UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
or,
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
------------------ ---------------------
COMMISSION FILE NUMBER: 0-23556
INHALE THERAPEUTIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3134940
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
150 INDUSTRIAL ROAD
SAN CARLOS, CALIFORNIA 94070
(Address of principal executive offices)
650-631-3100
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(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 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.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, no par
value, was 15,686,226 as of July 20, 1998.
Page 1 of 20
INHALE THERAPEUTIC SYSTEMS
INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1. Condensed Financial Statements - unaudited............................................ 3
Condensed Balance Sheets - June 30, 1998 and December 31, 1997........................ 3
Condensed Statements of Operations for the three and six month periods
ended June 30, 1998 and 1997.......................................................... 4
Condensed Statements of Cash Flows for the six month period ended June 30,
1998 and 1997......................................................................... 5
Notes to Condensed Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 17
Item 2. Changes in Securities................................................................. 17
Item 3. Defaults Upon Senior Securities....................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................................... 17
Item 5. Other Information..................................................................... 17
Item 6. Exhibits and Reports on Form 8-K...................................................... 18
Signatures............................................................................ 20
Page 2 of 20
Item 1.
INHALE THERAPEUTIC SYSTEMS
Condensed Balance Sheets
(in thousands)
JUNE 30, 1998 DECEMBER 31, 1997
------------- ------------------
(unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 28,481 $ 14,948
Short-term investments 45,824 85,225
Other current assets 2,252 752
---------- ---------
Total current assets 76,557 100,925
Property and equipment, net 33,408 18,694
Deposits and other assets 102 143
---------- ---------
$ 110,067 $ 119,762
---------- ---------
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 9,161 $ 10,428
Deferred revenue 3,920 6,686
---------- ---------
Total current liabilities 13,081 17,114
Equipment financing obligations 4,974 5,102
Accrued rent 779 453
Shareholders' equity:
Common stock 136,578 135,273
Deferred compensation (655) (538)
Accumulated deficit (44,690) (37,642)
---------- ---------
Total shareholders' equity 91,233 97,093
---------- ---------
$ 110,067 $ 119,762
---------- ---------
---------- ---------
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
SEE ACCOMPANYING NOTES.
Page 3 of 20
INHALE THERAPEUTIC SYSTEMS
Condensed Statements of Operations
(in thousands, except per share information)
(unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------- ----------- -----------
Contract research revenue $ 6,679 $ 3,973 $ 10,544 $ 7,150
Operating costs and expenses:
Research and development 8,645 5,644 15,862 10,213
General and administrative 2,025 1,517 3,950 2,899
------------ ------------- ----------- -----------
Total operating costs and expenses 10,670 7,161 19,812 13,112
------------ ------------- ----------- -----------
Loss from operations (3,991) (3,188) (9,268) (5,962)
Interest income, net 1,141 890 2,269 1,620
------------ ------------- ----------- -----------
Net loss $ (2,850) $ (2,298) $ (6,999) $ (4,342)
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Basic and diluted net loss per share $ (0.18) $ (0.17) $ (0.45) $ (0.33)
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Shares used in computing basic and
diluted net loss per share 15,638 13,648 15,603 13,263
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
SEE ACCOMPANYING NOTES.
Page 4 of 20
INHALE THERAPEUTIC SYSTEMS
Condensed Statements of Cash Flows
Increase/(Decrease) in Cash and Cash Equivalents
(in thousands)
(unaudited)
SIX MONTHS ENDED JUNE 30,
---------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash used in operations $ (10,815) $ (1,733)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities (102,694) (10,280)
Sales and maturities of available for sale securities 142,046 14
Purchases of property and equipment (16,158) (3,919)
----------- -----------
Net cash provided by (used in) investing activities 23,194 (14,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing obligations (151) (103)
Issuance of common stock, net of issuance costs 1,305 30,602
----------- -----------
Net cash provided by financing activities 1,154 30,499
----------- -----------
Net increase in cash and cash equivalents 13,533 14,581
Cash and cash equivalents at beginning of period 14,948 18,568
----------- -----------
Cash and cash equivalents at end of period $ 28,481 $ 33,149
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES.
Page 5 of 20
INHALE THERAPEUTIC SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Inhale Therapeutic Systems ("Inhale" or the "Company") was incorporated
in the State of California in July 1990. Since inception, the Company has
been engaged in the development of systems for the pulmonary delivery of
macromolecule drug therapies for systemic and local lung applications.
