SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2001
Commission file number 1-9802
SYMBOL TECHNOLOGIES, INC.__________________
(Exact name of registrant as specified in its charter)
Delaware 11-2308681______
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Symbol Plaza, Holtsville, NY 11742_________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 631-738-2400
Former name, former address and former fiscal year, if changed
since last report.
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 _________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the period
covered by this report.
Class Outstanding at September 30, 2001
Common Stock, 228,384,605 shares
par value $0.01
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2001 and December 31, 2000 2
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2001
and 2000 3
Condensed Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30, 2001
and 2000 4
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
ITEM 3.
Quantitative and Qualitative Disclosures about
Market Risk 23
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings 24
ITEM 6.
Exhibits and Reports on Form 8-K 30
SIGNATURES 31
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
September 30, December 31,
ASSETS 2001 2000____
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $109,776 $63,411
Accounts receivable, less allowance for doubtful
accounts of $30,881 and $31,275, respectively 325,561 453,906
Inventories 311,605 285,413
Deferred income taxes 204,462 197,019
Prepaid and refundable income taxes 75,601 -
Other current assets 98,274 78,503
TOTAL CURRENT ASSETS 1,125,279 1,078,252
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $143,298 and
$151,953, respectively 232,075 234,467
INVESTMENT IN MARKETABLE SECURITIES 52,630 263,305
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $191,052 and $163,056,
respectively 528,317 517,175
$1,938,301 $2,093,199
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $297,872 $325,670
Current portion of long-term debt 6,564 23,025
Income taxes payable - 6,629
Deferred revenue 38,580 30,227
Accrued restructuring expenses 27,172 72,487
TOTAL CURRENT LIABILITIES 370,188 458,038
CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES 87,048 106,913
LONG-TERM DEBT, less current maturities 195,425 201,144
OTHER LIABILITIES AND DEFERRED REVENUE 124,063 125,408
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00; authorized
10,000 shares, none issued or outstanding - -
Series A Junior Participating preferred stock,
par value $1.00; authorized 500 shares, none
issued or outstanding - -
Common stock, par value $0.01; authorized
600,000 shares; issued 252,917 shares and
164,863 shares, respectively 2,529 1,649
Retained earnings 336,999 408,098
Treasury stock, at cost, 24,532 shares
and 15,439 shares, respectively (217,959) (185,599)
Other stockholders' equity 1,040,008 977,548
1,161,577 1,201,696
$1,938,301 $2,093,199
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,__
2001 2000 2001 2000__
NET REVENUE $331,191 $373,249 $1,121,566 $1,034,658
COST OF REVENUE 253,551 212,600 846,714 588,528
AMORTIZATION OF SOFTWARE
DEVELOPMENT COSTS 4,607 6,602 13,326 17,930
GROSS PROFIT 73,033 154,047 261,526 428,200
OPERATING EXPENSES:
Engineering 28,108 24,832 87,466 69,902
Selling, general and
administrative 78,133 64,770 249,079 187,589
Amortization of excess
of cost over fair value
of net assets acquired 4,124 1,397 12,123 4,196
110,365 90,999 348,668 261,687
(LOSS)/EARNINGS FROM OPERATIONS (37,332) 63,048 (87,142) 166,513
INTEREST EXPENSE, net (4,947) (3,562) (12,943) (7,155)
(LOSS)/EARNINGS BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM (42,279) 59,486 (100,085) 159,358
(BENEFIT FROM)/PROVISION FOR
INCOME TAXES (5,773) 19,036 (31,971) 50,995
(LOSS)/EARNINGS BEFORE
EXTRAORDINARY ITEM (36,506) 40,450 (68,114) 108,363
EXTRAORDINARY GAIN ON REPURCHASE
OF CONVERTIBLE NOTES, NET
OF $383 IN INCOME TAXES 813 - 813 -
NET (LOSS)/ EARNINGS ($35,693) $40,450 ($67,301) $108,363
BASIC (LOSS)/EARNINGS PER SHARE:
(Loss)/earnings before
extraordinary item ($0.16) $ 0.20 ($0.30) $ 0.53
Extraordinary gain on repurchase
of convertible notes - - - -
Net (loss)/earnings ($0.16) $ 0.20 ($0.30) $ 0.53
DILUTED (LOSS)/EARNINGS PER SHARE:
(Loss) earnings before
extraordinary item ($0.16) $ 0.18 ($0.30) $ 0.49
Extraordinary gain on repurchase
of convertible notes - - - -
Net (loss)/earnings ($0.16) $ 0.18 ($0.30) $ 0.49
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
Basic 228,372 206,312 226,983 204,635
Diluted 228,372 220,361 226,983 220,322
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended September 30,
2001 2000____
Cash flows from operating activities:
Net (loss)/earnings ($35,693) $40,450
Adjustments to reconcile net (loss)/earnings
to net cash provided by/(used in) operating
activities:
Depreciation and amortization of property,
plant and equipment 12,756 11,993
Other amortization 11,025 8,673
Provision for losses on accounts receivable 1,231 854
Tax benefit on exercise of stock
options and warrants 4,945 5,960
Gain on repurchase of convertible notes,
net of tax (813) -
Non cash restructuring and impairment charges 51,662 -
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable 118,963 (70,433)
Inventories 10,122 (21,597)
Other current assets (6,233) (991)
Accounts payable and accrued expenses (50,134) 19,165
Income taxes payable (8,634) (3,615)
Accrued restructuring expenses (9,640) -
Other liabilities and deferred revenue (354) (1,224)
Net cash provided by/(used in)
operating activities 99,203 (10,765)
Cash flows from investing activities:
Purchases of property, plant and
equipment (20,228) (21,818)
Investments in intangible and other assets (11,779) (2,375)
Net cash used in investing activities (32,007) (24,193)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt (6,473) 50,644
Repurchase of convertible notes (18,669) -
Exercise of stock options and warrants 790 5,786
Dividends paid (2,288) (1,377)
Purchase of treasury shares (5,163) (8,063)
Net cash (used in)/provided by financing
activities (31,803) 46,990
Effects of exchange rate changes on cash 3,050 (1,317)
Net increase in cash and temporary
investments 38,443 10,715
Cash and temporary investments, beginning
of period 71,333 39,553
Cash and temporary investments, end of
period $109,776 $50,268
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 5,885 $ 3,325
Income taxes $ 847 $ 8,503
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Nine Months Ended September 30,
2001 2000 __
Cash flows from operating activities:
Net (loss)/ earnings ($67,301) $108,363
Adjustments to reconcile net (loss)/ earnings
to net cash provided by/(used in) operating
activities:
Depreciation and amortization of property,
plant and equipment 39,602 35,461
Other amortization 30,653 24,176
Provision for losses on accounts receivable 2,853 2,022
Writedown due to probable losses from customers 16,000 -
Provision for inventory writedown 110,000 -
Tax benefit on exercise of stock options
and warrants 43,045 52,758
Gain on repurchase of convertible notes,
net of tax (813) -
Non cash restructuring and impairment charges 51,662 -
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable 107,599 (120,111)
Inventories (149,825) (90,118)
Other current assets (13,855) (36,530)
Accounts payable and accrued expenses (28,139) (1,992)
Income taxes payable (82,230) (30,021)
Accrued restructuring expenses (56,823) -
Other liabilities and deferred revenue 7,007 (8,133)
Net cash provided by/(used in)
operating activities 9,435 (64,125)
Cash flows from investing activities:
Proceeds from termination of
collar arrangement 88,046 -
Purchases of property, plant and
equipment (74,443) (64,707)
Investments in intangible and other assets (31,607) (40,855)
Net cash used in investing activities (18,004) (105,562)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt 79,253 110,019
Repurchase of convertible notes (18,669) -
Exercise of stock options and warrants 31,339 27,393
Dividends paid (3,798) (2,742)
Purchase of treasury shares (32,360) (42,500)
Reissuance of treasury shares - 100,000
Net cash provided by financing activities 55,765 192,170
Effects of exchange rate changes on cash (831) (2,343)
Net increase in cash and
temporary investments 46,365 20,140
Cash and temporary investments, beginning
of period 63,411 30,128
Cash and temporary investments, end of
period $109,776 $50,268
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $13,656 $ 6,854
Income taxes $ 7,569 $23,429
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(All dollar amounts in thousands, except per share data)
1. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements include all
necessary adjustments (consisting of normal recurring accruals)
and present fairly the Company's financial position as of
September 30, 2001, and the results of its operations and its
cash flows for the three and nine months ended September 30,
2001 and 2000, in conformity with generally accepted accounting
principles for interim financial information applied on a
consistent basis. The results of operations for the three and
nine months ended September 30, 2001, are not necessarily
indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 2000.
Certain reclassifications have been made to prior consolidated
financial statements to conform with current presentations.
2. In June 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141, "Business Combinations". SFAS No. 141 applies
prospectively to all business combinations initiated after June 30,
2001 and to all business combinations accounted for using the
purchase method for which the date of acquisition is July 1, 2001,
or later. This statement requires all business combinations to be
accounted for using one method, the purchase method. The adoption
of SFAS No. 141 is not expected to have a significant impact on the
Company's financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 addresses financial accounting
and reporting for acquired goodwill and other intangible assets.
Under SFAS No. 142, goodwill and some intangible assets will no
longer be amortized, but rather reviewed for impairment on a
periodic basis. The provisions of this Statement are required to be
applied starting with fiscal years beginning after December 15,
2001. This Statement is required to be applied at the beginning of
the Company's fiscal year and to be applied to all goodwill and
other intangible assets recognized in its financial statements at
that date. Impairment losses for goodwill and certain intangible
assets that arise due to the initial application of this Statement
are to be reported as resulting from a change in accounting
principle. Goodwill and intangible assets acquired after June 30,
2001, will be subject immediately to the provisions of this
Statement. The adoption of SFAS No. 142 is not expected to have a
material impact on the Company's financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The standard requires entities to record
the fair value of a liability for an asset retirement obligation in
the period in which it is incurred. When the liability is initially
recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost
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is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon
settlement. The standard is effective for fiscal years beginning
after June 15, 2002. The adoption of SFAS 143 is not expected to
have a material impact on the Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144
replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144
requires that long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. Therefore,
discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have
not yet occurred. SFAS No. 144 also broadens the reporting of
discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity
and that will be eliminated from the ongoing operations of the
entity in a disposal transaction. The provisions of SFAS No. 144
are effective for financial statements issued for fiscal years
beginning after December 15, 2001. The adoption of SFAS 144 is not
expected to have a material impact on the Company's financial
statements.
3. Basic earnings per share are based on the weighted average
number of shares of common stock outstanding during the period.
For the three and nine months ended September 30, 2001, stock
options and warrants outstanding and the effect of convertible
subordinated notes and debentures have not been included in the
net loss per share calculation since their effect would be
antidilutive. For the three and nine months ended September 30,
2000, diluted earnings per share are based on the weighted
average number of shares of common stock and common stock
equivalents (options and warrants) outstanding during the
period, computed in accordance with the treasury stock method.
On February 26, 2001 the Board of Directors approved a three for
two split of the Company's common stock to be effected as a 50
percent stock dividend payable on April 16, 2001 to shareholders
of record on March 26, 2001. In these financial statements, all
earnings per share amounts and the weighted average number of
common shares outstanding have been retroactively restated to
reflect the stock split. In addition, the number of common
shares issued has been adjusted to reflect the stock split and
an amount equal to the par value of the additional shares issued
has been transferred from additional paid-in capital to common
stock.
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Telxon's convertible notes and debentures are convertible into
the Company's common stock. As a result of the stock split, the
conversion price for Telxon's 5.75 percent convertible notes
changed from $55 per common share to $36.67 per common share and
the conversion price for Telxon's 7.50 percent convertible
debentures changed from $53.50 per common share to $35.67 per
common share.
In August 2001, the Company announced that its Board of Directors
adopted a stockholder rights plan. In connection with the
adoption of the rights plan, the Board has designated and
reserved five hundred thousand shares of Series A Junior
Participating preferred stock and has declared a dividend of one
preferred stock purchase right (the "rights") for each share of
the Company's common stock outstanding on September 14, 2001.
The rights will continue to be represented by, and trade with,
the Company's common stock certificates, unless the rights become
exercisable. The rights become exercisable (with certain
exceptions) only in the event that any person or group acquires
beneficial ownership of, or announces a tender or exchange offer
for, 15 percent or more of the outstanding shares of the
Company's common stock. The rights will expire on August 13,
2011, unless earlier redeemed or exchanged or terminated in
accordance with the rights plan.
On August 13, 2001 the Board approved a $.01 per share semi-
annual cash dividend payable on October 5, 2001 to shareholders
of record on September 14, 2001.
