract revenue was primarily due to the amortization of a
milestone payment received in 1999 under our collaboration agreement with
Yamanouchi Pharmaceutical Co., Ltd. for the commercialization of the GlucoWatch
system in Japan. Under the Yamanouchi agreement, we are eligible to receive
additional milestone payments prior to commercialization and to receive a
percentage of the product's future commercial success in Japan. Yamanouchi's
option to include Korea within the collaboration agreement expired March 31,
2000.
10.
<PAGE>
We have completed the $0.1 million, six-month Phase I Small Business
Innovative Research (SBIR) Grant for "High Performance Biosensor Electrode
Materials," which we received in September 1999 from the National Institute of
Diabetes and Kidney Diseases division of the National Institutes of Health, and
recognized this amount over a six-month period ended March 31, 2000.
Contract revenues, if any, are expected to fluctuate from quarter to
quarter and from year to year, and future contract revenues, if any, cannot be
reasonably predicted. The contributing factors to achieving contract revenues
include, but are not limited to, achievement of milestones under our current
contract, strategic decisions on self-funding certain projects, and future
successes, if any, in finalizing new collaborative agreements. We are unable to
predict to what extent a termination of our existing contract or new
collaborative agreements, if any, would impact overall contract revenues in 2000
and future periods.
RESEARCH AND DEVELOPMENT EXPENSES for the quarter ended March 31, 2000
were $3.8 million, compared to $5.5 million for the quarter ended March 31,
1999. This decrease reflects a reduction in clinical studies and development
expenditures associated with the GlucoWatch system.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES for the quarter ended
March 31, 2000 were $1.9 million, compared to $1.0 million for the quarter ended
March 31, 1999. The increase is primarily due to expenses incurred for
pre-commercialization and other general support activities, and non-cash,
stock-based compensation.
INTEREST INCOME/(EXPENSE), NET. We incurred net interest expense of
$0.3 million for the quarter ended March 31, 2000, which was consistent with the
net expense of $0.4 million for the quarter ended March 31, 1999.
Liquidity and Capital Resources
Cash, cash equivalents and investment balances as of March 31, 2000,
totaled $32.4 million. Through March 2000 we have received net proceeds of
approximately $105.5 million from public offerings of our Common Stock; and we
have financed approximately $11.1 million of manufacturing and research
equipment under capital loan and lease arrangements. Borrowings under those
arrangements are secured by specific Cygnus assets. We have an outstanding bank
loan agreement with Silicon Valley Bank that requires monthly principal and
interest payments through November 2001, in addition to compliance with various
financial covenants. As of March 31, 2000, there was $5.0 million outstanding
under this agreement, and borrowings are secured by specific Cygnus assets.
We have the second Additional Tranche of $3.0 million available under
our 1999 Convertible Debenture and Warrant Purchase Agreement, and we have $19.5
million remaining under our 1999 Structured Equity Line Flexible Financing
Agreement.
11.
<PAGE>
Net cash used in operating activities for the quarter ended March 31,
2000 was $7.2 million, compared with net cash used of $2.5 million for the
quarter ended March 31, 1999. Cash used in operating activities during the
quarter ended March 31, 2000 was primarily due to the net loss from continuing
operations of $5.1 million, and a decrease in accrued compensation of $1.5
million and deferred revenue of $0.9 million. Cash used in operating activities
during the quarter ended March 31, 1999 was primarily due to the Company's net
loss of $6.8 million and a decrease in deferred compensation and other long term
liabilities of $4.1 million, offset by a decrease in deferred compensation,
notes receivable, prepaid expenses and other assets of $4.1 million and in
inventories of $0.8 million and an increase in accounts payable and other
liabilities of $2.0 million and in deferred revenue of $1.3 million.
The current level of cash used in operating activities is not
necessarily indicative of the level of future cash usage. We expect an increase
in operating cash usage for 2000.
Net cash used in investing activities of $8.8 million for the quarter
ended March 31, 2000 resulted primarily from net purchases of investments of
$8.2 million and capital expenditures of $0.6 million. Net cash used in
investing activities of $0.3 million for the quarter ended March 31, 1999
resulted primarily from capital expenditures of $1.3 million, offset by net
maturity and sales of investments of $1.0 million.
Net cash provided by financing activities of $1.3 million for the
quarter ended March 31, 2000 included gross proceeds of $1.0 million from the
January 2000 sale of Common Stock under our 1999 Structured Equity Line Flexible
Financing Agreement and additional stock proceeds of $1.1 million, offset by
long-term debt repayments of $0.8 million. Net cash provided by financing
activities of $1.1 million for the quarter ended March 31, 1999 included
additional stock proceeds of $2.0 million, offset by long-term debt and capital
lease repayments of $0.8 million and $0.1 million, respectively.
Our long-term capital expenditure requirements will depend upon
numerous factors, including, but not limited to: (i) the progress of our
research and development programs, (ii) the time required to obtain regulatory
approvals, (iii) the resources that we devote to the development of self-funded
products, (iv) proprietary manufacturing methods and advanced technologies, (v)
our ability to obtain any additional collaborative agreements, (vi) the
additional expenditures to support the manufacture of new products, if and when
approved, and (vii) possible acquisitions of products and technologies. As we
evaluate the progress of our development projects (in particular the GlucoWatch
system and our enhanced glucose monitoring products in development), our
commercialization plans and the lead time to set up manufacturing capabilities,
we may commence long-term planning for another manufacturing site. Nevertheless,
we believe that such long-term planning will not result in any material impact
on cash flows and liquidity for the next twelve months.
Based upon current expectations for operating losses and projected
short-term capital expenditures, we believe that existing cash, cash equivalents
and investments of $32.4 million as of March 31, 2000--when coupled with cash
from public financings (including debt or equity financings), any potential
collaborations and earnings from investments--will be sufficient to
12.
<PAGE>
meet our operating expenses, debt servicing and repayments and capital
expenditure requirements at least for the next twelve months. However, there can
be no assurance that we will not require additional financing, depending upon
future business strategies, manufacturing and commercialization efforts, results
of clinical trials, management decisions to accelerate certain research and
development programs, and other factors.
Impact of Year 2000
In prior years we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999 we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and we believe these systems
successfully responded to the Year 2000 date change. We expensed approximately
$150 thousand during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
products and our internal systems or with the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
Risk Factors
WE WISH TO CAUTION STOCKHOLDERS AND INVESTORS THAT THE FOLLOWING
IMPORTANT FACTORS, AMONG OTHERS, IN SOME CASES HAVE AFFECTED, AND IN THE FUTURE
COULD AFFECT, OUR ACTUAL RESULTS AND COULD CAUSE OUR ACTUAL RESULTS FOR 2000 AND
BEYOND TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS MADE BY OR ON BEHALF OF CYGNUS. THE STATEMENTS UNDER THIS CAPTION ARE
INTENDED TO SERVE AS CAUTIONARY STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THE FOLLOWING INFORMATION IS NOT
INTENDED TO LIMIT IN ANY WAY THE CHARACTERIZATION OF OTHER STATEMENTS OR
INFORMATION UNDER OTHER CAPTIONS AS CAUTIONARY STATEMENTS FOR SUCH PURPOSE.
We may not receive FDA approval on our products.