On June 23, 1998, the Company held its Annual Shareholders Meeting at
which the Shareholders approved the Company's reincorporation in Delaware.
The Company completed its reincorporation in Delaware on July 1, 1998.
The accompanying unaudited condensed financial statements of Inhale
Therapeutic Systems have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions
for Form 10-Q and Article 10 of Regulation S-X. The balance sheet as of June
30, 1998 and the related statements of operations and cash flows for the six
month periods ended June 30, 1998 and 1997, are unaudited but include all
adjustments for the three and six months ended June 30, 1998 and 1997
(consisting of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such dates and
the operating results and cash flows for those periods. Although the Company
believes that the disclosures in these financial statements are adequate to
make the information presented not misleading, certain information normally
included in financial statements and related footnotes prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). The accompanying financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 as filed with the Commission.
Results for any interim period are not necessarily indicative of results
for any other interim period or for the entire year.
2. COMPREHENSIVE INCOME
Comprehensive income is equal to net income for the three and six month
periods ended June 30, 1998 and 1997.
3. REVENUE RECOGNITION
Contract revenue from collaborative research agreements is recorded when
earned and as the related costs are incurred. Payments received which are
related to future performance are deferred and recognized as revenue when
earned over future performance periods. In accordance with contract terms,
up-front and milestone payments from collaborative research agreements are
considered reimbursements for costs incurred under the agreements, and
accordingly, are generally recognized based on actual efforts expended over
the terms of the agreements. The Company's research revenue is derived
primarily from partners in the pharmaceutical and biotechnology industries.
All of the Company's research and development agreements are generally
cancelable by the partner without significant penalty to the partner.
Contract research revenue from two partners represented 67% of the
Company's revenue in the six month period ended June 30, 1998. Contract
revenue from two partners accounted for 71% of the Company's revenue in the
comparable period in 1997. Costs of contract research revenue approximate
such revenue and are included in research and development expenses.
Page 6 of 20
4. NET LOSS PER SHARE
Basic and diluted net loss per common share is computed in conformance
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", which the Company adopted in 1997. Accordingly, the weighted average
number of common shares outstanding are used while common stock equivalent
shares for stock options and warrants are not included in the per share
calculations as the effect of their inclusion would be antidilutive.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three and six months ended June 30, 1998 and
1997 should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The following discussion contains forward-looking statements that involve
risk and uncertainties. The Company's actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed herein under the
heading "Risk Factors" as well as those discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of
the date hereof. The Company undertakes no obligation to publicly release
the results of any revision to these forward-looking statements which may be
made to reflect events or circumstances occurring after the date hereof or to
reflect the occurrence of unanticipated events.
OVERVIEW
Since its inception in July 1990, Inhale has been engaged in the
development of a pulmonary system for the delivery of macromolecules and
other drugs for systemic and local lung applications. The Company has been
unprofitable since inception and expects to incur significant and increasing
additional operating losses over the next several years primarily due to
increasing research and development expenditures and expansion of late stage
clinical and early stage commercial manufacturing facilities. To date,
Inhale has not sold any products and does not anticipate receiving revenue
from product sales or royalties in the near future. For the period from
inception through June 30, 1998, the Company incurred a cumulative net loss
of approximately $44.7 million. The sources of working capital have been
equity financings, financings of equipment acquisitions, interest earned on
investments of cash, and payments received under research and development
contracts.
Inhale typically has been compensated for research and development
expenses during initial feasibility work performed under collaborative
arrangements. Inhale's strategy is to enter into development contracts with
pharmaceutical and biotechnology corporate partners after feasibility is
demonstrated. Partners that enter into collaborative agreements will pay for
research and development expenses and may make payments to Inhale as it
achieves certain key milestones. Inhale expects to receive royalties from its
partners based on revenues received from product sales, and to receive
revenue from the manufacturing of powders and the supply of devices. In
certain cases, the Company may enter into collaborative agreements under
which the Company's partners would manufacture or package powders or supply
inhalation devices, thereby potentially limiting one or more sources of
revenue for the Company. To achieve and sustain profitable operations, the
Company, alone or with others, must successfully develop, obtain regulatory
approval for, manufacture, introduce, market and sell products utilizing its
pulmonary drug delivery system. There can be no assurance that the Company
can generate sufficient product or contract research revenue to become
profitable or to sustain profitability.