4. Classification of inventories is:
September 30, 2001 December 31, 2000
(Unaudited)
Raw materials $188,485 $175,462
Work-in-process 14,397 25,106
Finished goods 108,723 84,845
$311,605 $285,413
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5. The Company's total comprehensive (loss) earnings were as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,_
(Unaudited) (Unaudited)
2001 2000 2001 2000 _
Net (loss) earnings ($35,693) $ 40,450 ($67,301) $108,363
Other comprehensive
(losses) earnings, net
of tax:
Change in equity due to
foreign currency
translation adjustments 4,246 (5,503) (3,589) (10,162)
Change in equity due to
unrealized gains (losses)
on marketable securities (3,789) (1,965) (10,508) (8,035)
Comprehensive (loss)
earnings ($35,236) $ 32,982 ($81,398) $ 90,166
6. In September 2001, at the option of the holders, the Company
repurchased $19,865 of Telxon's 5.75 percent convertible
subordinated notes for $18,669 in cash, resulting in an
extraordinary gain of $813 (net of income tax expense of $383).
Borrowings from the Company's line of credit were used to
finance the repurchase.
7. a.) In September 2001, the Company's management approved and
adopted a formal plan of restructuring related to the
reorganization of its manufacturing facilities. The plan
includes a further shift of volume manufacturing away from its
Bohemia, New York facility to lower cost locations, primarily
its Reynosa, Mexico facility and Far East contract manufacturing
partners. In connection with this reorganization, the Company's
operating results for the three and nine months ended September
30, 2001 include a $59,662 charge for restructuring and
impairment. This restructuring charge, which was recorded as a
component of cost of revenue, includes workforce reduction and
asset impairment costs. The gross provision of $62,662 related
to the September 2001 restructuring was partially offset by the
reversal of $3,000 of unutilized restructuring reserves
remaining from the Company's prior year accrual (see Note 7b.),
resulting in a net charge of $59,662 for the three and nine
months ended September 30, 2001. The Company's current
reorganization plan is expected to be substantially completed by
June 30, 2002. As part of this plan, the Company recorded a
severance charge of $11,000 related to the termination of
approximately 375 employees, primarily manufacturing associates.
As of September 30, 2001, no employees had been terminated.
Details of the restructuring charges as of September 30, 2001
are as follows:
September 30, 2001
Provision Utilized Accrual_____
Workforce reductions $11,000 $ - $11,000
Impaired fixed asset
and other writeoffs 51,662 45,204 6,458
$62,662 $45,204 $17,458
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b.) In December 2000, the Company's management approved and
adopted a formal plan of restructuring as a result of the
acquisition of Telxon in November 2000. In connection with this
acquisition, the Company accrued for restructuring, impairment
and integration related charges at December 1, 2000. The
accrual represented costs anticipated for workforce reductions,
asset impairments and lease terminations. The Company's exit
plan, which focused on the consolidation of manufacturing
operations, including plant closings and elimination of
redundant activities, was substantially completed by June 30,
2001. The remaining payments related to the restructuring plan
relate to ongoing lease commitments. The amount accrued for
workforce reductions related to the termination of 1,251
employees, primarily in manufacturing, management, sales and
administrative support. As of June 30, 2001, all of these
employees had been terminated. Details of the remaining
unutilized restructuring expenses at September 30, 2001 are as
follows:
December 31, Reversal of September 30,
2000 Accrual Provision Utilized 2001 Accrual_
Workforce reductions $44,158 $3,000 $41,158 $ -
Impaired fixed asset
and other writeoffs 7,899 - 7,743 156
Lease cancellation costs 20,430 - 10,872 9,558
$72,487 $3,000 $59,773 $9,714
As a result of the restructuring plans described above, the Company
has a balance of $27,172 in accrued restructuring expenses as of
September 30, 2001.
8. In January 2001, the Company entered into a private Manditorily
Exchangeable Securities Contract for Shared Appreciation Income Linked
Securities ("SAILS") arrangement with a highly rated financial
institution. The securities which underlie the SAILS contract
represent the Company's investment in Cisco common stock, which was
acquired in connection with the Telxon acquisition. These securities
have a seven-year maturity and pay a cash coupon of 3.625 percent.
The SAILS contain an embedded equity collar, which effectively manages
a large portion of the Company's exposure to fluctuations in the fair
value of its holdings in Cisco common stock. At maturity, the SAILS
will be exchangeable for shares of Cisco common stock, or at the
Company's option, cash in lieu of shares. Net proceeds from the
issuance of the SAILS and termination of an existing freestanding
collar agreement were approximately $262,246 which were used for
general corporate purposes, including the repayment of debt
outstanding under its revolving credit facility. The Company accounts
for the embedded equity collar as a derivative financial instrument in
accordance with the requirements of Statement of Financial Accounting
Standards No. 133, "Accounting for Certain Derivative Instruments and
Hedging Activities." The change in fair value of this derivative
between reporting dates is recognized through earnings. The
derivative has been reclassified and combined with the debt instrument
in long-term debt as of September 30, 2001 in an appropriate
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presentation of the Company's overall future cash outflows for
that debt instrument under Financial Accounting Standards Board
Interpretation No. 39 "Offsetting of Amounts Related to Certain
Contracts" for the legal right of offset for accounting purposes.
9. The Company is currently involved in matters of litigation arising
from the normal course of business. Management is of the opinion
that such litigation will not have a material adverse effect on
the Company's consolidated financial position or results of
operations.
In March 2001, Proxim Incorporated ("Proxim") sued the Company, 3 Com
Corporation, Wayport Incorporated and SMC Networks Incorporated in the
United States District Court in the District of Delaware for
allegedly infringing three patents owned by Proxim. Proxim did not
identify any specific products of the Company that allegedly
infringe these three patents. Proxim also filed a similar lawsuit
in March 2001 in the United States District Court in the District of
Massachusetts against Cisco Systems, Incorporated and Intersil
Corporation. The complaint against the Company seeks, among other
relief, unspecified damages for patent infringement, treble damages
for willful infringement, and a permanent injunction against the
Company from infringing these three patents. In a press conference
held after the filing of the complaints, Proxim indicated that it
was interested in licensing the patents that are the subject of the
lawsuit against the Company.
On May 1, 2001, the Company filed an answer and counterclaim in
response to Proxim's suit. The Company has responded by asserting its
belief that Proxim's asserted patents are invalid and not infringed by
any of the Company's products. In addition, the Company has asserted
its belief that Proxim's claims are barred under principles of equity,
estoppel and laches. The Company has also filed counterclaims against
Proxim, asserting that Proxim's RF product offerings infringe four of
the Company's patents relating to wireless LAN technology. The
Company has requested the Court grant an unspecified amount of damages
as well as a permanent injunction against Proxim's sale of its
wireless LAN product offerings. The Company has also filed a motion
to disqualify Howrey, Simon, Arnold & White, LLP, one of the primary
law firms representing Proxim in the Delaware action, because of its
past associations with, and representation of, the Company. Oral
argument on this motion was heard by the Court on September 6, 2001.
On May 14, 2001, the Company announced that an agreement had been
reached with Intersil Corporation, a supplier of key wireless LAN
chips to the Company. Under this agreement, Intersil will
indemnify and defend the Company against Proxim's infringement
suit.
On July 21, 1999, the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly initiated a
litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The
suit, which is entitled Symbol Technologies, Inc. et. al. v. Lemelson
Medical, Educational & Research Foundation, Limited Partnership, was
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commenced in the U.S. District Court, District of Nevada in Reno,
Nevada, but was subsequently transferred to the Court in Las Vegas,
Nevada. In the litigation, the Auto ID companies seek, among other
remedies, a declaration that certain patents, which have been asserted
by the Lemelson Partnership against end users of bar code equipment,
are invalid, unenforceable and not infringed. The Company has agreed
to bear approximately half of the legal and related expenses
associated with the litigation, with the remaining portion being borne
by the other Auto ID companies.
The Lemelson Partnership has contacted many of the Auto ID companies'
customers demanding a one-time license fee for certain so-called "bar
code" patents transferred to the Lemelson Partnership by the late
Jerome H. Lemelson. The Company and the other Auto ID companies have
received many requests from their customers asking that they undertake
the defense of these claims using their knowledge of the technology at
issue. Certain of these customers have requested indemnification
against the Lemelson Partnership's claims from the Company and the
other Auto ID companies, individually and/or collectively with other
equipment suppliers. The Company, and we understand, the other Auto ID
companies believe that generally they have no obligation to indemnify
their customers against these claims and that the patents being
asserted by the Lemelson Partnership against their customers with
respect to bar code equipment are invalid, unenforceable and not
infringed. However, the Company and the other Auto ID companies
believe that the Lemelson claims do concern the Auto ID industry at
large and that it is appropriate for them to act jointly to protect
their customers against what they believe to be baseless claims being
asserted by the Lemelson Partnership.
The Lemelson Partnership filed a motion to dismiss the lawsuit, or in
the alternative, to stay proceedings or to transfer the case to the
U.S. District Court in Arizona where there are pending cases involving
the Lemelson Partnership and other companies in the semiconductor and
electronics industries. On March 21, 2000, the U.S. District Court in
Nevada denied the Lemelson Partnership's motion to dismiss, transfer,
or stay the action. It also struck one of the four counts.
On April 12, 2000, the Lemelson Partnership filed its answer to the
complaint in the Symbol et al. v. Lemelson Partnership case. In the
answer, the Lemelson Partnership included a counterclaim against the
Company and the other plaintiffs seeking a dismissal of the case.
Alternatively, the Lemelson Partnership's counterclaim seeks a
declaration that the Company and the other plaintiffs have contributed
to, or induced infringement of particular method claims of the
patents-in-suit by the plaintiffs' customers. The Company believes
there is no merit to the Lemelson Partnership's counterclaim.
On May 15, 2000, the Auto ID companies filed a motion seeking
permission to file an interlocutory appeal of the Court's decision to
strike the fourth count of the complaint (which alleged that the
Lemelson Partnership's delays in obtaining its patents rendered them
unenforceable for laches). The motion was granted by the Court on
July 14, 2000. The Court entered a clarifying superseding order on
July 25, 2000. On September 1, 2000, the U.S. Court of Appeals for
-12-
the Federal Circuit granted the petition of the Auto ID companies for
permission to pursue this interlocutory appeal. The Federal Circuit
Court heard oral arguments on this appeal on October 4, 2001.
On July 24, 2000, the Auto ID companies filed a motion for partial
summary judgment arguing that almost all of the claims of the Lemelson
Partnership's patents are invalid for lack of written description. On
October 25, 2000, the Lemelson Partnership filed a combined opposition
to the motion of the Auto ID companies for partial summary judgment
and its own cross-motion for partial summary judgment that many of the
claims of the Lemelson Partnership's patents satisfy the written
description requirement. On July 12, 2001, the District Court denied
both the Auto ID companies' motion and Lemelson's cross-motion. In
doing so, the Court did not rule on the merits of the matters raised
in the motions, but instead held that there remain triable issues of
material fact that preclude granting summary judgment in favor of
either party.
On May 14, 2001, the Auto ID companies filed another motion for
summary judgment arguing that Lemelson's patents at issue are
unenforceable because of Lemelson's inequitable conduct before the
U.S. Patent and Trademark Office. On June 19, 2001, the Lemelson
Partnership filed a combined opposition to the motion of the Auto ID
companies for summary judgment and its own cross-motion for partial
summary judgment that no such inequitable conduct occurred. Oral
argument on the motions is currently scheduled to be heard on November
9, 2001.
On July 25, 2001 the Court entered an order setting a schedule that
culminates with a trial currently scheduled for August 2002.
From December 1998 through March 1999, a total of 27 class actions
were filed in the United States District Court, Northern District of
Ohio, by certain alleged stockholders of Telxon on behalf of
themselves and purported classes consisting of Telxon stockholders,
other than the defendants and their affiliates, who purchased stock
during the period from May 21, 1996 through February 23, 1999 or
various portions thereof, alleging claims for "fraud on the market"
arising from alleged misrepresentations and omissions with respect to
Telxon's financial performance and prospects and an alleged violation
of generally accepted accounting principles by improperly recognizing
revenues. The named defendants are Telxon, its former President and
Chief Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The actions
were referred to a single judge. On February 9, 1999, the plaintiffs
filed a motion to consolidate all of the actions and the Court heard
motions on naming class representatives and lead class counsel on
April 26, 1999.
