<PAGE> 1
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UNITED STATES
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 APRIL 1, 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 0-20083
-----------------------------
SPACELABS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1558809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15220 N.E. 40TH STREET, P.O. BOX 97013, REDMOND, WASHINGTON 98073
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (425) 882-3700
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 [ ]
Common stock, par value $.01 per share: 9,519,753 shares outstanding
as of April 28, 2000
================================================================================
<PAGE> 2
SPACELABS MEDICAL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- April 1, 2000 (unaudited) and December 31, 1999.............................. 2
Condensed Consolidated Statements of Operations (unaudited)
- Three Months Ended April 1, 2000 and April 3, 1999........................... 3
Condensed Consolidated Statements of Cash Flows (unaudited)
- Three Months Ended April 1, 2000 and April 3, 1999........................... 4
Notes to Condensed Consolidated Financial Statements............................... 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......................... 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K .................................................. 15
</TABLE>
<PAGE> 3
PART I.
Item 1. Financial Statements
SPACELABS MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 1, December 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ....................... $ 4,740 $ 2,562
Receivables ..................................... 65,117 85,399
Inventories ..................................... 79,609 74,015
Refundable income taxes ......................... 1,553 -
Prepaid expenses ................................ 2,683 2,989
Deferred income taxes ........................... 26,783 26,720
--------- ---------
Total current assets ................ 180,485 191,685
Property, plant and equipment, net ................. 63,145 64,310
Deferred income taxes .............................. 586 656
Other assets, net .................................. 34,608 35,014
--------- ---------
$ 278,824 $ 291,665
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings ........................... $ 960 $ 500
Current portion of long-term obligations ........ 5,821 3,548
Accounts payable and accrued expenses ........... 41,814 45,622
Deferred revenue ................................ 4,435 4,578
Taxes on income ................................. - 1,422
--------- ---------
Total current liabilities .......... 53,030 55,670
Long-term obligations .............................. 59,053 66,108
Shareholders' equity
Common stock and additional paid-in capital ..... 99,937 100,302
Treasury shares at cost ......................... (38,929) (39,845)
Accumulated other comprehensive loss ............ (6,073) (5,395)
Retained earnings ............................... 111,806 114,825
--------- ---------
Total shareholders' equity .............. 166,741 169,887
--------- ---------
$ 278,824 $ 291,665
========= =========
- --------------------------------------------------------------------------------------------------
Common shares outstanding .......................... 9,515 9,486
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(2)
<PAGE> 4
SPACELABS MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
April 1, 2000 April 3, 1999
(in thousands, except per share data)
- --------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Revenue ......................................... $ 61,626 $ 70,311
Cost of sales ................................... 35,561 36,111
-------- --------
-------- --------
Gross margin .................................... 26,065 34,200
-------- --------
Operating expenses
Selling, general and administrative ........ 21,895 22,631
Research and development ................... 7,206 7,311
-------- --------
29,101 29,942
-------- --------
Income (loss) from operations ................... (3,036) 4,258
Other income (expense)
Interest income ............................ 77 130
Interest expense ........................... (1,307) (1,232)
Other expense, net ......................... (454) (389)
-------- --------
Income (loss) before income taxes ............... (4,720) 2,767
Provision (benefit) for income taxes ............ (1,701) 985
-------- --------
Net income (loss) ............................... $ (3,019) $ 1,782
======== ========
Basic net income (loss) per share ............... $ (0.32) $ 0.19
======== ========
Diluted net income (loss) per share ............. $ (0.32) $ 0.19
======== ========
Weighted average common shares outstanding -
Basic ...................................... 9,459 9,376
======== ========
Diluted .................................... 9,459 9,528
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(3)
<PAGE> 5
SPACELABS MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 1, April 3,
(in thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Operating activities
Net income (loss) ................................................... $ (3,019) $ 1,782
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization ................................... 2,537 2,551
Deferred income tax (benefit) provision ......................... (17) 1,153
Contribution to ISSOP 401(k) plan in common stock ............... 222 186
Changes in operating assets and liabilities
Decrease in receivables ...................................... 20,042 5,357
Increase in inventories ...................................... (6,047) (2,869)
Decrease in prepaid expenses ................................. 302 175
Decrease in accounts payable and accrued expenses ............ (3,735) (843)
Decrease in deferred revenue ................................. (119) (836)
Decrease in taxes on income .................................. (2,992) (1,742)
Other ........................................................... 4 66
-------- --------
Net cash provided by operating activities .............................. 7,178 4,980
-------- --------
Investing activities
Investment in property, plant and equipment ......................... (980) (2,755)
Other ............................................................... - (184)
-------- --------
Net cash used by investing activities .................................. (980) (2,939)
-------- --------
Effect of exchange rate changes on cash ................................ (44) 192
-------- --------
Financing activities
Increase (decrease) in short-term borrowings ........................ 480 (968)
Borrowings against (principal payments on) long-term debt, net ...... (4,744) 3,980
Purchase of treasury stock .......................................... - (371)
Exercise of stock options ........................................... 288 10
-------- --------
Net cash provided (used) by financing activities ....................... (3,976) 2,651
-------- --------
Increase in cash and cash equivalents .................................. 2,178 4,884
Cash and cash equivalents at beginning of period ....................... 2,562 1,467
-------- --------
Cash and cash equivalents at end of period ............................. $ 4,740 $ 6,351
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(4)
<PAGE> 6
SPACELABS MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Spacelabs Medical, Inc. and its subsidiaries, collectively
referred to as the "Company." The unaudited interim condensed consolidated
financial statements and related notes have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules
and regulations. The accompanying condensed consolidated financial
statements and related notes should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1999 Annual Report to Shareholders. Certain reclassifications
have been made to prior period financial statements to conform to the
current presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The information furnished reflects, in the
opinion of management, all adjustments, consisting of normally recurring
items, necessary for a fair presentation of the results for the interim
periods presented. Interim results are not necessarily indicative of
results for a full year.
2. Inventories
<TABLE>
<CAPTION>
-----------------------------
April 1, December 31,
(in thousands) 2000 1999
---------------------------------------- -----------------------------
<S> <C> <C>
Raw materials and components ........... $18,429 $18,662
Work in process ........................ 12,992 9,925
Finished products ...................... 25,198 22,981
Demonstration inventories .............. 7,896 7,226
Customer service parts and equipment ... 15,094 15,221
------- -------
$79,609 $74,015
======= =======
</TABLE>
(5)
<PAGE> 7
3. Net Income (Loss) per Share
Basic net income (loss) per share is based on the weighted-average number
of common shares outstanding for the period. Diluted net income per share
includes the effect of dilutive potential common shares outstanding,
consisting of stock options and unvested restricted shares, using the
treasury stock method. For the first quarter of 2000, unexercised stock
options representing the potential rights to 2,888,151 shares are excluded
from the diluted calculation as their effects would be antidilutive. For
the first quarter of 1999, unexercised, out-of-the-money stock options
representing potential rights to 1,344,975 shares are excluded as their
effects would be antidilutive. The following schedule represents a
reconciliation of the numerators and denominators of basic and diluted net
income (loss) per share calculations for the first quarters of 2000 and
1999.
<TABLE>
<CAPTION>
Weighted
Average
Income / (loss) Shares Income / (loss)
(In thousands, except per share data) (Numerator) (Denominator) Per Share
--------------------------------------------------- --------------- ------------- ---------------
<S> <C> <C> <C>
Three months ended April 1, 2000:
Basic and diluted net loss per share ........ $(3,019) 9,459 $(0.32)
======= ===== ======
Three months ended April 3, 1999:
Basic net income per share .................. $ 1,782 9,376 $ 0.19
======
Effect of dilutive stock options and unvested
restricted stock .......................... -- 152
------- -----
Diluted net income per share ................ $ 1,782 9,528 $ 0.19
======= ===== ======
</TABLE>
(6)
<PAGE> 8
4. Business Segments
The Company identifies its business segments based on management
responsibility using a combination of product and geographic factors. The
Company has four reporting segments: US Monitoring Systems, US Cardiology
Systems, International and Consumer Health Management. Segment profit is
measured as operating income less research and development, and certain
unallocated corporate general and administrative expenses. The Company has
no intersegment revenue.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 1, April 3,
(in thousands) 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
US Monitoring Systems ............................................... $ 28,253 $ 36,119
US Cardiology Systems ............................................... 10,189 9,492
International ....................................................... 19,798 20,925
Consumer Health Management .......................................... 3,386 3,775
-------- --------
Total revenue ....................................................... $ 61,626 $ 70,311
======== ========
Segment Profit:
US Monitoring Systems ............................................... $ 3,176 $ 9,763
US Cardiology Systems ............................................... 374 207
International ....................................................... 1,557 2,037
Consumer Health Management .......................................... 291 809
-------- --------
Total segment profit ................................................ $ 5,398 $ 12,816
Reconciliation of segment profit to income (loss) before income taxes:
Unallocated general and administrative expenses .................... $ (1,228) $ (1,247)
Research and development ........................................... (7,206) (7,311)
Other expense ...................................................... (1,684) (1,491)
-------- --------
Income (loss) before income taxes .................................. $ (4,720) $ 2,767
======== ========
</TABLE>
5. Comprehensive Income (Loss)
Comprehensive income refers to the total change in equity during a period
except those changes that result from investments by owners and
distributions to owners. Comprehensive income includes net income as well
as an other comprehensive income (loss) component comprised of certain
revenues, expenses, gains and losses that under generally accepted
accounting principles are reflected in shareholders' equity but excluded
from the determination of net income. The Company has segregated the total
accumulated other comprehensive income (specifically, accumulated foreign
currency translation adjustments) from the other components of
shareholders' equity in the accompanying Condensed Consolidated Balance
Sheets.