RESULTS OF OPERATIONS
Revenue in the second quarter of 1998 was $6.7 million compared to $4.0
million in the second quarter of 1997, an increase of 68%. Revenues for the
six months ended June 30, 1998 were $10.5 million as compared to
Page 7 of 20
$7.1 million for the six months ended June 30, 1997, an increase of 47%. The
increase in revenue for both the three and six months periods was primarily
due to the expansion of the Company's existing collaborative agreements.
Revenue for the first and second quarters of 1998 and 1997 was comprised of
reimbursed research and development expenses and the amortization of the
pro-rata portion of the up-front signing and milestone payments based on
actual efforts expended. Costs of contract research revenue approximate such
revenue and are included in research and development expenses.
Research and development expenses increased to approximately $8.6
million in the second quarter of 1998 from $5.6 million in the corresponding
period in 1997, an increase of 53%. Research and development expenses for the
six months ended June 30, 1998 were $15.9 million compared to $10.2 million
for the six months ended June 30, 1997, an increase of 55%. The increase for
the three and six month periods was due primarily to continued expansion of
research activities resulting from an increase in the number of projects,
additional hiring of scientific and development personnel, costs associated
with the development of its commercial manufacturing facility and increased
costs of laboratory supplies and consulting services. The Company expects
research, development and process development spending to increase
significantly over the next few years as the Company expands its development
efforts under collaborative agreements and scales up its late stage clinical
and early commercial manufacturing facility.
General and administrative expenses increased to $2.0 million in the
second quarter of 1998 from $1.5 million in the second quarter of 1997, an
increase of 33%. For the six month period ended June 30, 1998, general and
administrative expenses were $4.0 million compared to $2.9 million in the
comparable period of 1997, an increase of 36%. The increase for the three
and six month periods was due primarily to costs associated with supporting
the Company's increased research efforts including administrative staffing,
business development activities and marketing activities. General and
administrative expenses are expected to continue to increase over the next
few years to support increasing levels of research, development and
manufacturing activities.
Net interest income increased to $1.1 million in the second quarter of
1998 compared to $0.9 million in the second quarter of 1997, an increase of
28%. Net interest income increased to $2.3 million in the six month period
ended June 30, 1998 compared to $1.6 million for the six months ended June
30, 1997. Interest income was earned on larger cash and investment balances
held by the Company in the three and six month periods ended June 30, 1998,
compared to the same periods in 1997. The higher cash and investment
balances are the result of the Company receiving milestone and research
funding payments from collaborative partners as well as the completion of a
public offering of the Company's Common Stock in November 1997 which raised
net proceeds of approximately $40.0 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through public and
private placements of its equity securities, contract research and milestone
payments, financing of equipment acquisitions and interest income earned on
its investments of cash. At June 30, 1998, the Company had cash, cash
equivalents and short-term investments of approximately $74.3 million.
The Company's operations used cash of $10.8 million in the six months
ended June 30, 1998, as compared to $1.7 million used in the six months ended
June 30, 1997. The increase in net cash used in operations is principally
due to the continued expansion of research activities resulting from an
increase in the number of projects and providing the related general and
administrative support for these increased research efforts, including
increased business development and marketing expenses.
The Company purchased property and equipment of approximately $16.1
million during the six months ended June 30, 1998, compared to $3.9 million
for the corresponding period in 1997. The increase is primarily due to the
build-out of the Company's manufacturing facility and corporate headquarters
in San Carlos, California. This facility will support the Company's late
stage clinical manufacturing and large-scale commercialization requirements.
The Company expects its cash requirements to continue to increase at an
accelerated rate due to expected increases in costs associated with further
research and development of its technologies, resulting in larger numbers of
projects, development of drug formulations, process development for the
manufacture and filling of powders and devices, marketing and general and
administrative costs. These expenses include, but are not limited to,
increases in
Page 8 of 20
personnel and personnel related costs, purchases of capital equipment,
investments in technologies, inhalation device prototype construction and
facilities expansion, including the completion of its late stage clinical and
commercial manufacturing facility.
The Company believes that its cash, cash equivalents and short-term
investments as of June 30, 1998, together with interest income and possible
additional equipment financing, will be sufficient to meet its operating
expense and capital expenditure requirements at least through 1999. However,
the Company's capital needs will depend on many factors, including continued
scientific progress in its research and development arrangements, progress
with pre-clinical and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs of developing and the rate of
scale-up of the Company's powder processing and packaging technologies, the
timing and cost of its late-stage clinical and early commercial production
facility, the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims, the need to acquire licenses to new technologies
and the status of competitive products. To satisfy its long-term needs, the
Company intends to seek additional funding, as necessary, from corporate
partners and from the sale of securities. There can be no assurance that
additional funds, if and when required, will be available to the Company on
favorable terms, if at all.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The
"year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do
not properly recognize such information could generate erroneous data or
cause a system to fail.