-13-
On August 25, 1999, the Court appointed lead plaintiffs and their
counsel, ordered the filing of an amended complaint, and dismissed 26
of the 27 class action suits without prejudice and consolidated
those 26 cases into the first filed action. The lead plaintiffs
appointed by the Court filed an amended class action complaint on
September 30, 1999. The amended complaint alleges that the defendants
engaged in a scheme to defraud investors through improper revenue
recognition practices and concealment of material adverse conditions
in Telxon's business and finances. The amended complaint seeks
certification of the identified class, unspecified compensatory and
punitive damages, pre- and post-judgment interest, and attorneys' fees
and costs. Various appeals and writs challenging the District Court's
August 25, 1999 rulings were filed by two of the unsuccessful
plaintiffs but have all been denied by the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss the
amended complaint, which was denied on September 29, 2000. Following
the denial, the parties filed a proposed joint case schedule,
discovery commenced, and the parties each filed their initial
disclosures. On October 30, 2000, defendants filed their answer to
the plaintiffs' amended complaint as well as a motion for
reconsideration or to certify the order denying the motion to dismiss
for interlocutory appeal and request for oral argument, and a
memorandum of points and authorities in support of that motion. On
November 14, 2000, plaintiffs filed a memorandum in opposition of
defendants' motion. This motion was denied on January 19, 2001. On
November 1, 2000, defendants filed a motion for application of the
Amended Federal Rules of Civil Procedure to the case, and on November
16, 2000, the Court granted this motion in part and held that the
Court will apply the new rules of evidence and new rules of civil
procedure except to the extent those rules effectuate changes to Rule
26 of the Federal Rules for Civil Procedure. Discovery is in its
preliminary stages.
By letter dated December 18, 1998, the Staff of the Division of
Enforcement of the Securities and Exchange Commission (the
"Commission") advised Telxon that it was conducting a preliminary,
informal inquiry into trading of the securities of Telxon at or about
the time of Telxon's December 11, 1998 press release announcing that
Telxon would be restating the revenues for its second fiscal quarter
ended September 30, 1998. On January 20, 1999, the Commission issued
a formal Order Directing Private Investigation and Designating
Officers To Take Testimony with respect to the referenced trading and
specified accounting matters, pursuant to which subpoenas have been
served requiring the production of specified documents and testimony.
By letter dated March 9, 2001, the Division of Enforcement of the
Commission informed Telxon that it had made a preliminary
determination to recommend that the Commission initiate an action
against Telxon for violation of various sections of the federal
securities laws and regulations and to seek permanent injunctive
-14-
relief and appropriate monetary penalties against Telxon. The
Division of Enforcement has also indicated that it intends to
recommend similar action against three former employees of Telxon.
The Commission has given Telxon an indefinite extension
to indicate in a written submission why Telxon believes no action
should be instituted against it. There has not been an accrual for
any fines or penalties under Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies," because the ultimate
outcome of this matter cannot presently be determined and because the
amount of any fine or penalty cannot be reasonably estimated.
10. The Company manages its business on a geographic basis. The
Company's reportable business segment has been aggregated into
three geographic segments, The Americas (which includes North
and South America), EMEA (which includes Europe, Middle East and
Africa) and Asia Pacific (which includes Japan, the Far East and
Australia).
Summarized financial information concerning the Company's
geographic segments is shown in the following table. Sales are
allocated to each of the geographic segments based upon the
location of the use of the products and services. The
"Corporate" column includes corporate related expenses (primarily
various indirect manufacturing operations costs, engineering and
general and administrative expenses) not allocated to geographic
segments. This has the effect of increasing geographic operating
profit for The Americas, EMEA and Asia Pacific.
Identifiable assets are those tangible and intangible assets used
in operations in each geographic area. Corporate assets are
principally temporary investments and the excess of cost over
fair value of net assets acquired.
-15-
The Asia/
Americas EMEA Pacific Corporate Consolidated
Three Months ended
September 30, 2001:
Sales to unaffiliated
customers $219,252 $91,388 $20,551 $ - $331,191
Transfers between
geographic areas 72,430 - - (72,430) -
Total net revenue $291,682 $91,388 $20,551 ($72,430) $331,191
(Loss)/Earnings before
income taxes and
extraordinary item $71,562 $21,452 $8,058 ($143,351) ($42,279)
Identifiable assets $1,374,816 $191,932 $40,084 $331,469 $1,938,301
Three Months ended
September 30, 2000:
Sales to unaffiliated
customers $263,259 $ 89,749 $20,241 $ - $373,249
Transfers between
geographic areas 74,341 - - ( 74,341) -
Total net revenue $337,600 $ 89,749 $20,241 ($74,341) $373,249
Earnings before
income taxes $96,094 $23,661 $7,521 ($67,790) $59,486
Identifiable assets $1,085,705 $143,965 $24,459 $103,783 $1,357,912
Nine Months ended
September 30, 2001:
Sales to unaffiliated
customers $775,246 $285,856 $60,464 $ - $1,121,566
Transfers between
geographic areas 238,719 - - (238,719) -
Total net revenue $1,013,965 $285,856 $60,464 ($238,719) $1,121,566
(Loss)/Earnings before
income taxes and
extraordinary item $265,213 $ 69,220 $23,441 ($457,959) ($100,085)
Nine Months ended
September 30, 2000:
Sales to unaffiliated
customers $713,632 $262,782 $58,244 $ - $1,034,658
Transfers between
geographic areas 228,107 - - (228,107) -
Total net revenue $941,739 $262,782 $58,244 ($228,107) $1,034,658
Earnings before
income taxes $254,575 $ 66,852 $20,834 ($182,903) $159,358
1026:
-16-
Safe harbor for forward-looking statements under securities litigation
act of 1995; certain cautionary statements
This report contains forward-looking statements based on current
expectations, forecasts and assumptions that involve risks and
uncertainties that could cause actual outcomes and results to differ
materially. These risks and uncertainties include price and product
competition, dependence on new product development, reliance on major
customers, customer demand for the Company's products and services,
control of costs and expenses, international growth, general industry and
market conditions and growth rates and general domestic and international
economic conditions including interest rate and currency exchange rate
fluctuations as well as the effect of the current international political
situation, which is impossible to predict. For a further list and
description of such risks and uncertainties, see the reports filed by the
Company with the Securities and Exchange Commission. The Company
disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events
or otherwise.
-17-
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts in thousands, except per share data)
Results of Operations
Although net revenue of $1,121,566 for the nine months ended
September 30, 2001 increased 8.4 percent over the comparable prior
year period, net revenue of $331,191 for the three months ended
September 30, 2001 declined 11.3 percent from the comparable prior
year period. Net revenue for the three months ended March 31, 2001
and June 30, 2001 was $450,165 and $340,210, respectively. The lower
sequential revenue for the three months ended September 30, 2001
versus the prior two quarters is due to a global slowdown in
information technology spending and the logistics disruption caused by
the September 11, 2001 terrorist attacks. Foreign exchange rate
fluctuations unfavorably impacted net revenue by approximately 2.1
percent and 2.3 percent for the three and nine months ended September
30, 2001, respectively. Foreign exchange rate fluctuations
unfavorably impacted net revenue by approximately 2.4 percent and 2.2
percent for the three and nine months ended September 30, 2000,
respectively.
Geographically, the Americas revenue decreased 16.7 percent for
the three months ended September 30, 2001, but increased 8.6 percent
for the nine months ended September 30, 2001 as compared to the
comparable prior year periods. EMEA revenue increased 1.8 percent and
8.8 percent, respectively, for the three and nine months ended
September 30, 2001, as compared to the comparable prior year periods.
Asia Pacific revenue increased 1.5 percent and 3.8 percent,
respectively, for the three and nine months ended September 30, 2001,
as compared to the comparable prior year periods. The Americas, EMEA
and Asia Pacific revenue represent approximately 66 percent, 28
percent and 6 percent of net revenue, respectively for the three
months ended September 30, 2001 and 69 percent, 26 percent and 5
percent of net revenue, respectively for the nine months ended
September 30, 2001.
The Company has forecasted revenue to be in the range of $330,000
to $360,000 for the fourth quarter of 2001. This forecast is
principally based on the current levels of backlog for the remainder
of the year and the assumption that the booking/shipment ratio for
this quarter will be approximately equal to that experienced in the
third quarter of 2001. Attainment of this forecast is dependent on
many factors, some of which are beyond the Company's control,
including those previously enumerated as well as the assumption that
at a minimum there is no further deterioration in actual or perceived
domestic or international economic conditions or increased adverse
impact due to the volatile international political situation.
Cost of revenue (as a percentage of net revenue) before non-
recurring charges was 58.5 percent and 60.4 percent for the three and
nine months ended September 30, 2001. This represents an increase
from 57.0 percent and 56.9 percent for the comparable prior year
periods due to a shift in product mix in the fastest growing
proportion of the Company's business to lower margin products versus
-18-
the historical mix of products, the inclusion of Telxon's generally
lower margin products, and the continued unfavorable impact of foreign
exchange rate fluctuations on net revenue. Included in cost of
revenue for the three and nine months ended September 30, 2001 is a
$59,662 non-recurring charge recorded in the third quarter of 2001
relating to the reorganization of the Company's manufacturing
facilities. Management's current plan is to further shift volume
manufacturing away from its Bohemia, New York facility to lower cost
locations, primarily its Reynosa, Mexico facility and Far East
contract manufacturing partners. Included in cost of revenue for the
nine months ended September 30, 2001 is a $110,000 non-recurring
charge recorded in the second quarter of 2001 for a writedown of the
Company's radio frequency (RF) infrastructure and systems inventory.
The writedown was recorded as a result of lower demand for the
Company's current RF products, coupled with technological obsolescence
due to planned introductions of new RF infrastructure products and
mobile computing appliances.
Amortization of software development costs of $4,607 and $13,326
for the three and nine months ended September 30, 2001 decreased from
$6,602 and $17,930, respectively, in the comparable prior year periods
due to a decrease in the book value of software development costs
resulting from the writeoff of impaired assets in the fourth quarter
of 2000 in conjunction with the Telxon acquisition and the writeoff in
the third quarter of 2001 related to the reorganization of the
Company's manufacturing facilities.
Engineering costs for the three and nine months ended September
30, 2001 increased to $28,108 and $87,466 from $24,832 and $69,902,
respectively, for the comparable prior year periods. This represents
an increase of 13.2 percent and 25.1 percent, respectively, from the
prior year periods due to additional expenses incurred in connection
with the continuing research and development of new products and the
improvement of existing products and Telxon products as well as a
decrease in the amount of capitalized costs incurred for internally
developed product software where economic and technological
feasibility has been established. As a percentage of net revenue
engineering expenses increased to 8.5 percent and 7.8 percent for the
three and nine months ended September 30, 2001 compared to 6.7 percent
and 6.8 percent, respectively, for the comparable prior year periods
due to lower revenue levels as well as increased expenditures.
Selling, general and administrative expenses of $78,133 and
$249,079 for the three and nine months ended September 30, 2001
increased from $64,770 and $187,589, respectively, for the comparable
prior year periods. In absolute dollars, selling, general and
administrative expenses increased 20.6 percent and 32.8 percent,
respectively, from the prior year periods. The increase resulted from
additional expenses due to the Telxon acquisition and additional
expenses incurred to support a revenue base that is lower than that
originally planned for in 2001. As a percentage of net revenue, such
expenses increased to 23.6 percent and 22.2 percent for the three and
nine months ended September 30, 2001 from 17.4 percent and 18.1
percent, respectively, in the comparable prior year periods due to
lower revenues as well as increased expenditures.
-19-
Included in the results for the nine months ended September 30,
2001 is a pre-tax charge of approximately $16,000 recorded in the
second quarter of 2001 for probable losses expected to be incurred due
to challenges faced by the Company's OEM partners of selling products
in the deteriorating capital spending environment.
Amortization of excess of cost over fair value of net assets
acquired of $4,124 and $12,123 for the three and nine months ended
September 30, 2001, increased from $1,397 and $4,196, respectively, for
the comparable prior year periods primarily due to the Telxon
acquisition.
Net interest expense increased to $4,947 and $12,943 for the
three and nine months ended September 30, 2001 from $3,562 and $7,155
for the comparable prior year periods primarily due to the SAILS
exchangeable debt, (refer to Liquidity and Capital Resources for
further discussion), and interest on Telxon's convertible subordinated
notes and debentures, partially offset by a reduction in interest
expense due to annual mandatory repayments of other indebtedness and
the repurchase of certain of its 5.75 percent convertible subordinated
notes, discussed below.
The Company's effective tax benefit for the three and nine months
ended September 30, 2001 was 13.7 percent and 31.9 percent,
respectively. This differs from the statutory rate primarily as a
result of non-recurring charges associated with the reorganization of
the Company's manufacturing facilities and an inventory writedown.
In September 2001, the Company repurchased $19,865 of Telxon's
5.75 percent convertible subordinated notes for $18,669 in cash.
This resulted in an extraordinary gain of $813, net of income taxes
of $383, for the three and nine months ended September 30, 2001.
Based on the aforementioned forecast level of revenue, the
Company expects diluted earnings per share to be in the range of
$0.05-$0.08 for the fourth quarter of 2001.