Although in December 1999 the FDA's Clinical Chemistry and Toxicology
Devices Panel of the Medical Devices Advisory Committee recommended the
GlucoWatch system for approval for sale with three conditions, there can be no
assurance that we can meet these conditions or, if we can, that the
recommendation of the Advisory Committee will result in the FDA deciding to
approve the product. Furthermore, as we seek regulatory approval for
enhancements and possible manufacturing changes to the GlucoWatch system through
the PMA supplement process, there can be no assurance that such supplements will
be approved or that one or more new PMAs will not need to be filed. The timing
for approval of PMA supplements could result in substantial delays in the
introduction of product enhancements and our capability to manufacture large
quantities of AutoSensors at reduced cost. Even if we receive the necessary
regulatory approvals for the GlucoWatch system, there can be no assurance that
unforeseen problems will not occur in product manufacturing and commercial
scale-up or marketing or product distribution. Any such occurrence could
significantly delay the commercialization of the GlucoWatch system or prevent
its market introduction entirely. Furthermore, even if the
13.
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GlucoWatch system is successfully developed, the commercial success of the
GlucoWatch system will depend on its acceptance in the market.
Our product pipeline is severely limited.
With the sale of substantially all of our drug delivery business
segment assets to Ortho-McNeil Pharmaceutical, Inc. and the termination of the
remaining drug delivery projects, we are now exclusively focused on diagnostic
medical devices, initially on a line of frequent, automatic and non-invasive
glucose monitoring devices. There is an inherent risk in not having a broad base
of products in development and we cannot assure you that we will be successful
with this narrow, nondiversified line of products.
We do not have medical device marketing, distribution, manufacturing or sales
experience.
We do not have any experience marketing, distributing, manufacturing or
selling medical device products. To successfully market, distribute, manufacture
and sell the GlucoWatch system and our other glucose monitoring products under
development, we must either develop a more extensive capability for marketing,
distributing, manufacturing and sales or enter into arrangements with third
parties to market, distribute, manufacture and sell our products. We cannot
assure you that we will be able to successfully develop a more extensive
marketing, distributing, manufacturing and sales capabilities or that we will
enter into acceptable marketing, distributing, manufacturing and sales
agreements with third parties. If we maintain our own marketing, distributing,
manufacturing and sales capabilities, we will compete with other companies that
have experienced and well-funded marketing, distributing, manufacturing and
sales operations. If we enter into a marketing arrangement with a third party,
any revenues we receive will depend on the third party, and we will likely have
to pay a sales commission or similar amount to the third party. We may be unable
to successfully commercialize our products after FDA approval or may experience
delays in commercialization.
We cannot predict the market acceptance of our products.
We are focusing our efforts predominantly on a line of frequent,
automatic, and non-invasive glucose monitoring devices. No one can predict
market acceptance or penetration of such products, given that they are entirely
different from any glucose diagnostic product currently on the market. There is
a risk in introducing a very new type of product in a market of established
finger stick glucose monitors, and we cannot assure you that our products will
be accepted or to what degree they will be accepted. Additionally, some of our
competitors have announced, and others may be developing, new glucose monitoring
devices that are frequent, automatic, and non-invasive (or minimally invasive,
semi-invasive or less-invasive). We cannot predict what impact the introduction
of competing products will have on our market sales.
14.
<PAGE>
We depend on third-party suppliers.
The GlucoWatch system is manufactured from components purchased from
outside suppliers, most of which are our single source for such components. In
the event that we are unable, for whatever reason, to obtain these components
from our suppliers or that the components obtained from these suppliers do not
pass quality standards, we will be required to obtain the components from
alternative suppliers. Additionally, we cannot assure you that, in the event a
current supplier were unable to meet our component requirements, we would be
able to rapidly find another supplier of the particular component or that the
alternate supply would be at the same price or have the same lead time. Any
interruption in the supply of the GlucoWatch system components or the pricing of
these components could have a material effect on our business, financial
condition and results of operations.
We face intense competition.
The medical device industry in general, and the market in which we
expect to offer the GlucoWatch system in particular, is intensely competitive.
Even if we successfully develop, gain FDA approval for and manufacture the
GlucoWatch system, we will compete with other providers of personal glucose
monitors. A number of our competitors are currently marketing traditional finger
stick glucose monitors. These monitors are widely accepted in the healthcare
industry and have long histories of accuracy and effective use. Furthermore, a
number of companies have announced that they are developing products that permit
less painful or painless, as well as continual or continuous, glucose
monitoring. Accordingly, we expect competition to increase. Many of our
competitors have substantially greater resources than we do and have greater
name recognition and lengthier operating histories in the healthcare industry.
We cannot assure you that we will be able to compete effectively against our
competitors. Additionally, we cannot assure you that the GlucoWatch system or
our other enhanced products under development will replace any currently used
devices or systems. Furthermore, we cannot assure you that our competitors will
not succeed in developing, even before we develop and commercialize the
GlucoWatch system or our other enhanced products under development, devices and
technologies that permit more efficient and less expensive glucose monitoring
devices. Pharmaceutical or other healthcare companies may also develop
therapeutic drugs, treatments or other products that will substantially reduce
the prevalence of diabetes or otherwise render our products obsolete.
15.
<PAGE>
We depend on proprietary technology.
Our success depends in large part on our ability to obtain patent
protection for our products, preserve our trade secrets and operate without
infringing upon the proprietary rights of others, both in the U.S. and abroad.
Currently, patent applications in the U.S. are maintained in secrecy until
issuance and publication of discoveries in the scientific or patent literature
tends to lag behind actual discovery by several months. Thus, we cannot be
certain that we were the first to file patent applications on our inventions or
that we will not infringe upon third-party patents. We cannot assure you that
any patents will issue or will be upheld with respect to any of our patent
applications or that any patents will provide competitive advantages for our
products or will not be challenged or circumvented by our competitors. We also
rely on trade secrets and proprietary know-how that we seek to protect, in part,
by confidentiality agreements with our suppliers, employees and consultants. We
cannot assure you that these agreements will not be breached, that we would have
adequate remedies for any breach or that our trade secrets will not otherwise
become known or be independently developed by our competitors. Any litigation,
in the U.S. or abroad, as well as foreign opposition and/or domestic
interference proceedings, could result in substantial expense to us and
significant diversion of effort by our technical and management personnel. We
may resort to litigation to enforce our patents or protect trade secrets or
know-how, as well as to defend against infringement charges. A negative
determination in such proceedings could subject us to significant liabilities or
require us to seek licenses from third parties. Although patent and intellectual
property disputes in the medical device area have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, we cannot
assure you that necessary licenses would be available to us on satisfactory
terms, if at all. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling certain of our products, and could materially
adversely affect us.
We depend on collaborative arrangements.
If we commercialize our GlucoWatch system, we will depend upon
Yamanouchi Pharmaceutical Co., Ltd. to market and distribute the GlucoWatch
system in Japan. We do not have any marketing or distribution agreements for the
GlucoWatch system other than the Yamanouchi collaboration. One of our priorities
is to establish an alliance or alliances for the commercialization of the
GlucoWatch system in North America and Europe. The purpose of such an alliance
or alliances is for us to secure certain commercialization functions, such as
distribution, sales and customer service. We are in discussions with several
companies regarding this objective. Some of the companies are international in
scope and would provide the requisite commercialization functions worldwide;
however, it is not likely that such a worldwide commercialization partner, if
obtained, will be in place before we receive FDA approval, assuming such
approval occurs and is in second quarter 2000. There can be no assurance that we
will enter into an agreement with a worldwide commercialization partner. Other
companies focus on certain geographies and/or certain commercialization
functions. We are evaluating out-sourced capabilities for launch without a
worldwide commercialization alliance. There can be no assurance that we will be
able to out-source certain commercialization capabilities for launch. We cannot
assure you that such third parties will not, for competitive reasons, support,
directly or
16.
<PAGE>
indirectly, a company or product that competes with one of our products.