(7)
<PAGE> 9
Comprehensive income (loss) for the three month periods ended April 1,
2000 and April 3, 1999, are detailed below:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
April 1, April 3,
(in thousands) 2000 1999
------------------------------------------------- ----------------------------
<S> <C> <C>
Net income (loss) ............................... $(3,019) $ 1,782
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments .... (678) (1,050)
======= =======
Comprehensive income (loss), net of tax ......... $(3,697) $ 732
======= =======
</TABLE>
6. Commitments and Contingencies
In March 2000, the Company received a $2.2 million payment demand from a
financing company with respect to a recourse agreement for certain
equipment sold to a South American customer in 1998. The Company has
established an allowance and has rights of offset totaling approximately
$1.6 million with respect to this matter. Because of uncertainties with
respect to the ultimate outcome of this matter, including the disposition
of the underlying collateral, no additional amounts have been accrued as
of April 1, 2000.
7. Supplemental Cash Flow Information
The following provides additional information concerning cash flow
activities:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
April 1, April 3,
(in thousands) 2000 1999
------------------------- ----------------------------
<S> <C> <C>
Interest paid ........... $1,364 $1,777
====== ======
Income taxes paid ....... $3,117 $2,395
====== ======
</TABLE>
(8)
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Three months ended
-----------------------------------------------------------------------
April 1, April 3, Dollar Percent
(dollars in millions, except per share data) 2000 1999 Change Change
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue ..................................... $ 61.6 $ 70.3 $ (8.7) (12.4%)
Gross margin ................................ 26.1 34.2 (8.1) (23.8%)
As a % of revenue ......................... 42.3% 48.6%
Operating expenses:
Selling, general and administrative ..... 21.9 22.6 (0.7) (3.3%)
As a % of revenue .................... 35.5% 32.2%
Research and development ............... 7.2 7.3 (0.1) (1.4%)
As a % of revenue .................... 11.7% 10.4%
Provision (benefit) for income taxes ........ (1.7) 1.0 (2.7) (272.7%)
Effective tax rate ........................ 36.0% 35.6%
Net income (loss) ........................... $ (3.0) $ 1.8 $ (4.8) (269.4%)
Basic and diluted net income (loss) per share $ (0.32) $ 0.19 $ (0.51) (268.4%)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenue
Worldwide revenue for the first quarter of 2000 was $61.6 million, a decrease of
12.4% when compared to the same quarter last year.
Total US revenue decreased 15.3% to $41.8 million from $49.4 million in the
first quarter of 1999. Current quarter US Monitoring Systems revenue decreased
21.8% to $28.3 million as compared to $36.1 million during the same quarter a
year ago. The Company believes the decrease in US Monitoring Systems revenue was
a result of soft market conditions in the first quarter of 2000. Factors
contributing to this market condition appear to include reduction in Medicare
reimbursement, lingering Year 2000 ramifications and the potential of negative
impact from the Health Insurance Portability and Accountability Act (HIPAA).
Current quarter US Cardiology Systems revenue increased 7.3% to $10.2 million
from $9.5 million during the first quarter of 1999 as a result of growth in the
physicians' office market.
International revenue, including export sales, declined by 5.4% to $19.8
million, or 32.1% of total revenue, in the first quarter of 2000 as compared to
$20.9 million, or 29.8% of total revenue, in the first quarter of 1999.
International revenues were negatively impacted by delays in receiving letters
of credit from certain customers and the strengthening US dollar relative to
other currencies.
The Company's ability to produce consistent future revenue growth is, to a
certain extent, dependent on its backlog of currently shippable orders. Backlog
is subject to seasonal variations and there is no guarantee that the Company
will have sufficient backlog in any given quarter to meet its revenue
objectives. In addition, international revenue has historically been subject to
a higher degree of uncertainty from quarter to quarter than US revenue due to
the need for foreign government approvals, more complex financing arrangements,
greater variability in the financial stability of the customers, and instability
of currencies in parts of the world.
(9)
<PAGE> 11
Gross Margin
Gross margin was 42.3% of revenue in the first quarter of 2000 as compared to
48.6% during the corresponding quarter in 1999. The decline in gross margin is a
result of the impact of decreased revenue relative to the fixed-cost components
of the Company's gross margin-related expenses; a lower proportion of revenue
from the US Monitoring segment, which typically carries higher gross margins;
competitive pricing pressure; and continuing strengthening of the US dollar
relative to other currencies. The Company believes that pressure on gross margin
from aggressive worldwide competitive pricing will continue in the foreseeable
future.
Operating Expenses
Selling, general and administrative expenses improved by $0.7 million, or 3.3%,
in the first quarter of 2000 to $21.9 million compared to $22.6 million in the
first quarter of 1999. This was largely due to continued efforts to control
fixed costs as well as a decrease in variable selling expenses associated with
decreased revenues. Selling, general and administrative expenses represented
35.5% of current period revenue as compared to 32.2% during the same period a
year ago.
Research and development expenses were $7.2 million in the first quarter of 2000
compared to $7.3 million in the same period a year ago. On-going investments in
the development of an anesthesia delivery system and other future products and
programs, including the Company's hypertension-focused Internet Web site,
lifeclinic.com, were offset by the results of cost containment efforts.
Segment Profit
The Company measures segment profit as operating income before research and
development, and certain unallocated corporate general and administrative
expenses. The Company's US Monitoring Systems segment experienced a $6.6 million
or 67.5% decrease in segment profit to $3.2 million during the first quarter of
2000 from $9.8 million during the first quarter of 1999. The decline in segment
profit was primarily attributable to a decrease in US Monitoring Systems
revenue.
US Cardiology Systems segment profit increased $0.2 million in the first quarter
of 2000 to $0.4 million from $0.2 million during the first quarter of 1999. The
improvement in segment profitability was primarily due to revenue growth.
Segment profit for the Company's International business unit declined to $1.6
million during the first quarter of 2000 compared to $2.0 million during the
first quarter of 1999. The decrease was primarily volume related, attributable
to a decline in first quarter segment revenue.
Other Income (Expense)
Interest expense for the first quarter of 2000 was approximately $1.3 million, a
6.1% increase from the same period of 1999. The increase was due primarily to
higher average interest rates on the Company's floating-rate debt. Interest
income was approximately $77,000 for the first quarter of 2000 compared to
$130,000 during the first quarter of 1999. The Company recognized a $338,000
loss from foreign currency exchange rate fluctuations in the first quarter of
2000 as compared to a $329,000 loss during the same quarter a year ago. Exchange
rate losses in both periods reflect the impact of the strengthening US dollar
against the currencies of the Company's foreign operations.
(10)
<PAGE> 12
Taxes and Net Income (Loss)
The effective tax rate for the first quarter of 2000 was 36.0% as compared to
35.6% during the same period in 1999. The increase in the effective tax rate
reflects the benefit of one-time tax strategies the Company implemented in 1999.
As a result of the above factors, the Company reported a net loss of $3.0
million or $0.32 per share during the first quarter of 2000 as compared to net
income of $1.8 million or $0.19 per share during the same period a year ago.
CAPITAL RESOURCES & LIQUIDITY
<TABLE>
<CAPTION>
----------------------------------------------------------------
April 1, December 31, Dollar Percent
(dollars in millions) 2000 1999 Change Change
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents .......... $ 4.7 $ 2.6 $ 2.1 85.0%
Working capital .................... 127.5 136.0 (8.5) (6.3%)
Long-term obligations .............. 59.1 66.1 (7.1) (10.7%)
Shareholders' equity ............... 166.7 169.9 (3.1) (1.9%)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
As of April 1, 2000, cash and cash equivalents totaled $4.7 million compared to
$2.6 million at December 31, 1999. The increase in cash is attributable to the
receipt of customer payments near the end of the quarter that, due to the timing
of their receipt, were not used to reduce the Company's outstanding long-term
debt. Working capital decreased by $8.5 million during the period to $127.5
million due to a decrease in accounts receivable that was partially offset by
the aforementioned increase in cash and cash equivalents and increases in
inventories and refundable income taxes.
During the first quarter of 2000, the Company generated $7.2 million in cash
from operations as compared to $5.0 million during the same period a year ago.
The primary source of operating cash was a $20.0 million reduction in accounts
receivable, reflecting both increased collections and lower revenues in the
first quarter of 2000 as compared to the fourth quarter of 1999. Significant
operating uses of cash during the first quarter of 2000 included an increase in
inventories as a result of lower than anticipated shippable orders and a
decrease in accounts payable and accrued expenses.
Capital expenditures in the first quarter of 2000 totaled $1.0 million compared
to $2.8 million during the first quarter of 1999. Management expects capital
expenditures for the full year 2000 to be at approximately the same level as
1999.
(11)
<PAGE> 13
During the first quarter of 2000, the Company reduced its long-term borrowings
by $4.7 million compared to an increase of $4.0 million in the same period of
1999. Financing activities in the first quarter of 2000 also included an
increase of $0.5 million in short-term borrowings under the Company's
international lines of credit and $0.3 million in proceeds from the exercise of
stock options. In the first quarter of 1999, the Company reduced its short-term
borrowings by $1.0 million and used $0.4 million to repurchase common stock.
As of April 1, 2000, approximately 848,600 shares remain authorized for
repurchase under the share repurchase programs approved by the Company's Board
of Directors in 1995 and 1997. Shares acquired under the repurchase programs are
being used to service the Company's various employee benefit plans and may be
used for other purposes the Company deems appropriate.
As of April 1, 2000, the Company had approximately $24.3 million available for
future borrowings under its $75.0 million long-term credit facility; an
unsecured bank line of credit totaling $5.0 million for issuances of letters of
credit, banker's acceptances and performance bonds; and approximately $5.1
million available under several small international credit lines used to meet
the operating requirements of its international subsidiaries.