Liquidity and Capital Resources
The Company utilizes a number of measures of liquidity including
the following:
September 30, December 31,
2001 _____ 2000_____
Working Capital $755,091 $620,214
Current Ratio (Current Assets
to Current Liabilities) 3.0:1 2.4:1
Long-Term Debt to Capital 19.6% 20.4%
(Convertible subordinated notes
and debentures plus long-term
debt to convertible subordinated
notes and debentures plus
long-term debt plus equity)
-20-
Current assets increased by $47,027 from December 31, 2000
principally due to an increase in cash due to increased collection of
accounts receivable and proceeds from the SAILS exchangeable debt
transaction, prepaid and refundable income taxes resulting from non-
recurring charges associated with an inventory writedown and the
reorganization of the Company's manufacturing facilities and the tax
benefit of stock option exercises, partially offset by a decrease in
accounts receivable as a result of increased cash collections.
Current liabilities decreased $87,850 from December 31, 2000
primarily due to the net utilization of accrued restructuring
expenses, repayment of the current portion of long-term debt and the
decrease in accounts payable and accrued expenses.
The aforementioned activity resulted in a working capital
increase of $134,877 for the nine months ended September 30, 2001. The
Company's current ratio at September 30, 2001 increased to 3.0:1
compared with 2.4:1 as of December 31, 2000.
The Company generated $99,203 positive cash flow from operating
activities for the three months ended September 30, 2001, and experienced
an overall increase in cash of $38,443 for the period. The positive cash
flow provided by operating activities was partially offset by cash used
in investing activities, the repurchase of a portion of Telxon's 5.75
percent convertible notes, net repayments of notes payable and long-term
debt, the repurchase of 460,344 shares of the Company's common stock and
dividends paid.
Property, plant and equipment expenditures for the nine months
ended September 30, 2001 totaled $74,443 compared to $64,707 for the
nine months ended September 30, 2000. During the fourth quarter of 2000
the Company substantially completed construction of a 140,000 square
foot manufacturing and distribution facility in Reynosa, Mexico. In
February 2001, the Company began a 150,000 square foot expansion of this
facility. The total cost for this project is estimated to be $7,000 and
is scheduled to be completed during 2002. Additionally, in February
2001, the Company began construction of a new 320,000 square foot
distribution center and data center in McAllen, Texas. The total cost
for this project is estimated to be $31,000 and is scheduled to be
completed in the first half of 2002. The Company continues to make
capital investments in major systems and network conversions but does
not have any other material commitments for capital expenditures.
The Company's long-term debt to capital ratio decreased to 19.6
percent at September 30, 2001 from 20.4 percent at December 31, 2000
primarily due to the Company's repurchase of a portion of Telxon's 5.75
convertible subordinated notes, net repayments under the Company's
revolving credit facility and the increase in equity due to stock option
exercises partially offset by the SAILS exchangeable debt transaction
completed in January 2001, the decrease in equity due to the net loss
and the repurchase of treasury shares.
-21-
The Company maintains a revolving credit facility with a syndicate
of U.S. and international banks of $350 million for which the terms
extend to 2004. The borrowing rate under this facility is LIBOR plus
1.125 basis points. As of September 30, 2001 the Company had
outstanding borrowings of $115,884 under this facility, as compared to
$187,329 outstanding at December 31, 2000.
The Company has loan agreements with various banks pursuant to
which, the banks have agreed to provide lines of credit totaling
$95,000. As of September 30, 2001 the Company has no balance
outstanding under these lines as compared to $3,405 outstanding at
December 31, 2000. These agreements continue until such time as either
party terminates the agreements.
In January 2001, the Company entered into a private SAILS
arrangement with a highly rated financial institution. The securities
which underlie the SAILS contract represent the Company's investment in
Cisco common stock, which was acquired in connection with the Telxon
acquisition. These securities have a seven-year maturity and pay a
cash coupon of 3.625 percent. The SAILS contain an embedded equity
collar, which effectively manages a large portion of the Company's
exposure to fluctuations in the fair value of its holdings in Cisco
common stock. At maturity, the SAILS will be exchangeable for shares
of Cisco common stock, or at the Company's option, cash in lieu of
shares. Net proceeds from the issuance of the SAILS and termination of
an existing freestanding collar agreement were approximately $262,246
which were used for general corporate purposes, including the repayment
of debt outstanding under its revolving credit facility. The Company
accounts for the embedded equity collar as a derivative financial
instrument in accordance with the requirements of Statement of
Financial Accounting Standards No. 133, "Accounting for Certain
Derivative Instruments and Hedging Activities." The change in fair
value of this derivative between reporting dates is recognized through
earnings. The derivative has been reclassified and combined with the
debt instrument in long-term debt as of September 30, 2001 in an
appropriate presentation of the Company's overall future cash outflows
for that debt instrument under Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts" for the legal right of offset for accounting purposes.
The Company believes that it has adequate liquidity to meet its
current and anticipated needs from working capital, results of its
operations, and existing credit facilities.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141, "Business Combinations". SFAS No. 141 applies
prospectively to all business combinations initiated after June 30, 2001
and to all business combinations accounted using the purchase method for
which the date of acquisition is July 1, 2001, or later. This statement
requires all business combinations to be accounted for using one method,
the purchase method. The adoption of SFAS No. 141 is not expected to
have a significant impact on the Company's financial statements.
-22-
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. Under SFAS
No. 142, goodwill and some intangible assets will no longer be
amortized, but rather reviewed for impairment on a periodic basis. The
provisions of this Statement are required to be applied starting with
fiscal years beginning after December 15, 2001. This Statement is
required to be applied at the beginning of the Company's fiscal year and
to be applied to all goodwill and other intangible assets recognized in
its financial statements at that date. Impairment losses for goodwill
and certain intangible assets that arise due to the initial application
of this Statement are to be reported as resulting from a change in
accounting principle. Goodwill and intangible assets acquired after June
30, 2001, will be subject immediately to the provisions of this
Statement. The adoption of SFAS No. 142 is not expected to have a
material impact on the Company's financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The standard requires entities to record the
fair value of a liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially
recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement
of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard
is effective for fiscal years beginning after June 15, 2002. The
adoption of SFAS 143 is not expected to have a material impact on the
Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 replaces
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no
longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS No. 144 also broadens
the reporting of discontinued operations to include all components of an
entity with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of the
entity in a disposal transaction. The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal years beginning
after December 15, 2001. The adoption of SFAS 144 is not expected to
have a material impact on the Company's financial statements.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to ITEM 7, in the Company's annual report on Form 10-K for the
year ended December 31, 2000 for required disclosure.
-23-
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is currently involved in matters of litigation arising
from the normal course of business. Management is of the opinion
that such litigation will not have a material adverse effect on
the Company's consolidated financial position or results of
operations.
In March 2001, Proxim Incorporated ("Proxim") sued the Company,
3 Com Corporation, Wayport Incorporated and SMC Networks
Incorporated in the United States District Court in the District
of Delaware for allegedly infringing three patents owned by
Proxim. Proxim did not identify any specific products of the
Company that allegedly infringe these three patents. Proxim
also filed a similar lawsuit in March 2001 in the United States
District Court in the District of Massachusetts against Cisco
Systems, Incorporated and Intersil Corporation. The complaint
against the Company seeks, among other relief, unspecified
damages for patent infringement, treble damages for willful
infringement, and a permanent injunction against the Company
from infringing these three patents. In a press conference held
after the filing of the complaints, Proxim indicated that it was
interested in licensing the patents that are the subject of the
lawsuit against the Company.
On May 1, 2001, the Company filed an answer and counterclaim
in response to Proxim's suit. The Company has responded by
asserting its belief that Proxim's asserted patents are
invalid and not infringed by any of the Company's products.
In addition, the Company has asserted its belief that
Proxim's claims are barred under principles of equity,
estoppel and laches. The Company has also filed
counterclaims against Proxim, asserting that Proxim's RF
product offerings infringe four of the Company's patents
relating to wireless LAN technology. The Company has
requested the Court grant an unspecified amount of damages as
well as a permanent injunction against Proxim's sale of its
wireless LAN product offerings. The Company has also filed a
motion to disqualify Howrey, Simon, Arnold & White, LLP, one
of the primary law firms representing Proxim in the Delaware
action, because of its past associations with, and
representation of, the Company. Oral argument on this motion
was heard by the Court on September 6, 2001.
On May 14, 2001, the Company announced that an agreement had
been reached with Intersil Corporation, a supplier of key
wireless LAN chips to the Company. Under this agreement,
Intersil will indemnify and defend the Company against
Proxim's infringement suit.
-24-
On July 21, 1999, the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly
initiated a litigation against the Lemelson Medical, Educational,
& Research Foundation, Limited Partnership (the "Lemelson
Partnership"). The suit, which is entitled Symbol Technologies,
Inc. et. al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnership, was commenced in the U.S.
District Court, District of Nevada in Reno, Nevada but was
subsequently transferred to the Court in Las Vegas, Nevada.
In the litigation, the Auto ID companies seek, among other
remedies, a declaration that certain patents, which have been
asserted by the Lemelson Partnership against end users of bar code
equipment, are invalid, unenforceable and not infringed. The
Company has agreed to bear approximately half of the legal and
related expenses associated with the litigation, with the
remaining portion being borne by the other Auto ID companies.
The Lemelson Partnership has contacted many of the Auto ID
companies' customers demanding a one-time license fee for certain
so-called "bar code" patents transferred to the Lemelson
Partnership by the late Jerome H. Lemelson. The Company and the
other Auto ID companies have received many requests from their
customers asking that they undertake the defense of these claims
using their knowledge of the technology at issue. Certain of
these customers have requested indemnification against the
Lemelson Partnership's claims from the Company and the other Auto
ID companies, individually and/or collectively with other
equipment suppliers. The Company, and we understand, the other
Auto ID companies believe that generally they have no obligation
to indemnify their customers against these claims and that the
patents being asserted by the Lemelson Partnership against their
customers with respect to bar code equipment are invalid,
unenforceable and not infringed. However, the Company and the
other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate
for them to act jointly to protect their customers against what
they believe to be baseless claims being asserted by the Lemelson
Partnership.
The Lemelson Partnership filed a motion to dismiss the lawsuit, or
in the alternative, to stay proceedings or to transfer the case to
the U.S. District Court in Arizona where there are pending cases
involving the Lemelson Partnership and other companies in the
semiconductor and electronics industries. On March 21, 2000, the
U.S. District Court in Nevada denied the Lemelson Partnership's
motion to dismiss, transfer, or stay the action. It also struck
one of the four counts.
-25-
On April 12, 2000, the Lemelson Partnership filed its answer to
the complaint in the Symbol et al. v. Lemelson Partnership case.
In the answer, the Lemelson Partnership included a counterclaim
against the Company and the other plaintiffs seeking a dismissal
of the case. Alternatively, the Lemelson Partnership's
counterclaim seeks a declaration that the Company and the other
plaintiffs have contributed to, or induced infringement of
particular method claims of the patents-in-suit by the plaintiffs'
customers. The Company believes there is no merit to the Lemelson
Partnership's counterclaim.
On May 15, 2000, the Auto ID companies filed a motion seeking
permission to file an interlocutory appeal of the Court's decision
to strike the fourth count of the complaint (which alleged that
the Lemelson Partnership's delays in obtaining its patents
rendered them unenforceable for laches). The motion was granted
by the Court on July 14, 2000. The Court entered a clarifying,
superseding order on July 25, 2000. On September 1, 2000, the U.S.
Court of Appeals for the Federal Circuit granted the petition of
the Auto ID companies for permission to pursue this interlocutory
appeal. The Federal Circuit heard oral argument on this appeal on
October 4, 2001.
On July 24, 2000, the Auto ID companies filed a motion for partial
summary judgment arguing that almost all of the claims of the
Lemelson Partnership's patents are invalid for lack of written
description. On August 8, 2000, the Lemelson Partnership filed a
motion seeking an extension of approximately ten weeks in which to
file an answer to this motion. On August 31, 2000, the Court
granted the Lemelson Partnership's motion for such an extension.
On October 25, 2000, the Lemelson Partnership filed a combined
opposition to the motion of the Auto ID companies for partial
summary judgment and its own cross-motion for partial summary
judgment that many of the claims of the Lemelson Partnership's
patents satisfy the written description requirement. On January
8, 2001, the Auto ID companies filed a combined reply in support
of their partial summary judgment motion and opposition to the
Lemelson Partnership's partial summary judgment cross-motion. On
June 15, 2001, the District Court heard oral arguments on this
motion. On July 12, 2001, the District Court denied both the Auto
ID companies' motion and Lemelson's cross-motion. In doing so,
the Court did not rule on the merits of the matters raised in the
motions, but instead held that there remain triable issues of
material fact that preclude granting summary judgment in favor of
either party.