Furthermore, any dispute between us and such a third party might require us to
initiate or defend against expensive litigation or arbitration proceedings. If
such a third party terminates an arrangement, cannot fund or otherwise satisfy
its obligations under its arrangements, or significantly disputes or breaches a
contractual commitment, then we would likely be required to seek an alternative
third party. We cannot assure you that we would be able to reach agreement with
a replacement third party. If we were unable to find a replacement third party,
we might not be able to perform or fund the activities of the current third
party. Even if we were able to perform and fund these activities, our capital
requirements would increase substantially. Additionally, we may choose to
self-fund certain research and development projects in order to exploit our
technologies. If these activities result in a commercial product, they will help
our long-term operating results but will negatively affect our short-term
operating results. Furthermore, as discussed above, we lack marketing,
manufacturing, distribution and sales experience in the medical device field.
Third parties may not reimburse patients, hospitals and physicians for the costs
of medical devices.
Successful commercialization of our products may depend in part on the
availability of reimbursement from third-party healthcare payers, such as
private insurance plans and the government. There can be no assurance that such
reimbursement will be available. Third-party payers are increasingly attempting
to contain healthcare costs by limiting both coverage and the level of
reimbursement for new therapeutic and diagnostic products. There can be no
assurance that adequate levels of reimbursement will be available to enable us
to achieve market acceptance of the GlucoWatch system or other new products
under development or to maintain price levels sufficient to realize an
appropriate return on our investment. In certain international countries, the
period of time needed to obtain such reimbursement can be lengthy. We may delay
the launch of our products in certain countries until eligibility for
reimbursement is established. This could potentially harm our business,
financial condition and results of operations.
17.
<PAGE>
We may need additional financing and it may not be available.
In order to continue to develop our diagnostic products, we will
require substantial resources to conduct research and development and clinical
trials necessary to bring our products to market and to establish production and
marketing capabilities. We may seek additional funding through public or private
financings, including debt or equity financings. We may also seek other
arrangements, including collaborative arrangements. Any additional equity
financings may dilute the holdings of current stockholders. Debt financing, if
available, may restrict our ability to issue dividends in the future and take
other actions. We may not be able to obtain adequate funds when we need them
from financial markets or arrangements with commercialization partners or other
sources. Even if funds are available, they may not be on acceptable terms. If we
cannot obtain sufficient additional funds, we may have to delay, scale back or
eliminate some or all of our research and product development programs or
license or sell products or technologies that we would otherwise seek to develop
ourselves. We believe that our existing cash, cash equivalents and investments,
plus cash from revenues, other fundings (such as financings or potential product
funding collaborations), and earnings from investments, will suffice to meet our
operating expenses, debt servicing and repayments, and capital expenditure
requirements at least for the next twelve months. The amounts and timing of
future expenditures will depend on progress of ongoing research and development,
results of clinical trials, rates at which operating losses are incurred,
executing possible commercialization agreements, developing our products,
manufacturing of the GlucoWatch system, the FDA regulatory process, and other
factors, many of which are beyond our control.
We are highly leveraged and may be unable to service our debt.
As of March 31, 2000, we had indebtedness of approximately $46.6
million. The degree to which we are leveraged could materially adversely affect
our ability to obtain financing for working capital, commercialization of
products or other purposes and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt service
obligations depends upon our future performance, which will depend upon
financial, business and other factors, many of which are beyond our control.
Although we believe our cash flows will be adequate to meet our interest
payments, we cannot assure you that we will continue to generate cash flows in
the future sufficient to cover our fixed charges or to permit us to satisfy any
redemption obligations pursuant to our indebtedness. If we cannot generate cash
flows in the future sufficient to cover our fixed charges or to permit us to
satisfy any redemption obligations pursuant to our indebtedness, and we cannot
borrow sufficient funds either under our credit facilities or from other
sources, we may need to refinance all or a portion of our existing debt, to sell
all or a portion of our assets, or to sell equity securities. There is no
assurance that we could successfully refinance, sell our assets or sell equity
securities, or, if we could, we cannot give any assurance as to the amount of
proceeds we could realize. In the event of insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding-up of our business or upon default or
acceleration relating to our debt obligations, our assets will first be
available to pay the amounts due under our debt obligations. Holders of Common
Stock would only receive the assets remaining, if any, after payment of all
indebtedness and any Preferred Stock.
18.
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We have incurred substantial losses, have a history of operating losses, have an
accumulated deficit and expect continued operating losses.
We reported a net loss from continuing operations of $5.1 million
for the quarter ended March 31, 2000 and have experienced annual operating
losses since our inception. We expect to continue to incur operating losses
at least until we have significant sales, if we ever do, of the GlucoWatch
system. We cannot assure you that we will generate significant revenues or
achieve profitability. We do not have experience in manufacturing, marketing
or selling our medical device products. Our future development efforts may
not result in commercially viable products. We may fail in our efforts to
introduce our products or to obtain required regulatory clearances. Our
products may never gain market acceptance, and we may never generate revenues
or achieve profitability. Our revenues to date have been derived primarily
from product development and licensing fees related to our products under
development and manufacturing and royalty revenues from our discontinued
operations, including Nicotrol--Registered Trademark-- (Pharmacia AB,
Stockholm, Sweden) nicotine patch and the Fempatch--Registered Trademark--
(Warner-Lambert Co., Morris Plains, New Jersey) system. As a result of the
sale of our drug delivery business, we will no longer receive manufacturing
revenue or royalty payments from the Nicotrol patch or the Fempatch system.
If we obtain regulatory approvals, we expect that a substantial portion of
our future revenues will be derived from sales of the GlucoWatch system and
other diagnostic products currently under development.
We may be subject to product liability claims.
The design, development, manufacture and use of our medical products
involve an inherent risk of product liability claims and associated adverse
publicity. Producers of medical products may face substantial liability for
damages in the event of product failure or allegations that the product caused
harm. We currently maintain product liability insurance, but it is expensive and
difficult to obtain and may not be available in the future on acceptable terms.
We cannot assure you that we will not be subject to product liability claims,
that our current insurance will cover any claims, or that adequate insurance
will continue to be available on acceptable terms in the future. In the event we
are held liable for damages in excess of the limits of our insurance coverage,
or if any claim or product recall creates significant adverse publicity, our
business, financial condition and results of operations could be materially
adversely affected.
We may not be able to retain or hire key personnel.
Our ability to operate successfully and manage our potential future
growth significantly depends upon retaining key scientific, technical, sales,
marketing, managerial and financial personnel, and attracting and retaining
additional highly qualified scientific, technical, sales, marketing, managerial
and financial personnel. We face intense competition for qualified personnel in
these areas, and we cannot assure you that we will be able to attract and retain
qualified personnel. The loss of key personnel or our inability to hire and
retain additional qualified personnel in the future could adversely affect our
business, financial condition and operating results.
19.
<PAGE>
Our stock price is volatile.
The trading price of our Common Stock fluctuates substantially in
response to factors such as, but not limited to, announcements by us or our
competitors of results of regulatory approval filings or clinical trials or
testing, developments or disputes governing proprietary rights, technological
innovations or new commercial products, government regulatory action, general
conditions in the medical technology industry, changes in securities analysts'
recommendations, or other events or factors, many of which are beyond our
control. In addition, the stock market in general has experienced extreme price
and volume fluctuations in recent years and even in recent months that have
particularly affected the market prices of many medical technology companies,
unrelated to the operating performance of these companies. Fluctuations or
decreases in the trading price of our Common Stock may adversely affect the
market for our Common Stock. In the past, following periods of volatility in the
market price for a company's securities, securities class action litigation
often has been instituted. Such litigation could result in substantial costs and
a diversion of management attention and resources, which could have a material
adverse effect on our business, financial condition and operating results.