The Company's primary source of funds is its $75.0 million long-term credit
facility consisting of a $45.0 million revolving component and a $30.0 million
term component. The total outstanding balance of the facility may vary in amount
through July 2000, over which time no principal repayments are required. The
balance outstanding at the end of this period is repayable in 20 equal quarterly
installments commencing in October 2000. The Company is currently reviewing
various alternatives with respect to refinancing or amending its credit
facilities. There is no guarantee that the Company will be able to amend or
extend its existing agreements or that alternative financing will be available
in amounts or at terms favorable to the Company. Should the Company be
unsuccessful in refinancing its long-term credit facility prior to July 2000,
the Company could borrow all or part of the unused portion of the $45.0 million
revolving component, subject to compliance with applicable loan covenants. Such
borrowings could be used to fund the Company's short-term working capital needs
and debt service requirements for an undetermined period of time until
alternative sources of financing become available.
During the first quarter of 2000 the Company selected an investment banker to
assist in raising additional capital to fund the development and commercial
expansion of lifeclinic.com, an Internet initiative launched during 1999. There
is no guarantee that the Company will be successful in raising the additional
capital necessary to fully fund lifeclinic.com or that such capital will be
available in amounts needed or at terms favorable to the Company. The inability
of the Company to raise adequate capital for this venture could slow the planned
development and deployment of the initiative, potentially decreasing future
earnings and liquidity of the Company.
The Euro Conversion
In January 1999 the European Central Bank assumed authority to direct monetary
policy for certain participating countries in the European Union. During a
transition period ending January 1, 2002, private parties may pay for goods and
services using either the euro or the participating country's legacy currency on
a "no compulsion, no prohibition" basis. Beginning January 1, 2002 the
participating countries will only use new euro-denominated bills and coins.
(12)
<PAGE> 14
The euro conversion may create technical challenges to adapt information
technology and other systems to accommodate euro-denominated transactions. The
participating countries' adoption of a single currency may result in greater
transparency of pricing for the Company's products, making Europe a more
competitive environment. Currently, the effects of the euro conversion on the
operations of the Company are uncertain. The Company has initiated but not yet
completed an analysis to facilitate the development of a plan for the
conversion. While management currently believes that it will complete an
adequate analysis, plan and implement the plan in a timely manner, and avoid any
material adverse effect, there is the possibility that this may not occur.
Recent Accounting Developments
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 (FIN No. 44), Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. FIN No. 44 will be
effective July 1, 2000, however, certain of the conclusions included in the
Interpretation apply to events occurring after December 15, 1998 or January 12,
2000. The Interpretation includes guidance on the accounting treatment for
modifications to the exercise prices of stock option awards, the definition of
an employee for purposes of determining eligibility to apply APB No. 25 and
related issues. Management does not believe the adoption of FIN No. 44 will have
a material impact on Company's financial position or results of operations.
Forward Looking Information
Statements that are not based on historical facts are forward-looking statements
subject to uncertainties and risks, including, but not limited to, product and
service demand and acceptance, adverse economic conditions, adverse exchange
rate fluctuations and political risks, the impact of competition on pricing,
adverse impact of excess customer purchases in 1999 in anticipation of Year
2000, adverse impact of HIPAA and other legislation and regulatory development,
capacity and supply constraints or difficulties, the failure to achieve product
development objectives, and other risks detailed in this document and other of
the Company's Securities and Exchange Commission filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency
Substantially all of the revenue and operating expenses of the Company's foreign
subsidiaries are denominated in local currencies and translated into US dollars
at rates of exchange approximating those existing at the date of the
transactions. Foreign currency translation impacts primarily revenue and
operating expenses as a result of foreign exchange rate fluctuations. Because
the Company's inventories are manufactured in the United States, foreign
currency fluctuations generally do not affect its cost of goods sold. The
Company's foreign currency transaction risk is primarily limited to current
amounts receivable from its foreign subsidiaries, which are denominated in local
currencies (approximately $6.3 million at April 1, 2000). To minimize foreign
currency transaction risk, the Company ensures that its foreign subsidiaries
remit amounts to the US parent in a timely manner. Foreign country short-term
borrowing facilities are utilized where necessary to ensure prompt payments. The
Company does not currently utilize foreign currency hedging contracts.
Interest Rates
The Company's earnings are affected by changes in short-term interest rates as a
result of its short and long-term borrowings. To limit the potential effects of
interest rate changes, the Company has entered into interest rate swap
agreements to convert a portion of its variable interest rate debt into
(13)
<PAGE> 15
fixed rates. The Company does not enter into derivative or interest rate
transactions for speculative purposes. At April 1, 2000, the Company's variable
rate long-term debt totaled $61.8 million and variable rate short-term
borrowings totaled $1.0 million. The Company has interest rate swap agreements
with a notional amount aggregating $42.5 million, effectively converting $12.5
million and $30.0 million of its variable rate long-term debt to fixed rates of
6.66% and 7.07%, respectively.
(14)
<PAGE> 16
PART II.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3.2 Amended and Restated By-Laws of Spacelabs
Medical, Inc.
10.42 Audit Committee Charter
27.1 Financial Data Schedule
</TABLE>
There were no reports on Form 8-K filed during the three months ended April 1,
2000.
(15)
<PAGE> 17
SIGNATURE
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.
SPACELABS MEDICAL, INC.
(Registrant)
DATE: May 15, 2000
BY: /s/ Carl A. Lombardi
----------------------------------
Carl A. Lombardi
Chairman of the Board and
Chief Executive Officer
BY: /s/ James A. Richman
----------------------------------
James A. Richman
Vice President and
Corporate Controller
(16)
<PAGE> 18
SPACELABS MEDICAL, INC.
EXHIBIT INDEX
Exhibits:
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3.2 Amended and Restated By-Laws of Spacelabs Medical, Inc.
10.42 Audit Committee Charter
27.1 Financial Data Schedule
</TABLE>
(17)
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
SPACELABS MEDICAL, INC.
AMENDED AND RESTATED
MAY 2, 2000
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1. OFFICES
SECTION 2. STOCKHOLDERS........................................................... 1
2.1 Annual Meeting...................................................... 1
2.2 Special Meetings.................................................... 1
2.3 Place of Meeting.................................................... 1
2.4 Notice of Meeting................................................... 1
2.5 Business for Stockholders' Meetings................................. 2
2.5.1 Business at Annual Meetings........................... 2
2.5.2 Business at Special Meetings.......................... 3
2.5.3 Notice to Corporation................................. 3
2.6 Waiver of Notice.................................................... 3
2.6.1. Waiver in Writing..................................... 3
2.6.2 Waiver by Attendance.................................. 3
2.7 Fixing of Record Date for Determining Stockholders.................. 3
2.7.1 Meetings.............................................. 3
2.7.2 Consent to Corporate Action Without a Meeting......... 4
2.7.3 Dividends, Distributions and Other Rights............. 4
2.8 Voting List......................................................... 4
2.9 Quorum.............................................................. 5
2.10 Manner of Acting.................................................... 5
2.11 Proxies ............................................................ 5
2.11.1 Appointment........................................... 5
2.11.2 Delivery to Corporation; Duration..................... 6
2.12 Voting of Shares.................................................... 6
2.13 Voting for Directors................................................ 6
2.14 Action by Stockholders Without a Meeting............................ 6
2.15 Inspectors of Election.............................................. 6
2.15.1 Appointment........................................... 6
2.15.2 Duties ............................................... 7
SECTION 3. BOARD OF DIRECTORS..................................................... 7
3.1 General Powers...................................................... 7
3.2 Number and Tenure................................................... 7
3.2.1 Number................................................ 7
3.2.2 Tenure................................................ 7
3.2.3 Qualifications........................................ 8
3.3 Nomination and Election............................................. 8
3.3.1 Nomination............................................ 8
3.3.2 Election.............................................. 9
3.4 Annual and Regular Meetings......................................... 9
3.5 Special Meetings.................................................... 9
3.6 Meetings by Telephone............................................... 9
3.7 Notice of Special Meetings.......................................... 9
3.7.1 Personal Delivery..................................... 10
3.7.2 Delivery by Mail...................................... 10
3.7.3 Delivery by Private Carrier........................... 10
3.7.4 Facsimile Notice...................................... 10
3.7.5 Delivery by Telegraph................................. 10
3.7.6 Oral Notice........................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
3.8 Waiver of Notice.................................................... 10
3.8.1 In Writing............................................ 10
3.8.2 By Attendance......................................... 10
3.9 Quorum.............................................................. 11
3.10 Manner of Acting.................................................... 11
3.11 Presumption of Assent............................................... 11
3.12 Action by Board or Committees Without a Meeting..................... 11
3.13 Resignation......................................................... 11
3.14 Removal............................................................. 11
3.15 Vacancies........................................................... 12
3.16 Executive and Other Committees...................................... 12
3.16.1 Creation and Authority of Committees.................. 12
3.16.2 Minutes of Meetings................................... 12
3.16.3 Quorum and Manner of Acting........................... 12
3.16.4 Resignation........................................... 13
3.16.5 Removal............................................... 13
3.16.6 Audit Committee....................................... 13
3.16.7 Compensation Committee................................ 13
3.17 Compensation........................................................ 13
SECTION 4. OFFICERS............................................................... 14
4.1 Number.............................................................. 14
4.2 Election and Term of Office......................................... 14
4.3 Resignation......................................................... 14
4.4 Removal............................................................. 14
4.5 Vacancies........................................................... 14
4.6 Chairman of the Board............................................... 14
4.7 President........................................................... 15
4.8 Vice President...................................................... 15
4.9 Secretary........................................................... 15
4.10 Treasurer........................................................... 15
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS.................................. 15
5.1 Contracts........................................................... 15
5.2 Loans to the Corporation............................................ 16
5.3 Checks, Drafts, Etc................................................. 16
5.4 Deposits............................................................ 16
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER............................. 16
6.1 Issuance of Shares.................................................. 16
6.2 Certificates for Shares............................................. 16
6.3 Stock Records....................................................... 16
6.4 Transfer of Shares.................................................. 17
6.5 Lost or Destroyed Certificates...................................... 17
SECTION 7. BOOKS AND RECORDS...................................................... 17
SECTION 8. ACCOUNTING YEAR........................................................ 17
SECTION 9. SEAL................................................................... 17
SECTION 10. INDEMNIFICATION........................................................ 17
10.1 Right to Indemnification............................................ 17
10.2 Insurance, Contracts and Funding.................................... 18
10.3 Indemnification: Not Exclusive Right................................ 18
10.4 Advancement of Expenses: Procedures: Presumptions and Effect of
Certain Proceedings; Remedies....................................... 18
10.5 Indemnification of Employees and Agents of the Corporation.......... 21
10.6 Persons Serving Other Entities...................................... 21
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
10.7 Definitions......................................................... 21
10.8 Severability........................................................ 22
SECTION 11. AMENDMENTS............................................................ 22
</TABLE>
<PAGE> 5
BY-LAWS
OF
SPACELABS MEDICAL, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at its principal place
of business or such other place as the Board of Directors (the "Board") may
designate. The corporation may have such other offices, either within or without
the State of Delaware, as the Board may designate or as the business of the
corporation may require from time to time.