On May 14, 2001, the Auto ID companies filed another motion for
summary judgment arguing that Lemelson's patents at issue are
unenforceable because of Lemelson's inequitable conduct before the
U.S. Patent and Trademark Office. On June 19, 2001, the Lemelson
Partnership filed a combined opposition to the motion of the Auto
-26-
ID companies for summary judgment and its own cross-motion for
partial summary judgment that no such inequitable conduct
occurred. On July 10, 2001, the Auto ID companies filed a
combined reply in support of their summary judgment motion and
opposition to the Lemelson Partnership's partial summary judgment
cross-motion. Oral argument on the motions is currently scheduled
to be heard on November 9, 2001.
On July 25, 2001 the Court entered an order setting a schedule
that culminates with a trial currently scheduled for August 2002.
Under this timetable, the Auto ID companies' arguments relating to
invalidity, unenforceability and/or non-infringement of the so-
called bar code patents will be briefed by motion at the
appropriate time, or at trial.
On August 1, 2001, the Auto ID companies filed another motion for
partial summary judgment arguing that the Lemelson Partnership is
not entitled, as a matter of law, to rely on a now-abandoned
Lemelson patent application filed in 1954 to provide a filing date
or disclosure for the claims of the patents-in-suit. If the Court
grants this motion, the issues in the case will be significantly
simplified because the parties and the Court will not need to
further consider the 1954 patent application, which is entirely
different from the common specification of all the patents-in-
suit. Oral argument on the motion is currently scheduled to be
heard on November 9, 2001.
From December 1998 through March 1999, a total of 27 class actions
were filed in the United States District Court, Northern District
of Ohio, by certain alleged stockholders of Telxon on behalf of
themselves and purported classes consisting of Telxon
stockholders, other than the defendants and their affiliates, who
purchased stock during the period from May 21, 1996 through
February 23, 1999 or various portions thereof, alleging claims for
"fraud on the market" arising from alleged misrepresentations and
omissions with respect to Telxon's financial performance and
prospects and an alleged violation of generally accepted
accounting principles by improperly recognizing revenues. The
named defendants are Telxon, its former President and Chief
Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The
actions were referred to a single judge. On February 9, 1999, the
plaintiffs filed a motion to consolidate all of the actions and
the Court heard motions on naming class representatives and lead
class counsel on April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and their
counsel, ordered the filing of an amended complaint, and dismissed
26 of the 27 class action suits without prejudice and consolidated
-27-
those 26 cases into the first filed action. The lead plaintiffs
appointed by the Court filed an amended class action complaint on
September 30, 1999. The amended complaint alleges that the
defendants engaged in a scheme to defraud investors through
improper revenue recognition practices and concealment of material
adverse conditions in Telxon's business and finances. The amended
complaint seeks certification of the identified class, unspecified
compensatory and punitive damages, pre- and post-judgment
interest, and attorneys' fees and costs. Various appeals and
writs challenging the District Court's August 25, 1999 rulings
were filed by two of the unsuccessful plaintiffs but have all been
denied by the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss the
amended complaint, which was denied on September 29, 2000.
Following the denial, the parties filed a proposed joint case
schedule, discovery commenced, and the parties each filed their
initial disclosures. On October 30, 2000, defendants filed their
answer to the plaintiffs' amended complaint as well as a motion
for reconsideration or to certify the order denying the motion to
dismiss for interlocutory appeal and request for oral argument,
and a memorandum of points and authorities in support of that
motion. On November 14, 2000, plaintiffs filed a memorandum in
opposition of defendants' motion. This motion was denied on
January 19, 2001. On November 1, 2000, defendants filed a motion
for application of the Amended Federal Rules of Civil Procedure to
the case, and on November 16, 2000, the Court granted this motion
in part and held that the Court will apply the new rules of
evidence and new rules of civil procedure except to the extent
those rules effectuate changes to Rule 26 of the Federal Rules for
Civil Procedure. Discovery is in its preliminary stages.
On February 20, 2001, Telxon filed a motion for leave to File and
serve instanter a summons and third-party complaint against third-
party defendant PricewaterhouseCoopers LLP ("PWC") in
shareholders' class action complaints. Telxon's third-party
complaint against PWC concerns PWC's role in the original issuance
and restatements of Telxon's financial statements for its fiscal
years 1996, 1997, 1998 and its interim financial statements for
its first and second quarters of fiscal year 1999, the subject of
the class action litigation against Telxon. Telxon states causes
of action against PWC for contribution under federal securities
law, as well as state law claims for accountant malpractice,
fraud, constructive fraud, fraudulent concealment, fraudulent
misrepresentation, negligent misrepresentation, breach of
contract, and breach of fiduciary duty. With respect to its
federal claim against PWC, Telxon seeks contribution from PWC for
all sums that Telxon may be required to pay in excess of Telxon's
proportionate liability, if any, and attorney fees and costs.
With respect to its state law claims against PWC, Telxon seeks
compensatory damages, punitive damages, attorney fees and costs,
in amounts to be determined at trial.
On April 30, 2001, the Court granted Telxon's motion to file and
serve its third-party complaint against PWC. The Court reserved
judgment on Telxon's request to have the Complaint deemed filed
-28-
instanter on the date of Telxon's motion for leave to file the
same - February 20, 2001. Pursuant to the Court's request the
parties have submitted briefs on the issue of Telxon's motion for
leave to file and serve the third-party complaint instanter. The
issue remains sub judice. PWC has filed a motion to dismiss
Telxon's third-party complaint. The parties have fully briefed the
motion. The Court heard oral argument on PWC's motion on
September 10, 2001. The motion remains sub judice.
By letter dated December 18, 1998, the Staff of the Division of
Enforcement of the Securities and Exchange Commission (the
"Commission") advised Telxon that it was conducting a preliminary,
informal inquiry into trading of the securities of Telxon at or
about the time of Telxon's December 11, 1998 press release
announcing that Telxon would be restating the revenues for its
second fiscal quarter ended September 30, 1998. On January 20,
1999, the Commission issued a formal Order Directing Private
Investigation and Designating Officers To Take Testimony with
respect to the referenced trading and specified accounting
matters, pursuant to which subpoenas have been served requiring
the production of specified documents and testimony.
By letter dated March 9, 2001, the Division of Enforcement of the
Commission informed Telxon that it had made a preliminary
determination to recommend that the Commission initiate an action
against Telxon for violation of various sections of the federal
securities laws and regulations and to seek permanent injunctive
relief and appropriate monetary penalties against Telxon.
The Division of Enforcement has also indicated that it intends to
recommend similar action against three former employees of Telxon.
The Commission has given Telxon an indefinite extension to
indicate in a written submission why Telxon believes no action
should be instituted against it. There has not been an accrual
for any fines or penalties under Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies," because the
ultimate outcome of this matter cannot presently be determined and
because the amount of any fine or penalty cannot be reasonably
estimated.
-29-
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
3.1 Certificate of Amendment of Certificate of
Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
4. Rights Agreement, dated as of August 13, 2001, between
the Company and The Bank of New York, as Rights Agent,
which includes the form of Certificate of Designations
with respect to the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Shares of Preferred Stock as Exhibit C, filed
as Exhibit 4 to the Company's Current Report on Form 8-
K dated August 21, 2001, and incorporated herein by
reference.
(b) The Company filed a Current Report on Form 8-K on August 21,
2001 relating to a Preferred Stock Purchase Rights Plan
adopted by the Company.
-30-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
Dated: October 31, 2001 By: /s/ Tomo Razmilovic________
Tomo Razmilovic, President and
Chief Executive Officer
Dated: October 31, 2001 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
-31-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
QUARTERLY REPORT
ON
FORM 10-Q
FOR QUARTER ENDED
SEPTEMBER 30, 2001
__________________________________
SYMBOL TECHNOLOGIES, INC.
EXHIBITS
6a) Exhibits
3.1 Certificate of Amendment of Certificate of
Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company.
4. Rights Agreement, dated as of August 13, 2001, between
the Company and The Bank of New York, as Rights Agent,
which includes the form of Certificate of Designations
with respect to the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Shares of Preferred Stock as Exhibit C, filed
as Exhibit 4 to the Company's Current Report on Form
8-K dated August 21, 2001, and incorporated herein by
reference.
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SYMBOL TECHNOLOGIES, INC.
____________________________
It is hereby certified that:
1. The name of the corporation (hereinafter the
"Corporation") is Symbol Technologies, Inc.
2. The certificate of incorporation of the
Corporation is hereby amended by striking out
Section (a) of Article FOUR thereof and by
substituting in lieu of said section the following
new Section:
"FOURTH. The total number of shares of stock
which the Corporation shall have the authority to
issue is six hundred and ten million
(610,000,000), consisting of six hundred million
(600,000,000) shares of common stock, par value
$.01 per share (the "Common Stock") and ten
million (10,000,000) shares of preferred stock,
par value $1.00 per share (the "Preferred
Stock").
Sections (b) and (c) of Article FOUR remain
unchanged.
3. The amendment of the certificate of incorporation
herein certified has been duly adopted in
accordance with the provisions of Section 242 of
the General Corporation Law of the State of
Delaware.
Signed as of May 22, 2001
/s/ Tomo Razmilovic
Tomo Razmilovic
Chief Executive Officer and President
Attest:
/s/ Leonard H. Goldner
Leonard H. Goldner
Executive Vice President,
General Counsel and Secretary
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
SYMBOL TECHNOLOGIES, INC.
__________________________
ARTICLE I
OFFICES
Section 1.1. Registered Office.
The registered office of the Corporation within the State of
Delaware shall be located at the principal place of business in
said State of such corporation or individual acting as the
Corporation's registered agent in Delaware.
Section 1.2 Other Offices.
The Corporation may also have offices and places of business
at such other places both within and without the State of
Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 2.1. Place of Meetings.
All meetings of Stockholders shall be held at the principal
office of the Corporation, or at such other place within or
without the State of Delaware as shall be stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
Section 2.2. Annual Meeting.
The annual Meeting of Stockholders shall be held at such
time on such day as shall be fixed by and in the discretion of
the Board of Directors. At the annual meeting, the stockholders
entitled to vote for the election of directors shall elect, by a
plurality vote, a Board of Directors and transact such other
business as may properly come before the meeting.
Section 2.3. Special Meetings.
A special meeting of the stockholders for any purpose or
purposes, unless otherwise prescribed by statute, may be called
only by the Chairman of the Board of Directors, or if no Chairman
of the Board of Directors is then serving by the President, by
the Board of Directors, or by the Secretary at the request in
writing of a majority of the Board of Directors. Business
transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
-1-
Section 2.4. Notice of Meeting.
Notice of every meeting of stockholders stating the place,
date and hour thereof and, in the case of a special meeting of
stockholders, the purpose or purposes thereof and the person or
persons by whom or at whose direction such meeting has been
called and such notice is being issued shall be given not less
than ten (10) nor more than (60) days before the date of the
meeting, either personally or by mail or as otherwise permitted
by law. If mailed, such notice shall be deemed given when
deposited in the United States mail, with postage prepaid,
directed to the stockholder at his address as it appears on the
record of the stockholders or if he shall have filed with the
Secretary of the Corporation a written request that notices to
him be mailed to some other address, then directed to him at such
other address. Nothing herein contained shall preclude any
stockholder from waiving notice as provided in Section 4 hereof.
Section 2.5. Quorum.
The holders of a majority of the issued and outstanding
shares of stock of the Corporation entitled to vote thereat,
represented in person or by proxy, shall be necessary to and
shall constitute a quorum for the transaction of business at any
meeting of stockholders. If, however, such quorum shall not be
present or represented at any meeting of stockholders, the
meeting may be adjourned from time to time, without notice other
than announcement at the meeting, until a quorum shall be present
or represented. Whether or not a quorum is present, any meeting
of stockholders, annual or special, may be adjourned from time to
time by the person presiding over the meeting or by the holders
of a majority of the votes entitled to be cast by the
stockholders who are present in person or represented by proxy at
such meeting, to reconvene at the same or some other place,
without notice other than announcement at the meeting. At any
such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. Notwithstanding
the foregoing, if after any such adjournment the Board of
Directors shall fix a new record date for the adjourned meeting,
or if the adjournment is for more than 30 days, a notice of such
adjourned meeting shall be given as provided in Section 2.4 of
these By-laws, but such notice may be waived as provided in
Section 4 hereof.
Section 2.6. Voting.
Except as otherwise provided by or pursuant to the
provisions of the Certificate of Incorporation, each holder of
record of shares of stock entitled to vote at each meeting of
stockholders shall be entitled to vote in person or by proxy, and
each such holder shall be entitled to one vote for every share
standing in his name on the books of the Corporation as of the
record date fixed by the Board of Directors or prescribed by law.