Our Restated Certificate of Incorporation and Bylaws have anti-takeover
provisions.
Our Restated Certificate of Incorporation and Bylaws contain several
provisions that may make the acquisition of control of Cygnus more difficult or
expensive. The Certificate of Incorporation and Bylaws, among other things: (i)
provide that directors may be removed only for cause and only upon the
affirmative vote of the holders of at least a majority of the outstanding shares
of voting stock entitled to vote for such directors, (ii) permit the remaining
directors (but not the stockholders, unless the directors so resolve) to fill
vacancies and newly created directorships on the Board, (iii) eliminate the
ability of stockholders to act by written consent and (iv) require the vote of
stockholders holding at least 66 2/3% of the outstanding shares of voting
stock to amend, alter or repeal the Bylaws and certain provisions of the
Restated Certificate of Incorporation, including the provisions described in (i)
through (iv). Such provisions may make the removal of incumbent directors more
difficult and time consuming and may have the effect of discouraging a tender
offer or other takeover attempt not previously approved by the Board of
Directors. Under the Restated Certificate of Incorporation, the Board of
Directors also has the authority to issue shares of Preferred Stock in one or
more series and to fix the powers, preferences and rights of any such series
without stockholder approval. The Board of Directors could, therefore, issue,
without stockholder approval, Preferred Stock with voting and other rights that
could adversely affect the voting power of the holders of Common Stock and could
make it more difficult for a third party to gain control of Cygnus. In addition,
we have adopted a Stockholder Rights Plan which, under certain circumstances,
would significantly dilute the equity interest of persons seeking to acquire
control over us without the prior approval of the Board of Directors.
20.
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We do not pay dividends.
We have never declared or paid cash dividends on our Common Stock. Our
current bank term loan agreement precludes us from paying dividends to
stockholders. We currently intend to retain any earnings for use in our business
and therefore do not anticipate paying any dividends in the future.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in our Annual Report on Form 10-K for the year
ended December 31, 1999.
21.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
The following exhibits are filed herewith or incorporated by reference:
<TABLE>
<S> <C>
3.01 Bylaws of the Registrant, as amended.
3.02 Restated Certificate of Incorporation of the Registrant, as
amended to date.
4.01 Specimen of Common Stock certificate of the Registrant,
incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement Form S-1 No. 33-38363.
4.02 Form of Senior Indenture incorporated herein by reference
to Exhibit 4.1 filed with our Registration Statement on
Form S-3 (File No. 33-39275) declared effective by the
Securities and Exchange Commission on November 12, 1997
(the "November 1997 Form S-3").
4.03 Form of Subordinated Indenture incorporated herein by
reference to Exhibit 4.2 filed with our November 1997 Form
S-3.
4.04 Form of Senior Debt Security (included in Exhibit 4.1)
incorporated herein by reference to Exhibit 4.3 filed with
our November 1997 Form S-3.
4.05 Form of Subordinated Debt Security (included in Exhibit
4.2) incorporated herein by reference to Exhibit 4.4 filed
with our November 1997 Form S-3.
4.06 First Supplemental Indenture dated as of February 2, 1998
by and between Cygnus, Inc. and State Street Bank and
Trust Company of California, N.A. incorporated by reference
to Exhibit 4.5 of our Form 8-K dated February 4, 1998.
4.07 Second Supplemental Indenture, dated as of October 28,
1998, by and between Cygnus, Inc. and State Street Bank and
Trust Company of California, N.A., to the Indenture dated
as of February 3, 1998 and the First Supplemental Indenture
dated as of February 3, 1998, incorporated by reference to
Exhibit 4.8 of our Form 8-K filed on October 30, 1998.
</TABLE>
22.
<PAGE>
<TABLE>
<S> <C>
4.08 Amended and Restated Rights Agreement dated October 27, 1998
between Cygnus, Inc. and ChaseMellon Shareholder Services,
L.L.C. (the "Rights Agent" successor to Chemical Trust), which
includes the Certificate of Determination for the Series A
Junior Participating Preferred Stock as Exhibit A, the form of
Rights Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C, incorporated by
reference to Exhibit 99.2 of the Registrant's Form 8A/A filed
on December 14, 1998, Registration No. 0-19962.
4.09 Registration Rights Agreement dated June 30, 1999 between
Cygnus, Inc. and Cripple Creek Securities, LLC., incorporated
by reference to Exhibit 4.11 of our Form 10-Q for the quarter
ended June 30, 1999.
4.10 Registration Rights Agreement dated June 29, 1999 between
Cygnus, Inc. and the listed investors on Schedule I
thereto, incorporated by reference to Exhibit 4.12 of our
Form 10-Q for the quarter ended June 30, 1999.
10.109 Amendment No. 2 to our Structured Equity Line Flexible
Financing Agreement.
</TABLE>
b) REPORTS ON FORM 8-K
We did not file any Reports on Form 8-K during the quarter ended March
31, 2000.
23.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYGNUS, INC.
Date: April 25, 2000 By: /s/ John C Hodgman
------------------- -----------------------------------
John C Hodgman
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: April 25, 2000 By: /s/ Craig W. Carlson
------------------- -------------------------------------
Craig W. Carlson
Chief Financial Officer
(Principal Accounting Officer)
24.
<PAGE>
INDEX OF EXHIBITS
The following exhibits are included herein:
Exhibit 27 Financial Data Schedule.
Exhibit 3.01 Bylaws of the Registrant, as amended.
Exhibit 3.02 Restated Certificate of Incorporation of the
Registrant, as amended to date.
Exhibit 10.109 Amendment No. 2 to our Structured Equity Line
Flexible Financing Agreement.
25.