SECTION 2. STOCKHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the stockholders shall be held the first Tuesday in May in
each year at the principal office of the corporation or such other place
designated by the Board for the purpose of electing Directors and transacting
such other business as may properly come before the meeting. If the day fixed
for the annual meeting is a legal holiday at the place of the meeting, the
meeting shall be held on the next succeeding business day. If the annual meeting
is not held on the date designated therefore, the Board shall cause the meeting
to be held as soon thereafter or before such date as may be convenient.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President, the Board or the holders of not less
than two-thirds of all the outstanding shares of the corporation entitled to
vote at the meeting may call special meetings of the stockholders for any
purpose.
2.3 PLACE OF MEETING
All meetings of stockholders shall be held at the principal office or the
corporation or at such other place within or without the State of Delaware
designated by the Board, by any persons entitled to call a meeting hereunder or
in a waiver of notice signed by all of the stockholders entitled to notice of
the meeting.
2.4 NOTICE OF MEETING
In addition to the election of Directors, other proper business may be
transacted at an annual meeting of stockholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (i) brought by or at the direction of the Board or
(ii) brought before the meeting by a stockholder pursuant to written notice
thereof, in accordance with subsection 2.5.3 hereof, and received by the
Secretary not less than ninety days prior to the date specified in subsection
2.1 hereof for such annual meeting (or if less than ninety days' notice or prior
public disclosure of the date of the annual meeting is given or made to the
stockholders),
<PAGE> 6
(iii) a representation that the stockholder intends to appear in person or by
proxy at the meeting to propose such business; and (iv) as to each matter the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting, the language of the proposal (if appropriate), and
any material interest of the stockholder in such business. No business shall be
conducted at any annual meeting of stockholders except in accordance with this
subsection 2.5.1. If the facts warrant, the Board, or the chairman of an annual
meeting of stockholders, may determine and declare (a) that a proposal does not
constitute proper business to be transacted at the meeting or (b) that business
was not properly brought before the meeting in accordance with the provisions of
this subsection 2.5.1 and, if, in either case, it is so determined, any such
business shall not be transacted. The procedures set forth in this subsection
2.5.1 for business to be properly brought before an annual meeting by a
stockholder are in addition to, and not in lieu of, the requirements set forth
in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor provision.
2.5 BUSINESS FOR STOCKHOLDER'S MEETINGS
2.5.1 BUSINESS AT ANNUAL MEETINGS
(a) No business may be transacted at an annual meeting of stockholders,
other than business that is either (i) specified in the notice of the meeting
(or any supplement thereto) given by or at the direction of the Board (or any
duly authorized committee thereof), (ii) otherwise properly brought before the
annual meeting by or at the direction of the Board ( or any duly authorized
committee thereof) or (iii) otherwise properly brought before the annual meeting
by any stockholder of the Corporation (A) who is a stockholder of record on the
date of the giving of the notice provided for in this Section 2.5.1 and on the
record date for the determination of stockholders entitled to vote at such
annual meeting and (B) who complies with the notice procedures set forth in this
Section 2.5.1.
(b) In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
(c) To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than one hundred twenty (120) days nor more than one
hundred fifty (150) days prior to the anniversary of the mailing date of the
Corporation's proxy materials for the immediately preceding annual meeting of
stockholders; provided, however that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after the
anniversary date of such meeting, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the annual meeting
was mailed to stockholders or public disclosure of the date of the annual
meeting was made, whichever first occurs.
(d) To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) the name and record address of such stockholder,
(ii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iii)
a description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business, (iv) a brief description of the business desired
to be brought before the annual meeting and the reasons
<PAGE> 7
for conducting such business at the annual meeting and (v) a representation that
such stockholder intends to appear in person or by proxy at the annual meeting
to bring such business before the meeting.
(e) Once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in this Section 2.5.1 shall be deemed
to preclude discussion by any stockholder of any such business. If the chairman
of an annual meeting determines that business was not properly brought before
the annual meeting in accordance with the foregoing procedures, the Chairman
shall declare to the meeting that the business was not properly brought before
the meeting and such business shall not be transacted.
2.5.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the stockholders, only such business as is specified
in the notice of such special meeting given by or at the direction of the person
or persons calling such meeting, in accordance with subsection 2.4 hereof, shall
come before such meeting.
2.5.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a stockholder to the corporation
pursuant to subsection 2.4, subsection 2.5.1 or subsection 2.5.2 hereof must be
given, either by personal delivery or by registered or certified mail, postage
prepaid, to the Secretary at the corporation's executive offices in the City of
Redmond, State of Washington.
2.6 WAIVER OF NOTICE
2.6.1. WAIVER IN WRITING
Whenever any notice is required to be given to any stockholder under the
provisions of these By-laws, the Certificate of Incorporation or the General
Corporation Law of the State of Delaware, as now or hereafter amended (the
"DGCL"), a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
2.6.2 WAIVER BY ATTENDANCE
The attendance of a stockholder at a meeting shall constitute a waiver of notice
of such meeting, except when a stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened
2.7 FIXING OF RECORD DATE FOR DETERMINING STOCKHOLDERS
2.7.1 MEETINGS
For the purpose of determining stockholders entitled to notice of and to vote at
any meeting of stockholders or any adjournment thereof, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than sixty (or the maximum number permitted by applicable law)
nor less than ten days before the date of such meeting. If no record date is
fixed by the Board, the record date for determining stockholders entitled to
notice of and to vote at a meeting of stockholders shall be at the close of
business on the day next preceding
<PAGE> 8
the day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of and to vote at the
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
2.7.2 CONSENT TO CORPORATE ACTION WITHOUT A MEETING
For the purpose of determining stockholders entitled to consent to corporate
action in writing without a meeting, the Board may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board, and which date shall not be more than ten
(or the maximum number permitted by applicable law) days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by Chapter 1 of the DGCL,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
and prior action by the Board is required by Chapter 1 of the DGCL, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board adopts the resolution taking such prior action.
2.7.3 DIVIDENDS, DISTRIBUTIONS AND OTHER RIGHTS
For the purpose of determining 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 change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty (or the maximum number permitted by applicable law) days prior
to such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
2.8 VOTING LIST
At least ten days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, or any adjournment thereof, shall
be made, arranged in alphabetical order, with the address of and number of
shares held by each stockholder. This list shall be open to examination by any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of ten 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 be held. This list shall also be produced and kept at such meeting for
inspection by any stockholder who is present.
2.9 QUORUM
<PAGE> 9
One-half of the outstanding shares of the corporation entitled to vote, present
in person or represented by proxy at the meeting, shall constitute a quorum at a
meeting of the stockholders; provided, that where a separate vote by a class or
classes is required, one-half of the outstanding shares of such class or
classes, present in person or represented by proxy at the meeting, shall
constitute a quorum entitled to take action with respect to that vote on that
matter. In the absence of a quorum, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. If a quorum is
present or represented at a reconvened meeting following such an adjournment,
any business may be transacted that might have been transacted at the meeting as
originally called. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
2.10 MANNER OF ACTING
In all matters other than the election of Directors, if a quorum is present, the
affirmative vote of the majority of the outstanding shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, unless the vote of a greater number is
required by these By-laws, the Certificate of Incorporation or the DGCL. Where a
separate vote by a class or classes is required, if a quorum of such class or
classes is present, the affirmative vote of the majority of outstanding shares
of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class or classes. Directors shall be elected by
a plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of Directors.
2.11 PROXIES
2.11.1 APPOINTMENT
Each stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy. Such
authorization may be accomplished by (a) the stockholder or such stockholder's
authorized officer, Director, employee or agent executing a writing or causing
his or her signature to be affixed to such writing by any reasonable means,
including facsimile signature or (b) by transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic transmission
to the intended holder of the proxy or to a proxy solicitation firm, proxy
support service or similar agent duly authorized by the intended proxy holder to
receive such transmission; provided, that any such telegram, cablegram or other
electronic transmission must either set forth or be accompanied by information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
by which a stockholder has authorized another person to act as proxy for such
stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
2.11.2 DELIVERY TO CORPORATION; DURATION
<PAGE> 10
A proxy shall be filed with the Secretary before or at the time of the meeting
or the delivery to the corporation of the consent to corporate action in
writing. A proxy shall become invalid three years after the date of its
execution unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof. The attendance at any meeting of a stockholder who
may theretofore have given a proxy shall not have the effect of revoking the
same unless he shall in writing so notify the Secretary of the meeting prior to
the voting of the proxy.