-2-
Except as otherwise provided by any applicable provision of law,
by these By-laws or by the Certificate of Incorporation, if a
quorum is present, the affirmative vote of a majority of the
shares of such stock present or represented at any meeting of
stockholders shall be the required vote of the stockholders with
respect to any item of business; provided, however, that, unless
otherwise provided by any applicable provision of law or by the
Certificate of Incorporation, a lesser vote of the stockholders
with respect to any item of business shall be applied if required
or otherwise provided for by any applicable rule or regulation of
any stock exchange or regulatory body. The Board of Directors,
in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that
any votes cast at such meeting shall be cast by written ballot.
Section 2.7. Proxies.
Every stockholder entitled to vote at a meeting may
authorize another person or persons to act for him by proxy. No
Proxy shall be valid after the expiration of three (3) years from
its date, unless a longer period is provided for in such proxy.
Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it, or his legal
representative or assigns, except in those cases where an
irrevocable proxy permitted by law has been given.
Section 2.8. Action by Written Consent of Stockholders.
(a) Any action required or permitted to be taken
at any annual or special meeting of the 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 be signed by the holders of outstanding
stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were
present and voted and shall 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 book in which proceedings of
meetings of stockholders are recorded. Delivery to the
Corporation's registered office shall be made by hand or by
certified or registered mail, return receipt requested. The
Corporation shall give prompt notice of the taking of the
corporate action without a meeting by less than unanimous
written consent to those stockholders who have not consented in
writing and who, if the action had been taken at a meeting,
would have been entitled to notice of the meeting if the record
date for such meeting had been the date that written consents
signed by a sufficient number of holders to take the action
were delivered to the Corporation.
-3-
(b) Every written consent purporting to take or
authorizing the taking of corporate action and/or related
revocations (each such written consent and related revocation
is referred to in this Section 2.8 as a "Consent") shall bear
the date of signature of each stockholder who signs the
Consent, and no Consent shall be effective to take or authorize
the corporate action referred to therein unless, within 60 days
of the earliest dated Consent delivered to the Corporation in
the manner provided in Section 2.8(a) hereof, Consents signed
by a sufficient number of stockholders to take such action are
so delivered to the Corporation.
(c) In the event of the delivery to the
Corporation of any Consent in the manner provided in Section
2.8(a), the Secretary of the Corporation shall provide for the
safe keeping of such Consent and shall promptly conduct such
ministerial review of the validity of the Consents and of the
validity of the action or proposal to be taken by written
consent as the Secretary deems necessary or appropriate,
including, without limitation, whether the holders of a number
of shares having the requisite voting power to authorize or
take the action specified in the Consent have given consent;
provided, however that if the action or proposal to be taken by
written consent relates to the election, removal or replacement
of one or more members of the Board of Directors or otherwise
constitutes a solicitation in opposition as referred to in Rule
14a-6 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Secretary shall engage nationally
recognized independent inspectors of elections for the purpose
of conducting such ministerial review of the validity of the
Consents and the validity of the action or proposal to be taken
by written consent and to discharge the functions of the
Secretary of the Corporation under this Section 2.8, provided
further that the independent inspectors shall conduct such
ministerial review of the validity of the Consents and the
validity of the action or proposal to be taken by written
consent only in the manner provided in Sections 2.8(d)(i) and
(d)(ii) hereof. For the purpose of permitting the Secretary or
the independent inspectors (as the case may be) to conduct such
ministerial review of the validity of the Consents and the
validity of the action or proposal to be taken by written
consent, no action by written consent without a meeting shall
be effective until such date as the Secretary or the
independent inspectors (as the case may be) certify to the
Corporation that the Consents delivered to the Corporation in
-4-
accordance with Section 2.8(a) represent at least the minimum
number of votes that would be necessary to take or authorize
the corporate action at a meeting at which all shares entitled
to vote thereon were present and voted. The cost of retaining
independent inspectors under this Section 2.8 shall be borne by
the Corporation.
(d) (i) In the event of the delivery to the
Corporation of any Consent in the manner provided in
Section 2.8(a) hereof that relates to the election, removal
or replacement of one or more members of the Board of
Directors or otherwise constitutes a solicitation in
opposition to Rule 14a-6 of the Exchange Act, Consents
shall be delivered to the independent inspectors upon
receipt by the Corporation, the soliciting stockholders or
their proxy solicitors or other designated agents. As soon
as Consents are received, the independent inspectors shall
review the Consents and shall maintain a count of the
number of valid and unrevoked Consents. The independent
inspectors shall keep such count confidential and shall not
reveal the count to the Corporation, the soliciting
stockholders or their representatives or any other entity.
As soon as practicable after the earlier of (i) sixty (60)
days after the date of the earliest dated Consent delivered
to the Corporation in the manner provided in Section 2.8(a)
hereof or (ii) a written request therefore by the
Corporation or the soliciting stockholders (whichever is
soliciting Consents), notice of which request shall be
given to the party opposing the solicitation of Consents,
which request shall state that the Corporation or
soliciting stockholders, as the case may be, have a good
faith belief that the requisite number of valid and
unrevoked Consents to authorize the action to be taken has
been received in accordance with these By-laws, the
inspectors shall issue a preliminary report to the
Corporation and the soliciting stockholders stating: (i)
the number of valid consents, (ii) the number of valid
revocations, (iii) the number of valid and unrevoked
consents, (iv) the number of invalid consents, (v) the
number of invalid revocations and (vi) whether, based on
their preliminary count, the requisite number of valid and
unrevoked consents has been obtained to authorize the
action to be taken.
(ii) Unless the Corporation and the soliciting
stockholders shall agree to a shorter or longer period, the
Corporation and the soliciting stockholders shall have two
(2) business days to review the Consents and to advise the
independent inspectors and the opposing party in writing as
to whether they intend to challenge the preliminary report
of the inspectors. If no written notice of an intention to
challenge the preliminary report is received within two (2)
business days after the independent inspectors' issuance of
the preliminary report, the independent inspectors' shall
issue to the Corporation and the soliciting stockholders
-5-
their final report containing the information contained in
their preliminary report and their determination with
respect to whether the requisite number of valid and
unrevoked Consents was obtained to authorize the action to
be taken. If the Corporation or the soliciting
stockholders issue written notice of an intention to
challenge the independent inspectors' preliminary report
within two (2) business days after the issuance of that
report, a challenge session shall be scheduled by the
independent inspectors as promptly as practicable.
Following completion of the challenge session, the
independent inspectors shall as promptly as practicable
issue their final report to the soliciting stockholders and
the Corporation, which report shall contain the information
included in the preliminary report, plus all changes in the
vote totals as a result of the challenge.
(e) If after the completion of the investigation
of the Secretary or the delivery of the final report by the
independent inspectors (as the case may be), the Secretary or
the independent inspectors shall determine that the requisite
number of valid and unrevoked Consents was obtained and that
the action specified therein has been validly authorized, that
fact shall forthwith be certified in the records of the
Corporation kept for the purpose of recording the proceedings
of meetings of stockholders, and the Consents and final report
of the independent inspectors, if any, shall be filed in such
records, at which time the Consents shall become effective as
stockholder action.
Section 2.9. List of Stockholders.
The officer of the Corporation having charge of the stock
ledger shall make, at least ten (10) days before each meeting of
stockholders, a complete list of the stockholders entitled to
vote at such meeting or any adjournment thereof, arranged in
alphabetical order and showing the address of and the number and
class and series, if any, of shares held by each. Such list
shall be open to the examination of any stockholder, for any
purpose germane to the meeting, as required by applicable law.
Except as otherwise provided by law, the stock ledger of the
Corporation shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
Section 2.10. Fixing Date for Determination of Stockholders of
Record.
(a) In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a
-6-
meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or 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 of Directors 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 of
Directors, and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting
of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to
corporate action in writing without a meeting, shall not be
more than ten (10) days from the date upon which the resolution
fixing the record date is adopted by the Board of Directors;
and (3) in the case of any other action, shall not be more than
sixty (60) days prior to such other action; provided, however
that in the event that any stockholder of record is seeking to
have the stockholders authorize or take corporate action by
written consent without a meeting, the record date shall be
fixed in the manner provided in Section 2.10(b) hereof.
Subject to the foregoing and Section 2.10(b) hereof, if no
record date is fixed: (1) the record date for determining
stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next
preceding 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; (2) the record date for
determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior
action of the Board of Directors is required by applicable law,
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 in the manner provided in Section
2.8(a), or, if prior action by the Board of Directors is
required by applicable law, shall be at the close of business
on the day on which the Board of Directors adopts the
resolution taking such prior action; and (3) the record date
for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned
meeting.
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(b) Any stockholder of record seeking to have
the stockholders authorize or take corporate action by written
consent without a meeting shall, by written notice to the
Secretary and delivered to the Corporation, request the Board
of Directors to fix a record date for such purpose. The Board
of Directors may promptly, but in all events within ten (10)
days after the date on which such request is received, adopt a
resolution fixing the record date for such purpose. If the
Board of Directors fails within 10 days after the Corporation
receives such notice to fix a record date for such purpose, the
record date for determining the stockholders entitled to
consent in writing without a meeting, when no prior action by
the Board of Directors is required by applicable law, shall be
the day on which the first signed written consent setting forth
the action taken or proposed to be taken is delivered to the
Corporation in the manner provided in Section 2.8(a). If no
record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by applicable law,
the record date for determining stockholders entitled to
consent in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the
resolution taking such prior action.
Section 2.11. Notice of Stockholder Business and Nominations.
(a) Nominations of Directors.
(i) Only persons who are nominated in
accordance with the procedures set forth in these By-laws
shall be eligible to serve as directors. Nominations of
persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders
pursuant to the Corporation's notice of meeting (A) by or
at the direction of the Board of Directors or (B) by any
stockholder of the corporation who is a stockholder of
record at the time of giving of notice provided for in this
Section 2.11(a), who shall be entitled to vote for the
election of directors at the meeting and who complies with
the notice procedures set forth in this Section 2.11(a);
provided, however, that, with respect to any special
meeting, the Board of Directors has determined that
directors shall be elected at such meeting.
(ii) For nominations to be properly brought
before any meeting by a stockholder pursuant to clause (B)
of paragraph (i) of this Section 2.11(a), the stockholder
must have given timely notice in writing to the Secretary
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of the Corporation. To be timely, a stockholders notice
shall be delivered to the Secretary and received at the
principal executive offices of the Corporation (A) in the
case of an annual meeting, not later than the close of
business on the 90th day nor earlier than the close of
business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is
more than 30 days before or more than 60 days later than
such anniversary date, notice by the stockholder to be
timely must be so delivered or received not earlier than
the 120th day prior to such annual meeting and not later
than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such
meeting is first made, and (B) in the case of a special
meeting at which directors are to be elected, not earlier
than the 120th day prior to such special meeting and not
later than the close of business on the later of the 90th
day prior to such special meeting or the 10th day following
the day on which public announcement is first made of the
date of any meeting and of the nominees proposed by the
Board of Directors to be elected; provided, however, that
in no event shall the public announcement of an adjournment
or postponement of a meeting commence a new time period (or
extend any time period) for the giving of a stockholder's
notice as described above. Such stockholder's notice shall
set forth (A) as to each person whom the stockholder
proposes to nominate for election or reelection as a
director all information relating to such person that is
required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each
case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in
the proxy statement as a nominee and to serving as a
director if elected); (B) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf
the nomination is being made (x) the name and address of
such stockholder, as they appear on the Corporations books,
and of such beneficial owner and (y) the class and number
of shares of the Corporation which are beneficially owned
and of record by such stockholder and such beneficial
owner; (C) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to
vote in the election of directors and intends to appear in
person or by proxy at the meeting to nominate the person or
persons specified in the notice, (D) a description of all
arrangements or understandings between the stockholder
and/or beneficial owner, if any, on the one hand, and each
nominee and any other person or persons (naming such person
or persons), on the other hand, pursuant to which the
nomination or nominations are being made by the stockholder
and such beneficial owner, and (E) a representation whether
the stockholder or the beneficial owner, if any, intends or
is part of a group which intends (x) to deliver a proxy
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statement and/or form of proxy to holders of at least the
percentage of the Corporation's outstanding capital stock
required to elect the nominee and/or (y) otherwise to
solicit proxies from stockholders in support of such
nomination(s). The foregoing notice requirements shall be
deemed satisfied by a stockholder if the stockholder has
notified the Corporation of his or her intention to present
a proposal at a meeting in compliance with Rule 14a-8 (or
any successor thereof) promulgated under the Exchange Act
and such stockholder's proposal has been included in a
proxy statement that has been prepared by the Corporation
to solicit proxies for such meeting. The Corporation may
require any proposed nominee to furnish such other
information as it may reasonably require to determine the
eligibility of such proposed nominee to serve as a director
of the Corporation.