<PAGE>
BYLAWS
OF
CYGNUS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 - OFFICES......................................................................................1
1.1 Registered Office..............................................................................1
1.2 Other Offices..................................................................................1
ARTICLE 2 - MEETINGS OF STOCKHOLDERS.....................................................................1
2.1 Place of Meetings..............................................................................1
2.2 Annual Meetings................................................................................1
2.3 Special Meetings...............................................................................1
2.4 Notice of Meetings.............................................................................2
2.5 Advance Notice of Stockholder Nominees and Stockholder Business................................2
2.6 Quorum.........................................................................................3
2.7 Adjourned Meeting; Notice......................................................................4
2.8 Voting.........................................................................................4
2.9 Validation of Meetings; Waiver of Notice; Consent..............................................4
2.10 Stockholder Action by Written Consent Without a Meeting........................................5
2.11 Record Date for Stockholder Notice; Voting; Giving Consents....................................5
2.12 Proxies........................................................................................5
2.13 Inspectors of Election.........................................................................5
2.14 Organization...................................................................................6
2.15 List of Stockholders Entitled to Vote..........................................................6
ARTICLE 3 - DIRECTORS....................................................................................7
3.1 General Powers.................................................................................7
3.2 Number; Election; Tenure and Qualification.....................................................7
3.3 Resignation and Vacancies......................................................................7
3.4 Removal of Directors...........................................................................8
3.5 Regular Meetings...............................................................................8
3.6 Special Meetings...............................................................................8
3.7 Notice of Special Meetings.....................................................................8
3.8 Meetings by Telephone Conference Calls.........................................................9
3.9 Quorum.........................................................................................9
3.10 Action at Meeting..............................................................................9
3.11 Waiver of Notice...............................................................................9
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
3.12 Adjournment....................................................................................9
3.13 Notice of Adjournment..........................................................................9
3.14 Action by Consent..............................................................................9
3.15 Committees.....................................................................................9
3.16 Compensation of Directors.....................................................................10
3.17 Approval of Loans to Officers.................................................................10
ARTICLE 4 - OFFICERS....................................................................................10
4.1 Enumeration...................................................................................10
4.2 Election......................................................................................10
4.3 Qualification.................................................................................11
4.4 Tenure........................................................................................11
4.5 Resignation and Removal.......................................................................11
4.6 Vacancies.....................................................................................11
4.7 Chairman of the Board and Vice Chairman of the Board..........................................11
4.8 President.....................................................................................11
4.9 Vice Presidents...............................................................................11
4.10 Secretary and Assistant Secretaries...........................................................12
4.11 Chief Financial Officer.......................................................................12
4.12 Authority and Duties of Officers..............................................................12
4.13 Bonded Officers...............................................................................12
4.14 Salaries......................................................................................13
ARTICLE 5 - CAPITAL STOCK...............................................................................13
5.1 Issuance of Stock.............................................................................13
5.2 Certificates of Stock.........................................................................13
5.3 Transfers.....................................................................................13
5.4 Lost, Stolen or Destroyed Certificates........................................................14
ARTICLE 6 - INDEMNIFICATION.............................................................................14
6.1 Indemnification of Directors, Officers, Employees and other Agents............................14
6.2 Insurance.....................................................................................15
6.3 Indemnification Contracts.....................................................................15
ARTICLE 7 - GENERAL PROVISIONS..........................................................................15
-II-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
7.1 Fiscal Year...................................................................................15
7.2 Corporate Seal................................................................................16
7.3 Execution of Investments......................................................................16
7.4 Checks; Drafts; Evidences of Indebtedness.....................................................16
7.5 Record Date for Purposes Other than Notice and Voting.........................................16
7.6 Voting of Securities..........................................................................16
7.7 Evidence of Authority.........................................................................16
7.8 Reliance Upon Books and Records...............................................................16
7.9 Certificate of Incorporation..................................................................17
7.10 Severability..................................................................................17
7.11 Certificate and Inspection of Bylaws..........................................................17
7.12 Business Combinations with Interested Stockholders............................................17
ARTICLE 8 - AMENDMENTS..................................................................................17
ARTICLE 9 - DISSOLUTION.................................................................................17
ARTICLE 10 - CUSTODIAN...................................................................................18
10.1 Appointment of a Custodian in Certain Cases...................................................18
10.2 Duties of Custodian...........................................................................18
</TABLE>
-III-
<PAGE>
BYLAWS
OF
CYGNUS, INC.
(a Delaware corporation)
ARTICLE 1 - OFFICES
1.1 REGISTERED OFFICE. The registered office of the corporation shall be
fixed in the Certificate of Incorporation of the corporation.
1.2 OTHER OFFICES. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE 2 - MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
principal executive office of the corporation.
2.2 ANNUAL MEETINGS. Annual meetings of the stockholders shall be held at
such date and time as shall be designated from time to time by resolution of the
Board of Directors and stated in the notice of the meeting. At the meeting,
directors shall be elected, and any other proper business may be transacted.
2.3 SPECIAL MEETINGS. Special meetings of stockholders may be called, for
any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the
President, or (iii) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships) at the time any such
resolution is presented to the Board of Directors for adoption, on such date,
and at such time as the Board of Directors shall fix.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the President, or the
Secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The Board of Directors shall
determine the time and place of such special meeting, which shall be held not
less than thirty-five (35) nor more than one hundred twenty (120) days after the
date of the receipt of the request. Upon determination of the time and place of
the meeting, the officer receiving the request shall cause notice to be given to
the stockholders entitled to vote, in accordance with the provisions of Section
2.4 of these Bylaws. If the notice is not given within sixty (60) days after the
receipt of the request, the person or persons requesting the meeting may set the
time and place of the meeting and give the notice. Nothing contained in this
paragraph shall be construed as limiting, fixing, or affecting the time when a
meeting of stockholders called by action of the Board of Directors may be held.
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2.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of a
special meeting shall state, in addition, the purpose or purposes for which the
meeting is called. The notice of an annual meeting shall state those matters
with the Board of Directors, at the time of giving notice, intends to present
for action by the stockholders (but any proper matter may be presented at the
meeting for such action). If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his or her
address as it appears on the records of the corporation.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS. (a) At
an annual meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be: (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive officers of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the (60th) day prior to such annual meeting or, in the event public
announcement of the date of such annual meeting is first made by the corporation
fewer than seventy (70) days prior to the date of such annual meeting, the close
of business on the tenth (10th) day following the date on which public
announcement of the date of such meeting is first made by the corporation. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his or her capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (a). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions
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of this paragraph (a), and, if he or she should so determine, such chairman
shall so declare at the meeting that any such business not properly brought
before the meeting shall not be transacted.
(b) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (b) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (b). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 2.5. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholders, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (a) of this Section 2.5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (b). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he or she should so determine, such chairman shall so
declare at the meeting, and the defective nomination shall be disregarded.
(c) For purposes of this Section 2.5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
2.6 QUORUM. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy duly
authorized, shall constitute a quorum at all meetings of the stockholders for
the transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) by vote of the holders of a majority of the shares
represented thereat present in person or represented by proxy duly authorized,
shall have power to adjourn the meeting in accordance with Section 2.7 of these
Bylaws.
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When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the law or the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of the question. The
stockholders present at a duly called or held meeting at which a quorum is
initially present may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the stock
required to initially constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time
and place, unless these Bylaws otherwise require, notice need not be given of
the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting the corporation may
transact any business that might have been transacted at the original meeting.
If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.8 VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 (or
their successors) of the General Corporation Law of Delaware (relating to voting
rights of fiduciaries, pledgors and joint owners, and to voting trusts and other
voting agreements).
Except as may otherwise be provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder. No stockholder will be permitted to
cumulate votes at any election of directors. At all meetings of stockholders for
the election of directors, a plurality of the votes cast shall be sufficient to
elect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. The transactions of
any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. The waiver of notice or consent or approval need not
specify either the business to be transacted or the purpose of any annual or
special meeting of stockholders. All such waivers, consents, and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting. Any stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law
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to be included in the notice of the meeting but not so included, if that
objection is expressly made at the meeting.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. The
stockholders of the corporation may not take action by written consent without a
meeting. Any such actions must be taken at a duly called annual or special
meeting.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. For
purposes of determining the stockholders entitled to notice of any meeting or to
vote thereat, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days or less than ten (10) days before the
date of any such meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote, notwithstanding any transfer
of any shares on the books of the corporation after the record date.
If the Board of Directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
7.5 of these Bylaws.
2.12 PROXIES. Every person entitled to vote for directors, or on any other
matter, shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
applicable provisions of the General Corporation Law of Delaware.
2.13 INSPECTORS OF ELECTION. Before any meeting of stockholders, the Board
of Directors may appoint an inspector or inspectors of election to act at the
meeting or its adjournment. If no inspector of election is so appointed, then
the chairman of the meeting may, and on the request of any stockholder or
stockholder's proxy shall, appoint an inspector or inspectors of election to act
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting pursuant to the request of one (1) or
more stockholders or proxies, then the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any
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person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any stockholder
or a stockholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election
or vote with fairness to all stockholders.