2.12 VOTING OF SHARES
Each outstanding share entitled to vote with respect to the subject matter of an
issue submitted to a meeting of stockholders shall be entitled to one vote upon
each such issue.
2.13 VOTING FOR DIRECTORS
Each stockholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such stockholder for as many
persons as there are Directors to be elected and for whose election such
stockholder has a right to vote.
2.14 ACTION BY STOCKHOLDERS WITHOUT A MEETING
Any action which could be taken at any annual or special meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall (a) be
signed by all stockholders entitled to vote with respect to the subject matter
thereof (as determined in accordance with subsection 2.6.2 hereof) and (b) be
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the records of proceedings of meetings of
stockholders. Delivery made to the corporation's registered office shall be by
hand or by certified mail or registered mail, return receipt requested. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless written consents signed by all stockholders
entitled to vote with respect to the subject matter thereof are delivered to the
corporation, in the manner required by this Section, within sixty days of the
earliest dated consent delivered to the corporation in the manner required by
this Section. The validity of any consent executed by a proxy for a stockholder
pursuant to a telegram, cablegram or other means of electronic transmission
transmitted to such proxy holder by or upon the authorization of the stockholder
shall be determined by or at the direction of the Secretary. A written record of
the information upon which the person making such determination relied shall be
made and kept in the records of the proceedings of the stockholders. Any such
consent shall be inserted in the minute book as if it were the minutes of a
meeting of the stockholders.
2.15 INSPECTORS OF ELECTION
2.15.1 APPOINTMENT
<PAGE> 11
In advance of any meeting of stockholders, the Board shall appoint one or more
persons to act as inspectors of election at such meeting and to make a written
report thereof. The Board may designate one or more persons to serve as
alternate inspectors to serve in place of any inspector who is unable or fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the chairman of such meeting shall appoint one or more persons to
act as inspector of elections at such meeting.
2.15.2 DUTIES
The inspectors shall:
(a) ascertain the number of shares of the corporation outstanding and the
voting power of each such share;
(b) determine the shares represented at the meeting and the validity of
proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period of time a record of the
disposition of any challenges made to any determination by them; and
(e) certify their determination of the number of shares represented at the
meeting and their count of the votes and ballots.
The validity of any proxy or ballot shall be determined by the inspectors of
election in accordance with the applicable provisions of the General Corporation
Law of Delaware as then in effect. In determining the validity of any proxy
transmitted by telegram, cablegram or other electronic transmission, the
inspectors shall record in writing the information upon which they relied in
making such determination. Each inspector of elections shall, before entering
upon the discharge of his or her duties, take and sign an oath to faithfully
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors of election may appoint or retain
other persons or entities to assist them in the performance of their duties.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
The business and affairs of the corporation shall be managed by the Board.
3.2 NUMBER, TENURE AND QUALIFICATIONS
3.2.1 NUMBER
The Board shall be composed of not less than six nor more than nine Directors,
the specific number to be set by resolution of the Board, but by a vote of a
majority of the entire Board, the number thereof may be increased without limit,
or decreased to not less than one, by amendment of this Section 3.2, but no
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director.
3.2.2 TENURE
Unless a Director dies, resigns, or is removed, he or she shall hold office
until the next annual meeting of stockholders or until his or her successor is
elected, whichever is later.
<PAGE> 12
3.2.3 QUALIFICATIONS
Directors need not be stockholders of the corporation or residents of the State
of Delaware. No person shall be eligible for election or reelection as a
Director of the corporation if he or she has attained the age of 71 years.
3.3 NOMINATION AND ELECTION.
3.3.1 NOMINATION
(a) Only persons who are nominated in accordance with the procedures in this
Section 3.3.1 shall be eligible for election as Directors of the Corporation.
Nominations of persons for election to the Board may be made at any annual
meeting of stockholders (i) by or at the direction of the Board (or any duly
authorized committee thereof) or (ii) by any stockholder of the Corporation (A)
who is a stockholder of record on the date of giving of the notice provided for
in this Section 3.3.1 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (B) who complies with
the notice procedures set forth in this Section 3.3.1.
(b) In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
(c) To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (i)
with respect to an election to be held at an annual meeting of the stockholders,
not less than one hundred twenty (120) days nor more than one hundred fifty
(150) days prior to the anniversary of the mailing date of the Corporation's
proxy materials for the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after the anniversary date of
such meeting, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which notice of the date of the annual meeting was mailed to
stockholders or public disclosure of the date of the annual meeting was made,
whichever first occurs and (ii) with respect to an election to be held at a
special meeting of the stockholders for the election of Directors, the close of
business on the seventh business day following the date on which notice of such
meeting is first given to stockholders.
(d) To be in proper written form, a stockholder's notice to the Secretary must
be set forth: (i) as to each person whom the stockholder proposes to nominate
for 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 or series and number of shares of capital stock of the
Corporation which are owned beneficially or of the record by such person that
would be required to be disclosed in a proxy statement or other filings required
to be made in connection with solicitations of proxies for election of Directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended
("Exchange Act") and the rules and regulation promulgated thereunder; and (ii)
as to the stockholder giving notice (A) the name and record address of such
stockholder, (B) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(C) a description of all arrangements or understanding between such stockholder
an each proposed nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by such stockholder, (D) a
representation that such
<PAGE> 13
stockholder intends to appear in person or by proxy at the annual meeting to
nominate the persons named in its notice and (E) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with solicitations of proxies
for election of Directors pursuant to Section 14 of the Exchange Act and the
rules and regulation promulgated thereunder. Such notice must be accompanied by
a written consent of each proposed nominee to being named as a nominee and to
serve as Director if elected.
(e) If the chairman of the annual or special meeting, as the case may be,
determines that a nomination was not made in accordance with the foregoing
procedures, the chairman shall declare to the meeting that the nomination was
defective and such defective nomination shall be disregarded.
3.3.2 ELECTION
At each election of Directors the persons receiving the greatest number of
votes, up to the number of Directors to be elected, shall be the Directors.
3.4 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after and at
the same place as the annual meeting of stockholders. By resolution, the Board
or any committee designated by the Board may specify the time and place either
within or without the State of Delaware for holding regular meetings thereof
without other notice than such resolution.
3.5 SPECIAL MEETINGS
Special meetings of the Board or any committee appointed by the Board may be
called by or at the request of the Chairman of the Board, the President, the
Secretary or, in the case of special Board meetings, any three (3) Directors
and, in the case of any special meeting of any committee appointed by the Board,
by the Chairman thereof. The person or persons authorized to call special
meetings may fix any place either within or without the State of Delaware as the
place for holding any special meeting called by them.
3.6 MEETINGS BY TELEPHONE
Members of the Board or any committee designated by the Board may participate in
a meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation by such means shall constitute
presence in person at a meeting.
3.7 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day and hour
of the meeting shall be given to a Director in writing or orally by telephone or
in person. Neither the business to be transacted at, nor the purpose of, any
special meeting need be specified in the notice of such meeting.
3.7.1 PERSONAL DELIVERY
<PAGE> 14
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least one day before the meeting.
3.7.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail properly addressed to a Director at
his or her address shown on the records of the corporation with postage prepaid
at least two days before the meeting.
3.7.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be deemed effective when
dispatched to a Director at his or her address shown on the records of the
corporation at least two days before the meeting.
3.7.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment which transmits a facsimile
of the notice, the notice shall be deemed effective when dispatched at least one
day before the meeting to a Director at his or her telephone number or other
number appearing on the records of the corporation.
3.7.5 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be deemed effective if the
content thereof is delivered to the telegraph company at least one day before
the meeting for delivery to a Director at his or her address shown on the
records of the corporation.
3.7.6 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice shall be
deemed effective if personally given to the Director at least one day before the
meeting.
3.8 WAIVER OF NOTICE
3.8.1 IN WRITING
Whenever any notice is required to be given to any Director under the provisions
of these By-laws, the Certificate of Incorporation or the DGCL, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board or any committee appointed by
the Board need be specified in the waiver of notice of such meeting.
3.8.2 BY ATTENDANCE
The attendance of a Director at a Board or committee meeting shall constitute a
waiver of notice of such meeting, except when a Director attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
<PAGE> 15
3.9 QUORUM
A majority of the total number of Directors fixed by or in the manner provided
in these By-laws or, if vacancies exist on the Board, a majority of the total
number of Directors then serving on the Board, provided, however, that such
number may be not less than one-third of the total number of Directors fixed by
or in the manner provided in these By-laws, shall constitute a quorum for the
transaction of business at any Board meeting. If less than a majority are
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
3.10 MANNER OF ACTING
The act of the majority of the Directors present at a Board or committee meeting
at which there is a quorum shall be the act of the Board or committee, unless
the vote of a greater number is required by these By-laws, the Certificate of
Incorporation or the DGCL.
3.11 PRESUMPTION OF ASSENT
A Director of the corporation present at a Board or committee meeting at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his or her dissent is entered in the minutes of the
meeting, or unless such Director files a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof, or
forwards such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. A Director who voted in favor
of such action may not dissent.
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any committee
appointed by the Board may be taken without a meeting if a written consent
setting forth the action so taken is signed by each of the Directors or by each
committee member. Any such written consent shall be inserted in the minute book
as if it were the minutes of a Board or a committee meeting.
3.13 RESIGNATION
Any Director may resign at any time by delivering written notice to the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein, or if the time is not specified, upon
delivery thereof and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.14 REMOVAL
At a meeting of stockholders called expressly for that purpose, one or more
members of the Board (including the entire Board) may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote on the election of Directors.