(iii) Notwithstanding anything in paragraph
(ii) of this Section 2.11(a) to the contrary, in the event
that the number of directors to be Directors of the
Corporation at an annual meeting is increased and there is
no public announcement by the Corporation naming the
nominees for the additional directorships at least 90 days
prior to the first anniversary of the date of the preceding
year's annual meeting, a stockholder's notice required by
this Section 2.11(a) shall also be considered timely, but
only with respect to nominees for the additional
directorships, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not
later than the close of business on the 10th day following
the day on which such public announcement is first made by
the Corporation.
(b) Notice of Stockholder Business.
(i) At an annual meeting of the stockholders,
only such business shall be conducted as shall have been
brought before the annual meeting (A) pursuant to the
Corporation's notice of meeting, (B) by or at the direction
of the Board of Directors or (C) by a stockholder of the
Corporation who is a stockholder of record at the time of
giving of the notice provided for in this Section 2.11(b),
who is a stockholder of record of the Corporation at the
time the notice provided for in this Section 2.11(b) is
delivered to the Secretary of the Corporation, who is
entitled to vote at such annual meeting and who complies
with the notice procedures set forth in this Section
2.11(b).
(ii) For business to be properly brought
before an annual meeting by a stockholder pursuant to
clause (C) of paragraph (i) of this Section 2.11(b), the
business must be a proper matter for stockholder action
under applicable law and the stockholder must have given
timely notice in writing to the Secretary of the
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Corporation. To be timely, a stockholders notice shall be
delivered to the Secretary and received at the principal
executive offices of the Corporation not later than the
close of business on the 90th day nor earlier than the close
of business on the 120th day prior to the first anniversary
of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is
more than 30 days before or more than 60 days later than
such anniversary date, notice by the stockholder to be
timely must be so delivered or received not earlier than
the 120th day prior to such annual meeting and not later
than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such
meeting is first made; provided, however, that in no event
shall the public announcement of an adjournment or
postponement of a meeting commence a new time period (or
extend any time period) for the giving of a stockholder's
notice as described above. Such stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (A) a brief
description of the business desired to be brought before
the meeting, the text of the proposal or business
(including the text of any resolutions proposed for
consideration and in the event that such business includes
a proposal to amend the By-laws of the Corporation, the
language of the proposed amendment, the reasons for
conducting such business at the meeting and any material
interest in such business of such stockholder of record and
beneficial owner, if any, on whose behalf the proposal is
made, (B) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the proposal is
being made (x) the name and address of the stockholder
giving notice, as they appear on the corporations books,
and of such beneficial owner and (y) the class and number
of shares of the Corporation which are beneficially owned
and of record by such stockholder and such beneficial
owner, (C) a description of all arrangements or
understandings between the stockholder and beneficial
owner, if any, on the one hand, and any other person or
persons (naming such person or persons), on the other hand,
pursuant to which the proposal(s) are being made by the
stockholder and such beneficial owner, (D) a representation
that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such
business, and (E) a representation whether the stockholder
or the beneficial owner, if any, intends or is part of a
group which intends (x) to deliver a proxy statement and/or
form of proxy to holders of at least the percentage of the
Corporation's outstanding capital stock required to approve
or adopt the proposal and/or (y) otherwise to solicit
proxies from stockholders in support of such proposal. The
foregoing notice requirements shall be deemed satisfied by
a stockholder if the stockholder has notified the
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Corporation of his or her intention to present a proposal
at a meeting in compliance with Rule 14a-8 (or any
successor thereof) promulgated under the Exchange Act and
such stockholder's proposal has been included in a proxy
statement that has been prepared by the Corporation to
solicit proxies for such meeting.
(c) General.
(i) Only such persons who are nominated in
accordance with the procedures set forth in this Section
2.11 shall be eligible to be elected at an annual or
special meeting of stockholders of the Corporation to serve
as directors and only such business shall be conducted at
an annual meeting of stockholders as shall have been
brought before the annual meeting in accordance with the
procedures set forth in this Section 2.11. Except as
otherwise provided by law, the person presiding over the
meeting shall have the power and duty (A) to determine
whether a nomination or any business proposed to be brought
before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this
Section 2.11 (including whether the stockholder or
beneficial owner, if any, on whose behalf the nomination or
proposal is made solicited (or is part of a group which
solicited) or did not so solicit, as the case may be,
proxies in support of such stockholder's and beneficial
owner's nominee or proposal in compliance with such
stockholder's and beneficial owner's representations as
required by Sections 2.11(a) and (b)) and (B) if any
proposed nomination or business was not made or proposed in
compliance with this Section 2.11, to declare that such
nomination shall be disregarded or that such proposed
business shall not be transacted. Notwithstanding the
foregoing provisions of this Section 2.11, if the
stockholder (or a qualified representative of the
stockholder) does not appear in person at the annual or
special meeting of stockholders of the Corporation to
present a nomination or business, such nomination shall be
disregarded and such proposed business shall not be
transacted, notwithstanding that proxies in respect of such
vote may have been received by the Corporation.
(ii) For purposes of this Section 2.11, "public
announcement" shall include disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(iii) Notwithstanding the foregoing provisions of
this Section 2.11, a stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set
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forth in this Section 2.11. Nothing in this Section 2.11
shall be deemed to affect any rights (A) of stockholders to
request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or
(B) of the holders of any series of Preferred Stock to
elect directors pursuant to any applicable provisions of
the Certificate of Incorporation.
Section 2.12. Inspectors of Election.
The Corporation may, and shall if required by law, in advance
of any meeting of stockholders, appoint one or more inspectors
of election, who may be employees of the Corporation, to act
at the meeting or any adjournment thereof and to make a
written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector
who fails to act. In the event that no inspector so appointed
or designated is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector
with strict impartiality and according to the best of his or
her ability. The inspector or inspectors so appointed or
designated shall (i) ascertain the number of shares of capital
stock of the Corporation outstanding and the voting power of
each such share, (ii) determine the shares of capital stock of
the Corporation represented at the meeting and the validity of
proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number
of shares of capital stock of the Corporation represented at
the meeting and such inspectors' count of all votes and
ballots. Such certification and report shall specify such
other information as may be required by law. In determining
the validity and counting of proxies and ballots cast at any
meeting of stockholders of the Corporation, the inspectors may
consider such information as is permitted by applicable law.
No person who is a candidate for an office at an election may
serve as an inspector at such election.
2.13 Organization; Conduct of Meetings.
(a) Meetings of stockholders shall be presided over
by the Chairman of the Board of Directors, if any, or in the
Chairman's absence by the President, or in President's absence
by a Vice President, or in the absence of the foregoing persons
by a chairman designated by the Board of Directors, or in the
absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting,
but in the Secretary's absence the chairman of the meeting may
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appoint any person to act as secretary of the meeting.
(b) The date and time of the opening and the closing
of the polls for each matter upon which the stockholders vote
at a meeting shall be announced at the meeting by the person
presiding over the meeting. The Board of Directors may adopt
by resolution such rules and regulations for the conduct of the
meeting of stockholders as it shall deem appropriate. Except
to the extent inconsistent with such rules and regulations as
adopted by the Board of Directors, the person presiding over
any meeting of stockholders shall have the right and authority
to convene and to adjourn the meeting, to prescribe such rules,
regulations and procedures and to do all such acts as, in the
judgment of such person, are appropriate for the proper conduct
of the meeting. Such rules, regulations or procedures, whether
adopted by the Board of Directors or prescribed by the person
presiding over any meeting of stockholders, may include,
without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety
of those present; (iii) limitations on attendance at or
participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or
such other persons as the person presiding over any meeting of
stockholders shall determine; (iv) restrictions on entry to the
meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments
by participants. The person presiding over any meeting of
stockholders, in addition to making any other determinations
that may be appropriate to the conduct of the meeting, shall,
if the facts warrant, determine and declare to the meeting that
a matter or business was not properly brought before the
meeting and if such person should so determine, such person
shall so declare to the meeting and any such matter or business
not properly brought before the meeting shall not be transacted
or considered. Unless and to the extent determined by the
Board of Directors or the person presiding over any meeting of
stockholders, meetings of stockholders shall not be required to
be held in accordance with the rules of parliamentary
procedure.
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ARTICLE III
DIRECTORS
Section 3.1. Number of Directors; Terms.
The number of directors of the Corporation which shall
constitute the entire Board of Directors shall be fixed from time
to time by a vote of a majority of the entire Board of Directors
and shall be not less than one (1) nor more than fifteen (15).
The directors shall be elected at the annual meeting of
stockholders and shall serve until a successor shall have been
elected and qualified. Directors need not be stockholders of the
Corporation.
Section 3.2. RESERVED.
Section 3.3. Resignations.
Any director of the Corporation may resign at any time by
giving written notice to the Board of Directors or to the
Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein, or if the time be not
specified, it shall take effect immediately upon its receipt, and
unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.4. RESERVED.
Section 3.5. Newly Created Directorships and Vacancies.
Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or
other cause shall be filled by a majority vote of the directors
then in office. Any director elected in accordance with the
preceding sentence of this Section 3.5 shall hold office until
the next meeting of stockholders at which the election of
directors is in the regular course of business and until such
director's successor has been elected and qualified. No decrease
in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
Section 3.6. Powers and Duties.
Subject to the applicable provisions of law, these By Laws
or the Certificate of Incorporation, but in furtherance and not
in limitation of any rights therein conferred, the Board of
Directors shall have the control and management of the business
and affairs of the Corporation and shall exercise all such powers
of the Corporation and do all such lawful acts and things as may
be exercised by the Corporation.
Section 3.7. Place of Meetings.
All meetings of the Board of Directors may be held either
within or without the State of Delaware.
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Section 3.8. Annual Meeting.
If the first meeting of each newly elected Board of
Directors shall be held immediately after the annual
stockholder's meeting and in the same place, notice thereof shall
not be necessary in order to constitute the meeting, provided a
quorum shall be present.
In the event that such meeting is not held at such date,
time and place, the meeting may be held on any other date, time
and place as shall be specified in a notice thereof given as
hereinafter provided in Section 3.11 or as shall be specified in
any waiver of notice thereof.
Section 3.9. Regular Meetings.
Regular meetings of the Board of Directors may be held upon
notice or without notice, and at such time and at such place as
shall from time to time be determined by the Board.
Section 3.10. Special Meetings.
Special meetings of the Board of Directors may be called by
the Chairman of the Board, if there be a Chairman of the Board,
or by the President or if he is absent, unable or refuses to act,
by the Secretary and shall be called promptly upon the written
request of any two directors. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 3.11. Notice of Meeting.
Notice of each special meeting of the Board of Directors
(and of each regular meeting if notice thereof shall be required)
shall be given by the Chairman of the Board, if there be a
Chairman of the Board, the President or the Secretary and shall
state the place, date and time of the meeting. Notice of each
such meeting shall either be (i) mailed to each director,
addressed to such director at such director's residence or usual
place of business, at least one week prior to the day on which
the meeting is to be held, (ii) given by overnight delivery
service to each director, addressed to such director at such
place, at least two (2) days before the day on which which the
meeting is to be held or (iii) sent to such director at such
place by telegraph, cable, telex, facsimile transmitter, e-mail
or other electronic transmission, or be delivered personally or
by telephone, at least twenty-four (24) hours before the time at
which the meeting is to be held. Except as otherwise provided by
law, any meeting of the Board of Directors shall be a legal
meeting without any notice thereof having been given if all of
the directors shall be present thereat. Notice of any adjourned
meeting, including the place, date and time of the new meeting,
shall be given to all directors not present at the time of the
adjournment, as well as to the other directors unless the place,
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date and time of the new meeting is announced at the adjourned
meeting. Nothing herein contained shall preclude the directors
from waiving notice as provided in Section 4 hereof.
Section 3.12. Quorum and Voting.
At all meetings of the Board of Directors a majority of the
entire board shall be necessary to and shall constitute a quorum
for the transaction of business at any meeting of the Board of
Directors, unless otherwise provided by any applicable provision
of law, by these By-laws, or by the Certificate of Incorporation.
The act of a majority of the directors present at the time of
the vote, if a quorum is present at such time, shall be the act
of the Board of Directors, unless otherwise provided by any
applicable provision of law, by these By-laws or by the
Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present.
Section 3.13. Compensation.
The Board of Directors, by the affirmative vote of a
majority of the directors then in office and irrespective of any
personal interest of any of its members, shall have authority to
establish reasonable compensation of all directors for services
to the Corporation as directors, officers or otherwise. The
Board of Directors may also provide that the directors may be
reimbursed for their expenses, if any, for attendance at any
meeting of the Board of Directors or any committee thereof.