2.14 ORGANIZATION. The Chairman of the Board of Directors, or if a Chairman
has not been appointed or is absent, the President, or in the absence of the
President, the most senior Vice President present, shall call the meeting of the
stockholders to order, and shall act as chairman of the meeting. In the absence
of the Chairman of the Board, the President, and all of the Vice Presidents, the
stockholders shall appoint a chairman for such meeting. The Board of Directors
of the corporation shall be entitled to make such rules or regulations for the
conduct of meetings of stockholders as it shall deem necessary, appropriate or
convenient. Subject to such rules and regulations of the Board of Directors, if
any, the chairman of any meeting of stockholders shall determine the order of
business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business. Unless and to
the extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure. The Secretary of the corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
Secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to
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be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE 3 - DIRECTORS
3.1 GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the director of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
3.2 NUMBER; ELECTION; TENURE AND QUALIFICATION. The Board of Directors
shall consist of one or more members. The number of directors shall be seven
(7), and thereafter shall be fixed from time to time by resolution of the Board
of Directors.
Each director shall be elected by the stockholders at the annual
meeting and shall hold office until the next annual meeting and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation or removal. No reduction in the authorized number of directors shall
have the effect of removing any director before that director's term of office
expires. Directors need not be stockholders of the corporation.
3.3 RESIGNATION AND VACANCIES. Any director may resign effective on giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of one or more directors is
effective at a future time, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective.
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the Certificate of Incorporation, vacancies and newly created directorships of
such class or classes or series may
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be filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
under the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the applicable provisions of the General
Corporation Law of Delaware.
3.4 REMOVAL OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock, no director shall be removed without cause. Subject
to any limitations imposed by law or the Certificate of Incorporation, the Board
of Directors, or any individual director, may be removed from office at any time
with cause by the affirmative vote of holders of at least a majority of the
voting power of all the then-outstanding shares of voting stock of the
corporation entitled to vote at an election of directors.
3.5 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
3.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
3.7 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be given to each director in person,
by telephone, by facsimile transmission or be telegram sent to his or her
business or home address at least forty-eight (48) hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
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3.8 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of any
committee designated by the directors may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
3.9 QUORUM. A majority of the authorized number of directors shall
constitute a quorum at all meetings of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third (1/3) of the number
of directors so fixed constitute a quorum.
3.10 ACTION AT MEETING. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these Bylaws. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for that meeting.
3.11 WAIVER OF NOTICE. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof, whether before or after the meeting, or (ii)
who attends the meeting without protesting, prior thereto or at is commencement,
the lack of notice to such directors. All such waivers, consents, and approvals
shall be filed with the corporate records or made part of the minutes of the
meeting. A waiver of notice need not specify the purpose of any regular or
special meeting of the Board of Directors.
3.12 ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.13 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an
adjourned meeting need not be given unless the meeting is adjourned for more
than forty-eight (48) hours. If the meeting is adjourned for more than
forty-eight (48) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the manner
specified in Section 3.7 of these Bylaws, to the directors who were not present
at the time of the adjournment.
3.14 ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
3.15 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the authorized number of directors, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified
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member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members of the committee present at any
meeting and not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors and subject to the provisions of the General Corporation Law
of the State of Delaware, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to be
affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the Board of
Directors.
3.16 COMPENSATION OF DIRECTORS. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.17 APPROVAL OF LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiary, including any officer or employee who
is a director of the corporation or its subsidiary, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE 4 - OFFICERS
4.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Chief Financial Officer and such other officers with
such other titles as the Board of Directors shall determine, including a
Chairman of the Board, a Vice Chairman of the Board, and one or more Vice
Presidents and Assistant Secretaries. The Board of Directors may appoint, or may
empower the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
4.2 ELECTION. The President, Chief Financial Officer and Secretary shall be
elected by the Board of Directors at its first meeting following the annual
meeting of stockholders.
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4.3 QUALIFICATION. The President need not be a director. No officer need be
a stockholder. Any two or more offices may be held by the same person.
4.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him, or until his or her earlier death,
resignation or removal.
4.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Subject to the rights, if any, of any officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the Board or, except in
case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
4.6 VACANCIES. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Chief Financial
Officer and Secretary. Each such successor shall hold office for the unexpired
term of his or her predecessor and until such successor is elected and
qualified, or until his or her earlier death, resignation or removal.
4.7 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. If the Board of
Directors appoints a Chairman of the Board, he or she shall, when present,
preside at all meetings of the Board of Directors. He or she shall perform such
duties and possess such powers as are usually vested in the office of the
Chairman of the Board or may be vested in him by the Board of Directors. If the
Board of Directors appoints a Vice Chairman of the Board, he or she shall, in
the absence or disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the Board of Directors.
4.8 PRESIDENT. The President shall be the chief operating officer of the
corporation. He or she shall also be the chief executive officer of the
corporation unless such title is assigned to a Chairman of the Board. The
President shall, subject to the direction of the Board of Directors, have
general supervision and control of the business of the corporation. Unless
otherwise provided by the directors, he or she shall preside at all meetings of
the stockholders and of the Board of Directors (except as provided in Section
4.7 above). The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
4.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be
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subject to all the restrictions upon the President. The Board of Directors may
assign to any Vice President, the title of Executive Vice President, Senior Vice
President or any other title selected by the Board of Directors.
4.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
4.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and directors, whenever they request
it, an account of all of his or her transactions as Chief Financial Officer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
these Bylaws.
4.12 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively have
such authority and perform such duties in the management of the business of the
corporation as may be designated from time to time by the Board of Directors or
the stockholders.
4.13 BONDED OFFICERS. The Board of Directors may require any officer to
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of his or her duties and for the
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restoration to the corporation of all property in such officer's possession or
under such officer's control belonging to the corporation.
4.14 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 5 - CAPITAL STOCK
5.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
5.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Chief Financial
Officer, or the Secretary or an Assistant Secretary of the corporation. Any or
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Bylaws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
5.3 TRANSFERS. Subject to the restrictions, if any, stated or noted on the
stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such
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proof of authority or the authenticity of signature as the corporation or its
transfer agent may reasonably require. Except as may be otherwise required by
law, by the Certificate of Incorporation or by these Bylaws, the corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to such stock, regardless of any transfer, pledge
or other disposition of such stock until the shares have been transferred on the
books of the corporation in accordance with the requirements of these Bylaws.
5.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
ARTICLE 6 - INDEMNIFICATION
6.1 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall, to the fullest extent permitted by the General Corporation
Law of Delaware, indemnify any director or officer which it shall have power to
indemnify against any expenses, liabilities or other matters referred to in or
covered by the relevant sections of the General Corporation Law of Delaware. The
indemnification provided for in this Article (i) shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any bylaw,
agreement or vote of stockholders or disinterested directors or otherwise, both
as to action in their official capacities and as to action in another capacity
while holding such office, (ii) shall continue as to a person who has ceased to
be a director or officer and (iii) shall inure to the benefit of the heirs,
executors and administrators of such a person. The corporation's obligation to
provide indemnification under this Article shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance coverage
under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he or
she is or was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation as authorized by relevant sections
of the General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6.1 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this
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Bylaw is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that such person, his or
her testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article of all such persons who
are determined by the corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the corporation which may exist
from time to time, Section 145 of the General Corporation Law of Delaware (or
its successor) shall, for the purposes of this Article, be interpreted as
follows: "other enterprises" shall be deemed to include such an employee benefit
plan, including, without limitation, any plan of the corporation which is
governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974," as amended from time to time; the corporation shall be deemed to
have requested a person to serve an employee benefit plan where the performance
by such person of his or her duties to the corporation also imposes duties on,
or otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to such Act of Congress shall be deemed "fines";
and action taken or omitted by a person with respect to an employee benefit plan
in the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
6.2 INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
6.3 INDEMNIFICATION CONTRACTS. The Board of Directors is authorized to
cause the corporation to enter into indemnification contracts with any director,
officer, employee or agent of the corporation or any person serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
employee benefit plans, providing indemnification rights to such person. Such
rights may be greater than those provided in this Article 6.