3.15 VACANCIES
<PAGE> 16
Any vacancy occurring on the Board may be filled by the affirmative vote of a
majority of the remaining Directors though less than a quorum of the Board. A
Director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office. Any directorship to be filled by reason of an
increase in the number of Directors may be filled by the Board for the unexpired
term.
3.16 EXECUTIVE AND OTHER COMMITTEES
3.16.1 CREATION AND AUTHORITY OF COMMITTEES
The Board may, by resolution passed by a majority of the number of Directors
fixed by or in the manner provided in these By-laws, appoint standing or
temporary committees, including an Executive Committee, each committee to
consist of two or more Directors of the corporation. The Board may designate two
or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board 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 establishing such committee or as otherwise provided in these By-laws,
shall have and may exercise all the affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers which require
it; but no such committee shall have the power or authority in reference to (a)
amending the Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board as provided in Section 151(a) of the DGCL,
fix the designations, preferences or rights of such shares to the extent
permitted under Section 141 of the DGCL, (b) adopting an agreement of merger or
consolidation under Section 251 or 252 of the DGCL, (c) recommending to the
stockholders the sale, lease or exchange or other disposition of all or
substantially all of the property and assets of the corporation, (d)
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or (e) amending these By-laws; and, unless
expressly provided by resolution of the Board, no such committee shall have the
power or authority to declare a dividend to authorize the issuance of stock or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
DGCL.
3.16.2 MINUTES OF MEETINGS
All committees so appointed shall keep regular minutes of their meetings and
shall cause them to be recorded in books kept for that purpose.
3.16.3 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of the Board, as
established and fixed by resolution of the Board, shall constitute a quorum for
the transaction of business at any meeting of such committee but, if less than a
majority are present at a meeting, a majority of such Directors present may
adjourn the meeting from time to time without further notice. The act of a
majority of the members of a committee present at a meeting at which a quorum is
present shall be the act of such committee.
3.16.4 RESIGNATION
<PAGE> 17
Any member of any committee may resign at any time by delivering written notice
thereof to the Chairman of the Board, the President, the Secretary, the Board or
the Chairman of such committee. Any such resignation shall take effect at the
time specified therein, or if the time is not specified, upon delivery thereof
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
3.16.5 REMOVAL
The Board may remove from office any member of any committee elected or
appointed by it or by an Executive Committee, but only by the affirmative vote
of not less than a majority of the number of Directors fixed by or in the manner
provided in these By-laws.
3.16.6 AUDIT COMMITTEE
In addition to any committees appointed pursuant to this Section 3.16, there
shall be an Audit Committee, appointed annually by the Board, consisting of at
least two Directors who are not members of management. It shall be the
responsibility of the Audit Committee to review the scope and results of the
annual independent audit of books and records of the corporation, to review the
accounting principles, policies and practices of the corporation and to
discharge such other responsibilities as may from time to time be assigned to it
by the Board. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board as they
consider appropriate.
3.16.7 COMPENSATION COMMITTEE
The Board may, in its discretion, designate a Compensation Committee consisting
of not less than two Directors as it may from time to time determine. The duties
of the Compensation Committee shall consist of the following: (a) to establish
and review periodically, but not less than annually, the compensation of the
officers of the corporation and to make recommendations concerning such
compensation to the Board; (b) to create, adopt or amend any pension,
profit-sharing or savings plan or program of the corporation, or any long-term
executive compensation plan or program or similar program or plan of the
corporation; (c) to carry out the duties assigned to the Compensation Committee
under any stock option plan or other plan approved by the corporation; (d) to
consult with the President concerning any compensation matters deemed
appropriate by the President or the Compensation Committee; and (e) to perform
such other duties as shall be assigned to the Compensation Committee by the
Board.
3.17 COMPENSATION
By Board resolution, Directors and committee members may be paid their expenses,
if any, of attendance at each Board or committee meeting, or a fixed sum for
attendance at each Board or committee meeting, or a stated salary as Director or
a committee member, or a combination of the foregoing. No such payment shall
preclude any Director or committee member from serving the corporation in any
other capacity and receiving compensation therefore.
SECTION 4. OFFICERS
4.1 NUMBER
<PAGE> 18
The officers of the corporation shall be a President and a Secretary, each of
whom shall be elected by the Board. One or more Vice Presidents (including
Executive and Senior Vice Presidents), a Treasurer and such other officers and
assistant officers, including a Chairman of the Board, may be elected or
appointed by the Board, such officers and assistant officers to hold office for
such period, have such authority and perform such duties as are provided in
these By-laws or as may be provided by resolution of the Board. Any officer may
be assigned by the Board any additional title that the Board deems appropriate.
The Board may delegate to any officer or agent the power to appoint any such
subordinate officers or agents and to prescribe their respective terms of
office, authority and duties. Any two or more offices may be held by the same
person.
4.2 ELECTION AND TERM OF OFFICE
The officers of the corporation shall be elected annually by the Board at the
Board meeting held after the annual meeting of the stockholders. If the election
of officers is not held at such meeting, such election shall be held as soon
thereafter as a Board meeting conveniently may be held. Unless an officer dies,
resigns or is removed from office, he or she shall hold office until the next
annual meeting of the Board or until his or her successor is elected.
4.3 RESIGNATION
Any officer may resign at any time by delivering written notice to the Chairman
of the Board, the President, a Vice President, the Secretary or the Board. Any
such resignation shall take effect at the time specified therein, or if the time
is not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
4.4 REMOVAL
Any officer or agent elected or appointed by the Board may be removed by the
Board with or without cause, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
4.5 VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled by
the Board for the unexpired portion of the term, or for a new term established
by the Board.
4.6 CHAIRMAN OF THE BOARD
The Chairman of the Board shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and stockholders and shall supervise and
control all of the assets, business and affairs of the corporation and shall
have the direction of all other officers, employees and agents. The Chairman of
the Board may sign, with the Secretary or an Assistant Secretary or with the
Treasurer or an Assistant Treasurer, certificates for shares of the corporation,
deeds, mortgages, bonds, contracts or other instruments, except when the signing
and execution thereof have been expressly delegated by the Board or by these
By-laws to some other officer or agent of the corporation or are required by law
to be otherwise signed or executed by some other officer or in some other
manner. In general, the Chairman of the Board shall perform all
<PAGE> 19
duties incident to the office of the chief executive officer of a corporation
and such other duties as are prescribed by the Board from time to time. The
Chairman of the Board may delegate such duties to the other officers of the
corporation as he deems appropriate.
4.7 PRESIDENT
The President shall be the chief operating officer of the corporation unless
some other officer is so designated by the Board. The President may sign, with
the Secretary or any Assistant Secretary or with the Treasurer or an Assistant
Treasurer, certificates for shares of the corporation. The President shall have,
to the extent authorized by the Chairman of the Board or the Board, the same
powers as the Chairman of the Board to sign deeds, mortgages, bonds, contracts
or other instruments. The President shall perform such other duties as from time
to time may be assigned to him or her by the Chairman of the Board or by the
Board.
4.8 VICE PRESIDENT
Any Vice President may sign, with the Secretary or any Assistant Secretary or
with the Treasurer or any Assistant Treasurer, certificates for shares of the
corporation. Vice Presidents shall perform such other duties as from time to
time may be assigned to them by the Chairman of the Board, the President or the
Board.
4.9 SECRETARY
The Secretary shall be responsible for preparation of minutes of meetings of the
Board and stockholders, maintenance of the corporation's records and stock
registers, and authentication of the corporation's records and shall in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him or her by the President or by the
Board. In the absence of the Secretary, an Assistant Secretary may perform the
duties of the Secretary.
4.10 TREASURER
The Treasurer, if one is elected, shall have charge and custody of and be
responsible for all funds and securities of the corporation
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, employee or employees, or agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation and may authorize such officers,
employees and agents to delegate such power (including power to redelegate) by
written instrument to other officers, employees or agents of the corporation.
Such authority may be general or confined to specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no evidences of
indebtedness shall be issued in its name unless authorized by a resolution of
the Board. Such authority may be general or confined to specific instances.
<PAGE> 20
5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board.
5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from time
to time to the credit of the corporation in such banks, trust companies or other
depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the Board,
which authorization shall include the maximum number of shares to be issued and
the consideration to be received for each share.
6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed by the
Chairman of the Board or a Vice Chairman of the Board, if any, or the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, any of whose signatures may be a facsimile.
The Board may in its discretion appoint responsible banks or trust companies
from time to time to act as transfer agents and registrars of the stock of the
corporation; and, when such appointments shall have been made, no stock
certificate shall be valid until countersigned by one of such transfer agents
and registered by one of such registrars. 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 such person was such officer, transfer agent or registrar at
the date of issue. All certificates shall include on their face written notice
of any restrictions which may be imposed on the transferability of such shares
and shall be consecutively numbered or otherwise identified
6.3 STOCK RECORDS
The stock transfer books shall be kept at the registered office or principal
place of business of the corporation or at the office of the corporation's
transfer agent or registrar. The name and address of each person to whom
certificates for shares are issued, together with the class and number of shares
represented by each such certificate and the date of issue thereof, shall be
entered on the stock transfer books of the corporation. The person in whose name
shares stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
6.4 TRANSFER OF SHARES
<PAGE> 21
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
6.5 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new certificate may
be issued therefor upon such terms and indemnity to the corporation as the Board
may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of account,
stock transfer books, minutes of the proceedings of its stockholders and Board
and such other records as may be necessary or advisable.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall end each year on December 31,
provided that if a different accounting year is at any time selected
for purposes of federal income taxes, the accounting year shall be the year so
selected.