Section 3.14. Books and Records.
The directors may keep the books for the Corporation, except
such as are required by law to be kept within the state, outside
of the State of Delaware, at such place or places as they may
from time to time determine.
Section 3.15. Action Without a Meeting.
Any action required or permitted to be taken by the Board,
or a committee of the Board, may be taken without a meeting if
all members of the Board of Directors or committee, as the case
may be, consent thereto in writing or by electronic transmission
and the writing or writings or electronic transmission or
transmissions are filed with the minutes of the proceedings of
the Board of Directors or such committee of the Board, as the
case may be.
Section 3.16. Telephonic Meetings.
Any one or more members of the Board, or any committee of
the Board, may participate in a meeting of the board or committee
by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
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Section 3.17. Committee of the Board.
The Board of Directors may designate from among its members
an executive and other committees, each consisting of one (1) or
more directors. The Board of Directors may designate one or more
directors as alternate members of any such committee. Such
alternate members may replace any absent member or members at any
meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence
of a designation by the Board of Directors of an alternate member
to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any absent or disqualified
member. Vacancies in the membership of the committee shall be
filled by the Board of Directors at a regular meeting or at a
special meeting for that purpose.
Section 3.18. Authority of Committees; Committee Rules.
Each committee, to the extent permitted by law and to the
extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation
to be affixed to all papers which may require it. Unless the
Board of Directors otherwise provides, each committee designated
by the Board of Directors may make, alter and repeal rules for
the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to Article III
of these By-laws.
ARTICLE IV
WAIVER
Section 4.1. Waiver.
Whenever a notice is required to be given by any provision
of law, by these By-laws, or by the Certificate of Incorporation,
a waiver thereof in writing, or by e-mail or other electronic
transmission or any other means of communication permissible by
law, whether before or after the time stated therein, shall be
deemed equivalent to such notice. In addition, any stockholder
attending a meeting of stockholders in person or by proxy without
objecting prior to the meeting or at its commencement the lack
of, or improper notice thereof, and any director attending a
meeting of the Board of Directors without protesting prior to the
meeting or at its commencement such lack of, or improper, notice,
shall be conclusively deemed to have waived notice of such
meeting.
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ARTICLE V
OFFICERS
Section 5.1. Officers.
The officers of the Corporation shall be a chairman of the
Board, one or more Vice Presidents and a Secretary. The
Corporation may also have, at the discretion of the Board, one or
more Assistant Secretaries, one or more Assistant Vice
Presidents, one or more Assistant Treasurers, a Controller and
one or more Assistant Controllers, and such other officers as the
Board of Directors shall at any time or from time to time deem
necessary or advisable to designate as officers or as may be
appointed in accordance with the provisions of Section 5.3 of
this Article V. Any person may hold two or more of such offices.
All officers, as between themselves and the Corporation, shall
have such authority and perform such duties in the management of
the business and affairs of the Corporation as may be provided in
these By-laws, or to the extent not so provided, as may be
prescribed by the Board of Directors or the Chief Executive
Officer as provided in Section 5.3 of this Article V.
Section 5.2. Election.
The officers of the Corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or
Section 5.5 of this Article, shall have been elected annually at
the annual meeting of the Board of Directors following the annual
meeting of stockholders and, as vacancies occur, from time to
time by the Board of Directors. Each officer shall hold his
office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall have been elected
and qualified. The officers of the Corporation need not be
stockholders of the Corporation nor, except for the Chairman of
the Board, need such officers be directors of the Corporation.
Section 5.3. Subordinate Officers.
The Board of Directors may appoint, or may authorize the
Chief Executive Officer to appoint, such other officers as the
business of the Corporation may require, each of whom shall have
authority and perform such duties as are provided in these By-
laws or as the Board of Directors or the Chief Executive Officer
may from time to time specify and each shall hold office until he
shall resign or shall have been removed or otherwise disqualified
to serve.
Section 5.4. Removal and Resignation.
Any officer may be removed, either with or without cause, by
a majority of the directors at the time in office, at any regular
or special meeting of the Board, or, except in the case of an
officer chosen by the Board, by any officer upon whom such power
of removal may be conferred by the Board. Any officer may resign
at any time by giving written notice to the Board, the Chairman
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of the Board, the President or the Secretary of the Corporation.
Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein;
and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5.5. Vacancies.
A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in
the manner prescribed in the By-laws for the regular appointments
to such office.
Section 5.6. Compensation.
The salaries and other compensation of all officers and
agencies of the Corporation shall be fixed by or in the manner
prescribed by the Board of Directors.
Section 5.7. Chairman of Board.
The Chairman of the Board of Directors shall preside at all
meetings of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the
Corporation, if designated as such by the Board of Directors.
Section 5.8. President.
The President shall be the Chief Executive Officer and/or
the Chief Operating Officer of the Corporation, as determined by
the Board of Directors. In the absence of the Chairman of the
Board, if the President is a director of the Corporation, the
President shall preside at meetings of the Board of Directors.
The President shall have general and active management of the
business and affairs of the Corporation and be responsible for
its day-to-day operations, subject to the control of the Board of
Directors and the Chief Executive Officer, if the President does
not hold that position, and shall see to it that all orders and
resolutions of the Board of Directors are carried into effect.
Section 5.9. Vice Presidents.
Each Vice President (including any Executive Vice President
or Senior Vice President) shall have such powers and limiting
titles and shall perform such duties as may from time to time be
assigned to him by the Board of Directors and/or the Chief
Executive Officer.
Section 5.10. Secretary.
The Secretary shall attend all meetings of the stockholders
and all meetings of the Board of Directors and shall record all
proceedings taken at such meeting in a book to be kept for the
purpose; he or an Assistant Secretary shall see that all notices
of meetings of stockholders and special meetings of the Board of
Directors are duly given in accordance with the provisions of
these By-laws or as required by law; and he shall be custodian of
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the records and of the corporate seal or seals of the
Corporation; he or an Assistant Secretary shall have authority to
affix the corporate seal or seals to all documents, the execution
of which, on behalf of the Corporation, under its seal, is duly
authorized, and when so affixed it may be attested by his
signature or the signature of such Assistant Secretary; and in
general, he shall perform all duties incident to the office of
the Secretary of the Corporation and such other duties as the
Board of Directors may from time to time prescribe.
The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest
the affixing by his signature.
ARTICLE VI
PROVISIONS RELATING TO STOCK CERTIFICATES AND STOCKHOLDERS
Section 6.1. Form and Signature.
Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the
Chairman or Vice Chairman of the Board of Directors, if any, or
the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary,
of the Corporation certifying the number of shares owned by such
holder in the Corporation. Any of or all the signatures on the
certificate maybe a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect
as if such person was such officer, transfer agent or registrar
at the date of issue.
Section 6.2. Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares
of stock to receive dividends or other distributions, and to vote
as such owner, and to hold liable for calls and assessments a
person registered on its books as the owner of shares of stock,
and shall not be bound to recognize any equitable or legal claim
to or interest in such share or shares on the part of any other
person.
Section 6.3. Transfer of Stock.
Upon surrender to the Corporation or the appropriate
transfer agent, if any, of the Corporation, of a certificate
representing shares of stock of the Corporation, duly endorsed or
accompanied by proper evidence of succession, assignment or
authority to transfer, and, in the event that the certificate
refers to any agreement restricting transfer of the shares which
it represents, proper evidence of compliance with such agreement,
a new certificate shall be issued to the person entitled thereto,
and the old certificate cancelled and the transaction recorded
upon the books of the Corporation.
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Section 6.4. Lost Certificates, etc.
The Corporation may issue a new certificate for shares in
place of any certificate theretofore issued by it, alleged to
have been lost, mutilated, stolen or destroyed, and the Board of
Directors may require the owner of such lost, mutilated, stolen
or destroyed certificate, or his legal representatives, to make
an affidavit of that fact and/or to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that
may be made against the Corporation on account of the alleged
loss, mutilation, theft or destruction of any such certificate or
the issuance of any such new certificate.
Section 6.5. RESERVED.
Section 6.6. Regulations.
Except as otherwise provided by law, the Board of Directors
may make such additional rules and regulations, not inconsistent
with these By-laws, as it may deem expedient, concerning the
issue, transfer and registration of certificates for the
securities of the Corporation. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or
more transfer agents and one or more registrars and may require
all certificates for shares of capital stock to bear the
signature or signatures of any of them.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1. Dividends and Distributions.
Dividends and other distributions upon or with respect to
outstanding shares of stock of the Corporation may be declared by
the Board of Directors at any regular or special meeting, and may
be paid in cash, bonds, property or in shares of stock of the
Corporation. The Board of Directors shall have full power and
discretion, subject to the provisions of the Certificate of
Incorporation or the terms of any other corporate document or
instrument binding upon the Corporation to determine what, if
any, dividends or distributions shall be declared and paid or
made.
Section 7.2. Checks, etc.
All checks or demands for money and notes or other
instruments evidencing indebtedness or obligations of the
Corporation shall be signed by such officer or officers or other
person or persons as may from time to time be designated by the
Board of Directors.
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Section 7.3. Seal.
The Corporate seal shall have inscribed thereon the name of
the Corporation, the year of its incorporation and the words
"Corporate Seal Delaware". The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or otherwise
reproduced.
Section 7.4. Fiscal Year.
The fiscal year of the Corporation shall be determined by
the Board of Directors.
Section 7.5. General and Special Bank Accounts.
The Board of Directors may authorize from time to time the
opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board of
Directors may designate or as may be designated by any officer or
officers of the Corporation to whom such power of designation may
be delegated by the Board of Directors from time to time. The
Board of Directors may make such special rules and regulations
with respect to such bank accounts, not inconsistent with the
provisions of these By-laws, as it may deem expedient.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 8.1. Indemnification by the Corporation.
The Corporation shall indemnify, to the fullest extent
permitted by the Delaware General Corporation Law as the same
presently exists or may hereafter be amended, any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(including but not limited to any action or suit by or in the
right of the Corporation to procure a judgment in its favor) by
reason of the fact that the person is or was a director or
officer of the Corporation or, while a director or officer of the
Corporation, is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
the person in connection with such action, suit or proceeding.
The foregoing indemnification shall be in addition to any other
rights to which those seeking indemnification may be entitled
under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while
holding such office. Notwithstanding the foregoing, and except
as provided in Section 8.4 hereof, nothing in this Article VIII
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shall require the Corporation to indemnify any person for any
expenses incurred or other amounts paid in connection with any
action, suit or proceeding (or part thereof) commenced by such
person against the Corporation.
Section 8.2. Contract Right; Advances.
The right to indemnification conferred in Section 8.1 shall
include the right to be paid by the Corporation the expenses
incurred in defending any proceeding referred to in Section 8.1
hereof in advance of its final disposition; provided, however,
that the payment of expenses (including attorneys' fees) incurred
by a director or officer in defending any such proceeding shall
be made only upon delivery to the Corporation of an undertaking,
by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such person
is not entitled to be indemnified by the Corporation under this
Article VIII or otherwise.
Section 8.3. Indemnification of Other Persons.
The Corporation may indemnify, and advance expenses to, any
other person to whom the Corporation is permitted to provide
indemnification or the advancement of expenses under the Delaware
General Corporation Law; provided, however, that no
indemnification shall be made to or on behalf of any such other
person if such indemnification would be prohibited under the
Delaware General Corporation Law or other applicable law.
Section 8.4. Right to Bring Suit.
If a claim for indemnification under Section 8.1 or 8.2 of
this Article VIII is not paid in full by the Corporation within
thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be
entitled to also be paid the expense of prosecuting such claim.
Neither the failure of the Corporation (including its Board of
Directors, disinterested directors, independent legal counsel or
its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant
is proper in the circumstances, nor an actual determination by
the Corporation (including its Board of Directors, disinterested
directors, independent legal counsel or its stockholders) that
the claimant is not entitled to indemnification or to
reimbursement or advancement of expenses, shall be a defense to
the action or create a presumption that the claimant is not so
entitled.
Section 8.5. Insurance.
The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
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enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such
liability under the Delaware General Corporation Law.
Section 8.6. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of
this Article VIII shall not adversely affect any right or
protection hereunder of any person in respect of any act or
omission occurring prior to the time of such repeal or
modification.
ARTICLE IX
ADOPTION AND AMENDMENTS
Section 9.1. Amendments.
These By-laws may be repealed, altered or amended or new By-
laws adopted by the affirmative vote of a majority of the
outstanding shares of stock of the Corporation entitled to vote
thereon. The Board of Directors shall have the authority, if
such authority is conferred upon the Board of Directors by the
Certificate of Incorporation, to repeal, alter or amend these By-
laws or adopt new By-laws (including, without limitation, the
amendment of any By-laws setting forth the number of directors
who shall constitute the whole Board of Directors).
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