ARTICLE 7 - GENERAL PROVISIONS
7.1 FISCAL YEAR. The fiscal year of the corporation shall be determined by
resolution of the Board of Directors.
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7.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
7.3 EXECUTION OF INVESTMENTS. The President or the Chief Financial Officer
shall have power to execute and deliver on behalf and in the name of the
corporation any instrument requiring the signature of an officer of the
corporation, except as otherwise provided in these Bylaws, or where the
execution and delivery of such an instrument shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
7.4 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. From time to time, the Board
of Directors shall determine by resolution which person or persons may sign or
endorse all checks, drafts, other orders for payment of money, notes or other
evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
7.5 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of
determining the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided by law.
If the Board of Directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the date on which the Board of Directors adopts the
applicable resolution or the sixtieth (60th) day before the date of that action,
whichever is later.
7.6 VOTING OF SECURITIES. Except as the directors may otherwise designate,
the President, any Vice President, the Secretary or Chief Financial Officer may
waive notice of, and act as, or appoint any person or persons to act as, proxy
or attorney-in-fact for this corporation (with or without power of substitution)
at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
7.7 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
7.8 RELIANCE UPON BOOKS AND RECORDS. A member of the Board of Directors, or
a member of any committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon records of the corporation and upon such information, opinions, reports or
statements presented to the corporation by any of the corporation's officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the member reasonably believes are within such other person's
professional
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or expert competence and who has been selected with reasonable care by or on
behalf of the corporation.
7.9 CERTIFICATE OF INCORPORATION. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
These Bylaws are subject to the provisions of the Certificate of Incorporation
and applicable law.
7.10 SEVERABILITY. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
7.11 CERTIFICATE AND INSPECTION OF BYLAWS. The original or a copy of these
Bylaws, as amended or otherwise altered to date, certified by the Secretary,
shall be kept at the corporation's principal executive office and shall be open
to inspection by the stockholders of the corporation, at all reasonable times
during office hours.
7.12 BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS. The corporation
shall not be governed by Section 203 (or its successor) of the General
Corporation Law of the State of Delaware.
ARTICLE 8 - AMENDMENTS
The Bylaws may be altered or amended or new Bylaws may be adopted by
the affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares entitled to vote. The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors in the Certificate of Incorporation, to adopt, amend or repeal the
Bylaws.
ARTICLE 9 - DISSOLUTION
If it should be deemed advisable in the judgment of the Board of
Directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 (or its successor) of the General Corporation Law of Delaware and
setting forth the names and residences of the directors and officers shall be
executed, acknowledged, and filed and shall become effective in accordance with
Section 103 (or its successor) of the General Corporation Law of Delaware. Upon
such certificate's being effective in accordance with Section 103 (or its
successor) of the General Corporation Law of Delaware, the corporation shall be
dissolved.
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Whenever all the stockholders entitled to vote on a dissolution
consent in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section 103
(or its successor) of the General Corporation Law of Delaware. Upon such consent
becoming effective in accordance with Section 103 (or its successor) of the
General Corporation Law of Delaware, the corporation shall be dissolved. If the
consent is signed by an attorney, then the original power of attorney or a
photocopy thereof shall be attached to and filed with the consent. The consent
filed with the Secretary of State shall have attached to it the affidavit of the
Secretary or some other officer of the corporation stating that the consent has
been signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a certification
by the Secretary or some other officer of the corporation setting forth the
names and residences of the directors and officers of the corporation.
ARTICLE 10 - CUSTODIAN
10.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES. The Court of Chancery,
upon application of any stockholder, may appoint one or more persons to be
custodians and, if the corporation is insolvent, to be receivers, of and for the
corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors;
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the Board of Directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
10.2 DUTIES OF CUSTODIAN. The custodian shall have all the powers and title
of a receiver appointed under Section 291 (or its successor) of the General
Corporation Law of Delaware, but the authority of the custodian shall be to
continue the business of the corporation and not to liquidate its affairs and
distribute its assets, except when the Court of Chancery otherwise orders and
except in cases arising under Sections 226(a)(3) (or its successor) or 352(a)(2)
(or its successor) of the General Corporation Law of Delaware.
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EXHIBIT 3.02
RESTATED CERTIFICATE OF INCORPORATION
OF
CYGNUS, INC.
The undersigned, John C Hodgman and Barbara G. McClung, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of Cygnus, Inc., a Delaware Corporation.
2. The original Certificate of Incorporation of CYGNUS THERAPEUTIC SYSTEMS,
INC. was filed with the Secretary of State of Delaware on March 15, 1994. The
corporate name was changed to CYGNUS, INC. in the Agreement and Plan of Merger
filed with the Secretary of State of Delaware on September 11, 1995.
3. The Certificate of Incorporation of CYGNUS, INC. shall be amended and
restated to read in full as follows:
ARTICLE I.
The name of the corporation is CYGNUS, INC. (the "Corporation").
ARTICLE II.
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle and the name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV.
The Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of all classes of stock which the Corporation has authority to issue is
Sixty Million (60,000,000) shares, consisting of Fifty-five Million (55,000,000)
shares of Common Stock, each having a par value of one-tenth of one cent ($.001)
(the "Common Stock") and Five Million (5,000,000) shares of Preferred Stock,
each having a par value of one tenth of one cent ($.001) (the "Preferred
Stock").
As to the Preferred Stock of the Corporation, the Board of Directors shall
have the power to issue any additional shares of Preferred Stock from time to
time in one or more series. The Board of Directors is hereby authorized to fix
or alter from time to time the voting powers and such designations, preferences
and relative, participating, optional or other special rights of the shares of
each such series and the qualifications, limitations or restrictions of any
wholly unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series, or any of them.
<PAGE>
The Board of Directors is further authorized to increase or decrease (but
not below the number of shares of any such series then outstanding) the number
of shares of any series, the number of which was fixed by it, subsequent to the
issue of shares of such series then outstanding, subject to the limitations and
restrictions stated in the resolution of the Board of Directors originally
fixing the number of shares of such series. If the number of shares of any
series is so decreased, then the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
ARTICLE V.
The Corporation is to have perpetual existence.
ARTICLE VI.
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VII.
The number of directors which constitute the whole Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation. Subject to
the rights of the holders of any series of Preferred Stock, no director shall be
removed without cause. Subject to any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time with
cause by the affirmative vote of the holders of a majority of the voting power
of all the then-outstanding shares of voting stock of the Corporation entitled
to vote at an election of directors.
ARTICLE VIII.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation. Subject to Article 8 of the Bylaws, the Bylaws
may also be altered or amended or new Bylaws adopted by the affirmative vote of
least two-thirds (2/3) of the combined voting power of all the then-outstanding
shares of the Corporation entitled to vote.
ARTICLE IX.
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
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ARTICLE X.
Each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director. No stockholder will be permitted to cumulate votes at
any election of directors.
Subject to the rights of the holders of any series of Preferred Stock, any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes, and any newly created directorships
resulting from any increase in the number of directors, shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by the stockholders, except as otherwise provided
by law, be filled only by the affirmative vote of a majority of the directors
then in office, even though less than a quorum of the Board of Directors, and
not by the stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
ARTICLE XI.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XII.