SECTION 9. SEAL
The seal of the corporation, if any, shall consist of the name of the
corporation, the state of its incorporation and the year of its incorporation
SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
The corporation shall to the fullest extent permitted by applicable law, as the
same exists or may hereafter be enacted, adopted or amended (but, in the case of
any such enactment, adoption or amendment, only to the extent that such
enactment, adoption or amendment permits the corporation to provide broader
indemnification rights than permitted prior thereto) indemnify any person (the
indemnitee) who was or is involved in any manner (including, without limitation,
as a party or a witness) or is threatened to be made so involved in any
threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
without limitation, any action, suit or proceeding by or in the right of the
corporation to procure a judgment in its favor) (a Proceeding) by reason of the
fact that he 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 or employee or agent of another corporation, partnership,
joint venture, trust or other enterprise (including, without limitation, any
employee benefit plan), whether the basis of such proceeding is alleged action
in an official capacity as such a Director, officer, employee or agent or in any
other capacity while serving as such a Director, officer, employee or agent,
against all expenses (including attorneys' fees), liabilities, losses,
judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement
actually and reasonably incurred or suffered by him in connection with such
Proceeding. Such indemnification shall be a contract
<PAGE> 22
right and shall include the right to receive payment in advance of any expenses
incurred by the indemnitee in connection with such Proceeding, consistent with
the provisions of applicable law as then in effect.
10.2 INSURANCE, CONTRACTS AND FUNDING
The corporation may purchase and maintain insurance to protect itself and any
indemnitee against any expenses, liabilities, losses, judgments, fines and
amounts paid in settlement as specified in subsection 10.1 of this Section 10 or
incurred by any indemnitee in connection with any Proceeding referred to in
subsection 10.1 of this Section 10, whether or not the corporation would have
the power to indemnify such person against such expenses, liabilities or losses
under applicable law as then in effect. The corporation may enter into contracts
with any Director, officer, employee or agent of the corporation in furtherance
of the provisions of this Section 10 and may create a trust fund, grant a
security interest or use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section 10.
10.3 INDEMNIFICATION; NOT EXCLUSIVE RIGHT
The right of indemnification and to the advancement of expenses provided in this
Section 10 shall not be exclusive of any other rights which any person have
or hereafter acquire under any statute, agreement, vote of stockholders or
disinterested Directors, provisions of the Certificate of Incorporation or
By-laws of the corporation or otherwise, and the provisions of this Section 10
shall inure to the benefit of the heirs, executors, administrators and legal
representatives of any person entitled to indemnity under this Section 10 and
shall be applicable to Proceedings commenced or continuing after the adoption of
this Section 10, whether arising from acts or omissions occurring before or
after such adoption. Notwithstanding any amendment to or repeal of this Section
10, any indemnitee shall be entitled to indemnification in accordance with the
provisions hereof with respect to any acts or omissions of such indemnitee
occurring prior to such amendment or repeal.
10.4 ADVANCEMENT OF EXPENSES; PROCEDURES; PRESUMPTIONS AND EFFECT OF
CERTAIN PROCEEDINGS; REMEDIES
In furtherance, but not in limitation of the foregoing provisions, the following
procedures, presumptions and remedies shall apply with respect to advancement of
expenses and the right to indemnification under this Section 10:
All reasonable expenses incurred by or on behalf of the indemnitee in connection
with any Proceeding shall be advanced to the indemnitee by the corporation
within 20 days after the receipt by the corporation of a statement or statements
from the indemnitee requesting such advance or advances from time to time,
whether prior to or after final disposition of such Proceeding. Such statement
or statements shall reasonably evidence the expenses incurred by the indemnitee
and, if required by law that the time of such advance, shall include or be
accompanied by an undertaking by or on behalf of the indemnitee to repay the
amounts advanced if it should ultimately be determined that the indemnitee is
not entitled to be indemnified against such expenses pursuant to this Section
10.
<PAGE> 23
To obtain indemnification under this Section 10, an indemnitee shall submit to
the Secretary of the corporation a written request, including such documentation
and information as is reasonably available to the indemnitee and reasonably
necessary to determine whether and to what extent the indemnitee is entitled to
indemnification (the Supporting Documentation). The determination of the
indemnitee's entitlement to indemnification shall be made no later than sixty
days after receipt by the corporation of the written request for indemnification
together with the Supporting Documentation. The Secretary of the corporation
shall, promptly upon receipt of such a request for indemnification, advise the
Board in writing that the indemnitee has requested indemnification. The
indemnitee's entitlement to indemnification under this Section 10 shall be
determined in one of the following ways: (a) by a majority vote of the
Disinterested Directors (as hereinafter defined), if they constitute a quorum of
the Board; (b) by a written opinion of Independent Counsel (as hereinafter
defined) if (x) a Change in Control (as hereinafter defined) shall have occurred
and the indemnitee so requests or (y) a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, a majority of
such Disinterested Directors so directs; (c) by the stockholders of the
corporation (but only if a majority of the Disinterested Directors, if they
constitute a quorum of the Board, presents the issue of entitlement to
indemnification to the stockholders for their determination); or (d) as provided
in this subsection 10.4.
In the event the determination of entitlement to indemnification is to be made
by Independent Counsel pursuant to this subsection 10.4, a majority of the
Disinterested Directors shall select the Independent Counsel, but only an
Independent Counsel to which the indenmitee does not reasonably object;
provided, however, that if a Change in Control shall have occurred, the
indemnitee shall select such Independent Counsel, but only an Independent
Counsel to which the Board does not reasonably object. Except as otherwise
expressly provided in this Section 10, the indemnitee shall be presumed to be
entitled to indemnification under this Section 10 upon submission of a request
for indemnification together with the Supporting Documentation in accordance
with this subsection 10.4, and thereafter the corporation shall have the burden
of proof to overcome that presumption in reaching a contrary determination. In
any event, if the person or persons empowered under this subsection 10.4 to
determine entitlement to indemnification shall not have been appointed or shall
not have made a determination within 60 days after receipt by the corporation of
the request therefore, together with the Supporting Documentation, the
indemnitee shall be deemed to be entitled to indemnification and the indemnitee
shall be entitled to such indemnification unless (a) the indemnitee
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (b) such indemnification
is prohibited by law. The termination of any proceeding described in subsection
10.1 hereof, or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, adversely affect the right of the indemnitee to
indemnification or create a presumption that the indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation or, with respect to any criminal
Proceeding, that the indemnitee had reasonable cause to believe that his conduct
was unlawful.
In the event that a determination is made pursuant to this subsection 10.4 that
the indemnitee is not entitled to indemnification under this Section 10, (a) the
indemnitee shall be entitled to seek an adjudication of his entitlement to such
indemnification either, at the indemnitee's sole option, in (x) an appropriate
court of the State of Delaware or any other court of competent jurisdiction or
(y) an arbitration to be conducted by a single arbitrator pursuant to the rules
of the American Arbitration Association; (b) any such judicial proceeding or
arbitration shall be de novo and the indemnitee shall not be prejudiced by
reason of such adverse determination;
<PAGE> 24
and (c) in any such juridical proceeding or arbitration, the corporation shall
have the burden of proving that the indemnitee is not entitled to
indemnification under this Section 10. Neither the failure of the corporation
(including its Board, Independent Counsel or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances nor an actual determination by the
corporation (including its Board, Independent Counsel or its stockholders) that
the indemnitee is not entitled to indemnification shall be a defense to the suit
or create a presumption that the indemnitee is not so entitled.
If a determination shall have been make or deemed to have been made, pursuant to
this Section 10, that the indemnitee is entitled to indemnification, the
corporation shall be obligated to pay the amounts constituting such
indemnification within five days after such determination has been made or
deemed to have been made and shall be conclusively bound by such determination
unless (a) the indemnitee misrepresented or failed to disclose a material fact
in making the request for indemnification or in the Supporting Documentation or
(b) such indemnification is prohibited by law. In the event that (c) advancement
of expenses is not timely made pursuant to this Section 10 or (d) payment of
indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to this Section 10, the indemnitee shall be entitled to seek judicial
enforcement of the corporation's obligation to pay to the indemnitee such
advancement of expenses or indemnification. Notwithstanding the foregoing, the
corporation may bring an action, in an appropriate court in the State of
Delaware or any other court of competent jurisdiction, contesting the right of
the indenmitee to receive indemnification hereunder due to the occurrence of an
event described in sub clause (a) or (b) of this paragraph (a Disqualifying
Event); provided, however, that in any such action the corporation shall have
the burden of proving the occurrence or such Disqualifying Event.
The corporation shall be precluded from asserting in any judicial proceeding or
arbitration commenced pursuant to this Section 10 that the procedures and
presumptions of the Section 10 are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that the corporation
is bound by all the provisions of this Section 10.
In the event that the indemnitee, pursuant to this Section 10, seeks a judicial
adjuration of or an award in arbitration to enforce his rights under, or to
recover damages for breach of, this Section 10, the indemnitee shall be entitled
to recover from the corporation, and shall be indemnified by the corporation
against, any expenses actually and reasonably incurred by him if the indemnitee
prevails in such judicial adjuration or arbitration. If it shall be determined
in such judicial adjudication or arbitration that the indemnitee is entitled to
receive part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by the indemnitee in connection with such judicial
adjudication or arbitration shall be prorated accordingly.
10.5 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to indemnification and
advancement of expenses to employees or agents or groups of employees or agents
of the corporation with the same scope and effect as the provisions of this
Section with respect to the indemnification and advancement of expenses of
Directors and officers of the corporation; provided, however, that an
undertaking shall be made by an employee or agent only if required by the Board.
10.6 PERSONS SERVING OTHER ENTITIES
<PAGE> 25
Without limiting any other provision of this Section 10, any person who is or
was a Director, officer or employee of the corporation who is or was serving as
a Director, officer, or employee of another corporation of which a majority of
the shares entitled to vote in the election of its Directors is held by the
corporation shall be deemed to be so serving at the request of the corporation
and entitled to indemnification and advancement of expenses under subsection
10.1 hereof.