No action shall be taken by the stockholders of the Corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws and no action shall be taken by the stockholders by written consent in
lieu of a meeting.
ARTICLE XIII.
Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of the capital stock
required by law or this Certificate of Incorporation, the affirmative vote of
the holders of at least two-thirds (2/3) of the combined voting power of all of
the then-outstanding shares of the Corporation entitled to vote shall be
required to alter, amend or repeal Articles VI, VII, VIII, IX, X, XI, XII, XIII
or any provision thereof.
ARTICLE XIV.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in Article XIII, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
* * *
3
<PAGE>
The foregoing Restated Certificate of Incorporation has been duly adopted
by this Corporation's Board of Directors and stockholders in accordance with the
applicable provisions of Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware.
Executed at Redwood City, California on April 24, 2000.
/S/ JOHN C HODGMAN
----------------------------------
John C Hodgman
President
/S/ BARBARA G. MCCLUNG
----------------------------------
Barbara G. McClung
Secretary
4
<PAGE>
EXHIBIT 10.109
AMENDMENT NO. 2
TO
STRUCTURED EQUITY LINE FLEXIBLE FINANCING(SM) AGREEMENT
THIS AMENDMENT NO. 2 to STRUCTURED EQUITY LINE FLEXIBLE FINANCING(SM)
AGREEMENT ("Amendment") is dated as of March 27, 2000 between Cripple Creek
Securities, LLC (the "Investor"), and Cygnus, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"). Capitalized
terms not defined herein shall have the meanings assigned to them in that
certain Structured Equity Line Flexible Financing(SM) Agreement dated as of June
30, 1999, as amended September 29, 1999 (the "Agreement"), between the Company
and the Investor.
W I T N E S S E T H :
WHEREAS, the Company and the Investor entered into the Agreement, pursuant
to which the Company may issue to the Investor, and the Investor shall purchase
from the Company, from time to time as provided therein, shares of the Company's
common stock, par value $0.001 per share (the "Common Stock"), for a maximum
aggregate Purchase Price of $30,000,000 (the "Maximum Offering Amount"); and
WHEREAS, the Company and the Investor desire to amend the Agreement
effective as of April 1, 2000, as provided herein, so as to increase the amount
the Company may issue to the Investor, and the Investor shall purchase from the
Company, in any Investment Period beginning on or after April 1, 2000;
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
AGREEMENT
Section 1.1 Effective as of April 1, 2000, Section 2.1(b) of the Agreement
is hereby amended and restated in its entirety as follows:
"(b) MANDATORY MONTHLY PURCHASES AT COMPANY'S ELECTION. If the Company, in
its sole discretion, elects to deliver a Mandatory Purchase Notice with respect
to any Investment Period in accordance with Section 2.3(a), then upon the
Company's delivery of such Mandatory Purchase Notice, the Investor shall be
obligated in such Investment Period to purchase ("Mandatory Purchase") from the
Company shares of Common Stock during such Investment Period for an aggregate
Purchase Price to be specified by the Company in the Mandatory Purchase Notice,
but not to exceed $1,000,000, subject to the adjustments and limitations imposed
by this Agreement (the "Minimum Obligation"). Upon receipt of a Mandatory
Purchase Notice, subject to the terms and conditions contained herein, the
Investor shall be obligated to
<PAGE>
purchase on one or more Closing Dates in respect of each such Mandatory Purchase
Date or Mandatory Purchase Dates as the Investor elects during the Investment
Period, shares of Common Stock for an aggregate Purchase Price equal to the
Minimum Obligation."
Section 1.2 Effective as of April 1, 2000, Section 2.1(c) of the Agreement
is hereby amended and restated in its entirety as follows:
"(c) ADDITIONAL AMOUNTS AT THE COMPANY'S ELECTION. For any Investment
Period during which the Company elects to obligate the Investor to make a
Mandatory Purchase, the Company may deliver to the Investor an Additional
Purchase Notice with respect to the same Investment Period in accordance with
Section 2.3(b). Upon any such delivery of an Additional Purchase Notice with
respect to an Investment Period, the Investor shall be obligated to purchase
shares of Common Stock from the Company (in addition to the Minimum Obligation)
during such Investment Period for an aggregate Purchase Price to be specified by
the Company in the Additional Purchase Notice, but not to exceed $3,000,000
(which individual purchases shall be at least $50,000 and multiples of $50,000
in excess thereof), subject to the adjustments and limitations imposed by this
Agreement (the "Additional Amount"). Upon receipt of such Additional Purchase
Notice, the Investor shall be obligated to purchase on each Closing Date in
respect of each such Additional Purchase Date or Additional Purchase Dates as
the Investor elects during the Investment Period to which such Additional
Purchase Notice relates, shares of Common Stock for an aggregate Purchase Price
equal to the Additional Amount."
Section 1.3 Effective as of April 1, 2000, Section 2.1(d) of the Agreement
is hereby amended and restated in its entirety as follows:
"(d) INVESTOR CALL. For any Investment Period with respect to which the
Company has timely delivered a Mandatory Purchase Notice, the Investor may
deliver to the Company an Investor Call Purchase Notice or Notices during such
Investment Period, subject to the Company's right to limit or cancel the
Investor Call Amount pursuant to Section 2.3(a)(ii) and Section 2.3(a)(iii).
Upon delivery of such an Investor Call Purchase Notice, the Company shall be
obligated to sell shares of Common Stock to the Investor (in addition to the
Minimum Obligation and the Additional Amount, if any) during the corresponding
Investment Period for an aggregate Purchase Price to be specified by the
Investor in the Investor Call Purchase Notice, but not to exceed an aggregate of
$3,000,000 for any Investment Period (which individual purchases shall be at
least $50,000 and multiples of $50,000 in excess thereof), subject to
adjustments and limitations imposed by this Agreement (the "Investor Call
Amount"). Upon delivery of such Investor Call Purchase Notice, the Investor
shall be obligated to purchase on each Closing Date in respect of each such Call
Purchase Date or Call Purchase Dates as the Investor elects during the
Investment Period to which such Investor Call Purchase Notice relates, shares of
Common Stock for an aggregate Purchase Price equal to the Investor Call Amount."
2
<PAGE>
ARTICLE II
MISCELLANEOUS
Section 2.1 NO THIRD PARTY BENEFICIARIES. This Amendment is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 2.2 GOVERNING LAW. This Amendment shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to such state's principles of conflict of laws.
Section 2.3 EXECUTION. This Amendment may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 2.4 Except as amended hereby, the Agreement shall remain unchanged
and in full force and effect.
[REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
Structured Equity Line Flexible Financing(SM) Agreement to be duly executed by
their respective authorized officers as of the date hereof.
CRIPPLE CREEK SECURITIES, LLC CYGNUS, INC.
By: /S/ ROBERT CHENDER By: /S/ CRAIG W. CARLSON
-------------------------------------- ---------------------------------
Name: Robert L. Chender Name: Craig Carlson
Title: Principal Title: Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 14,019
<SECURITIES> 18,413<F1>
<RECEIVABLES> 347
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,652
<PP&E> 13,280
<DEPRECIATION> 6,908
<TOTAL-ASSETS> 41,055
<CURRENT-LIABILITIES> 7,247
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> (4,032)
<TOTAL-LIABILITY-AND-EQUITY> 41,055
<SALES> 0
<TOTAL-REVENUES> 1,038
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 316
<INCOME-PRETAX> (5,015)
<INCOME-TAX> 100
<INCOME-CONTINUING> (5,115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,115)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
<FN>
<F1>This amount represents Short-Term Investments held by the Company at 3-31-2000.
</FN>
</TABLE>