10.7 DEFINITIONS
A Change of Control means a change in control of the corporation of a nature
that would be required to be reported in response to Item 6 (e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
Act), whether or not the corporation is then subject to such reporting
requirement: provided that, without limitation, such a change in control shall
be deemed to have occurred if (a) any person (as such term is used in Sections
13(d) and 14(d) of the Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the
corporation representing 20% or more of the combined voting power of the
corporation's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
acquisition; (b) the corporation is a party to a merger consolidation, sale of
assets or other reorganization, or a proxy contest, a consequence of which
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter: or (c) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board (including for this purpose any new Director whose
election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the Directors then still in office
who were Directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board.
A Disinterested Director means a Director of the corporation who is not or was
not a party to the proceeding in respect of which indemnification is sought by
the indemnitee.
Independent Counsel means a law firm or a member of a law firm that neither
presently is, nor in the past five years has been, retained to represent (i) the
corporation or the indemnitee in any matter material to either such party or
(ii) any other party to the proceeding giving rise to a claim for
indemnification under this Section 10. Notwithstanding the foregoing, the term
Independent Counsel shall not include any person who, under applicable standards
of professional conduct then prevailing under the law of the State of Delaware,
would have a conflict of interest in representing either the corporation or the
indemnitee in an action to determine the indemnitee's rights under this Section
1.
10.8 SEVERABILITY
<PAGE> 26
If any provision or provisions of this Section 10 shall be held to be invalid,
illegal or unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Section 10 (including,
without limitation, all portions of any paragraph of this Section 10 containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall not in any way be affected
or impaired thereby; and (b) to the fullest extent possible, the provisions of
this Section 10 (including, without limitation, all portions of any paragraph of
this Section 10 containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal of unenforceable) shall
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
SECTION 11. AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be adopted by the
Board. The affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the combined voting power of all the shares of all classes
of capital stock of the corporation then entitled to vote generally in the
election of Directors shall be required to amend, repeal or adopt any provision
in these By-laws including this Section 11.
The foregoing By-laws were adopted by the Board of Directors on October 29, 1993
and amended on July 22, 1994, February 17, 1995, July 28, 1995 and May 2, 2000.
Secretary
<PAGE> 1
EXHIBIT 10.42
SPACELABS MEDICAL, INC.
AUDIT COMMITTEE CHARTER
<PAGE> 2
SPACELABS MEDICAL, INC.
AUDIT COMMITTEE CHARTER
PURPOSE AND SCOPE
The Audit Committee (the "Committee") is a committee of the Board of Directors
(the "Board"). Its primary function is to assist the Board in fulfilling its
oversight responsibilities by reviewing the financial information which will be
provided to the shareholders and other appropriate parties, the systems of
internal controls which management and the Board have established, and the audit
process. In doing so, it is the responsibility of the Committee to provide an
open avenue of communication between the Board, management, the internal
auditor, and the independent outside accountants ("Outside Auditor").
ORGANIZATION
o The Committee shall be appointed annually by the Board.
o The Committee shall be composed of at least three independent directors.
o Only independent directors may be members of the Committee. An independent
director is a director who:
(1) is not and has not been employed in an executive capacity of the
Company or its affiliates in the current or past three years;
(2) has not accepted any compensation from the Company or its affiliates
in excess of $60,000 during the previous fiscal year (except for Board
service, retirement plan benefits, or non-discretionary compensation);
(3) has no immediate family member who is or has been in the past three
years, employed by the Company or its affiliates as an executive
officer;
(4) is not and has not been a partner, controlling shareholder or an
executive officer of any for-profit business to which the Company or
its affiliates made, or from which the Company or its affiliates
received, payments (other than those which arise solely from
investments in the Company's securities) that exceed five percent of
the Company's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years; or
(5) has not been employed as an executive of another entity where any of
the Company's executives serve on that entity's Compensation
Committee.
o Effective June 14, 2001, all directors must be able to read and understand
fundamental financial statements, including the Company's balance sheet,
income statement and cash flow statement.
2
<PAGE> 3
SPACELABS MEDICAL, INC.
AUDIT COMMITTEE CHARTER
o Effective June 14, 2001, at least one member of the Committee must also
have past employment experience in finance or accounting, the requisite
professional certification in accounting, or other comparable experience or
background, including a current or past position as a chief executive or
financial officer or other senior officer with financial oversight
responsibilities.
o The Board shall appoint one of the members of the Committee as Chairperson.
It is the responsibility of the Chairperson to lead all meetings of the
Committee and ensure their appropriate conduct.
In meeting its responsibilities, the Committee shall:
GENERAL
o Have the power to conduct or authorize investigations into any matters
within the Committee's scope of responsibilities. The Committee shall have
unrestricted access to members of management and all information relevant
to its responsibilities.
o Meet at least two (2) times per year or more frequently as circumstances
require. The Committee may ask members of management or others to attend
the meetings and provide pertinent information as necessary.
o Report Committee actions to the Board with such recommendations as the
Committee may deem appropriate.
o Review and update the Committee's charter at least annually.
o Perform such other functions assigned by law, the Company's charter or
bylaws, or the Board.
INTERNAL CONTROLS AND RISK ASSESSMENT
o Review and evaluate the effectiveness of the Company's process for
assessing significant risks or exposures and the steps management has taken
to minimize such risks to the Company.
3
<PAGE> 4
SPACELABS MEDICAL, INC.
AUDIT COMMITTEE CHARTER
o Consider and review with management, the Outside Auditor and the internal
auditor:
- The effectiveness of or weaknesses in the Company's internal controls
including computerized information system controls and security, the
overall control environment and accounting and financial controls.
- Any related significant findings and recommendations of the Outside
Auditor and internal auditor together with management's responses
thereto, including the timetable for implementation of recommendations
to correct identified weaknesses in internal controls.
o Review the coordination of the internal audit plan to assure completeness
of coverage of key business controls and risk areas, reduction of redundant
efforts, and the effective use of audit resources.
FINANCIAL REPORTING
o Review filings with the SEC and other agencies and other published
documents containing the Company's financial statements, including annual
and interim reports, and statutory filings, and consider whether the
information contained in these documents is consistent with the information
contained in the financial statements.
o Review with management and the Outside Auditor at the completion of the
annual examination:
- The Company's annual financial statements and related footnotes.
- The Outside Auditor's audit of the financial statements and report
thereon.
- Any significant changes required in the financial statement audit
plan.
- Any serious difficulties or disputes with management encountered
during the course of the audit.
- The existence of significant estimates and judgments underlying the
financial statements, including the rationale behind those estimates
as well as the details on material accruals and reserves.
- Other matters related to the conduct of the financial statement audit
which are to be communicated to the Committee under generally accepted
auditing standards.
- Review and approve the Company's accounting principles.
o Assess internal processes for determining and managing key financial
statement risk areas.
4
<PAGE> 5
SPACELABS MEDICAL, INC.
AUDIT COMMITTEE CHARTER
OUTSIDE AUDITOR
The Outside Auditor is ultimately accountable to the Board through the
Committee, as representatives of the shareholders. Accordingly with respect to
the Outside Auditor the Committee shall:
o Evaluate and recommend to the Board the outside auditor to be nominated for
approval, and, where appropriate, recommend the discharge of the Outside
Auditor.
o Take appropriate action to oversee the independence of the Outside Auditor.
o Obtain a formal written statement from the Outside Auditor delineating all
relationships between the auditor and the Company, consistent with
Independence Standards Board Standard No. 1 and through active engagement
of dialog with the auditor, determine if any disclosed relationships or
services may impact the objectivity and independence of the auditor.
o Review the scope and approach of the annual financial statement audit with
the Outside Auditor.
o Assess the Outside Auditor's process for identifying and responding to key
audit and internal control risks.
o Review the Outside Auditor's identification of issues and business and
financial risks and exposures.
o Instruct the Outside Auditor to communicate directly to the Committee any
serious difficulties or disputes with management.
o Meet with the internal auditor, Outside Auditors and/or representatives of
management privately as the Committee deems appropriate in its discretion.
INTERNAL AUDITOR (EITHER EMPLOYEE OR CONTRACTOR)
o Evaluate the internal audit process for establishing the annual internal
audit plan and the focus on key business risks.
o Determine, in consultation with the internal auditor and management, the
internal audit scope and role of the internal auditors.
o Review and evaluate the scope, risk assessment and nature of the annual
internal audit plan and any subsequent changes, including whether or not
the internal audit plan is
5
<PAGE> 6
SPACELABS MEDICAL, INC.
AUDIT COMMITTEE CHARTER
sufficiently linked to the Company's overall business objectives and
management's success and risk factors.
o Review and concur in the appointment, replacement, reassignment, or
dismissal of the internal auditor.
o Confirm and assure the independence of the internal auditor.
COMPLIANCE WITH LAWS AND REGULATIONS
o Ascertain whether the Company has an effective process for determining the
risks and exposures from asserted and unasserted litigation and claims and
from noncompliance with laws and regulations, if any.
o Review with the Company's general counsel and other appropriate parties,
any legal, tax or regulatory matters that may have a material impact on
Company operations and/or the financial statements, related Company
compliance policies, and programs, and material reports received from
regulatory agencies.
COMPLIANCE WITH CODES OF ETHICAL CONDUCT
o Review and assess the Company's processes for administering a code of
ethical conduct.
o Review with the internal auditor and the Outside Auditor the results of
their review of the Company's monitoring of compliance with the Company's
code of conduct.
o Review policies and procedures with respect to officers' expense accounts
and perquisites, including their use of corporate assets, and consider the
results of any review of these areas by the internal auditor or the Outside
Auditor.
6
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