The Company is utilizing both internal and external resources to conduct
a comprehensive review of its computer systems to identify the systems that
could be affected by the "year 2000" issue and is developing an
implementation plan to resolve the issue by the end of 1999. The Company
presently believes that, with modifications to existing software and
converting to new software, the "year 2000" problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not completed
timely, the "year 2000" problem may have a material adverse impact on the
operations of the Company.
RISK FACTORS
EARLY STAGE COMPANY. Inhale is in an early stage of development. There can
be no assurance that the Company's pulmonary delivery technology will prove
to be technically feasible or commercially applicable to a range of
macromolecules and small molecule drugs. Only six of the Company's fourteen
pulmonary delivery formulations, insulin, interleukin-1 receptor, salmon
calcitonin, an osteoporosis drug and two small molecules have been subject to
any human clinical testing. Although many of the underlying drug compounds
with which the Company is working have been tested in humans by others using
alternative delivery routes, Inhale's potential products will require
extensive research, development, pre-clinical and clinical testing, and may
involve lengthy regulatory review. There can be no assurance that any of the
Company's potential products will prove to be safe and effective in clinical
trials, meet applicable regulatory standards, be capable of being produced in
commercial quantities at acceptable cost or be marketed successfully. Any
failure of the Company to achieve technical feasibility, demonstrate safety,
achieve clinical efficacy, obtain regulatory approval or, together with
partners, successfully market products, would have a material adverse effect
on the Company.
UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT. The success of
Inhale's pulmonary drug delivery system for any drugs will depend upon the
Company achieving sufficient system efficiency (measured by the percentage of
bulk drug entering the manufacturing process that eventually is absorbed into
the bloodstream relative to injection for systemic indications, or the amount
of drug delivered to the lung tissue for local lung indications), formulation
stability, safety and dosage reproducibility.
The initial screening determinant for the feasibility of pulmonary
delivery of any systemic drug is pulmonary bioavailability, which measures
the percentage of the drug absorbed into the bloodstream when delivered
directly to the lungs. In addition, a certain percentage of each drug dose is
lost at various stages of the manufacturing and pulmonary delivery process in
drug formulation, dry powder processing, packaging, and in moving the drug
from a delivery device
Page 9 of 20
into the lungs. Excessive drug loss at any one stage or cumulatively in the
manufacturing and delivery process could render a drug commercially
unfeasible for pulmonary delivery.
Formulation stability (the physical and chemical stability of the
formulated drug over time and under various storage conditions) and safety
will vary with each drug and the type and amount of excipients that are used
in the formulation. Reproducible dosing (the ability to deliver a consistent
and predictable amount of drug into the bloodstream over time both for a
single patient and across patient groups) requires the development of an
inhalation device that consistently delivers predictable amounts of dry
powder formulations to the deep lung, accurate unit dose packaging of dry
powder formulations and moisture resistant packaging. There can be no
assurance that the Company will be able to develop successfully such an
inhalation device or overcome such other obstacles to reproducible dosing.
The Company's integrated approach to systems development relies upon
several different but related technologies. Development of powder
formulations, processing and packaging technology and the delivery device,
establishing collaborations with partners, laboratory and clinical testing,
and manufacturing scale-up must proceed contemporaneously so as not to delay
any aspect of systems development. Any delay in one component of product or
business development could cause consequential delays in the Company's
ability to develop, obtain approval of or market therapeutic products using
its system. Further refinement of the Company's device prototype, further
scale-up of the powder processing system and automated packaging system will
need to be accomplished before initiation of late stage clinical trials.
There can be no assurance that Inhale will be able to demonstrate
pulmonary bioavailability for the drug candidates it has identified or may
identify, will be able to achieve commercial viability of its pulmonary
delivery system or will achieve the total system efficiency needed to be
competitive with alternative routes of delivery. Further, there can be no
assurance that the Company's pulmonary delivery system will prove to be safe
or provide reproducible dosages of stable formulations sufficient to achieve
clinical efficacy, regulatory approval or market acceptance. In addition,
there can be no assurance that Inhale will advance the numerous aspects of
product and business development such that delays in overall product
development do not occur. The failure to demonstrate pulmonary
bioavailability, achieve total system efficiency, provide safe, reproducible
dosages of stable formulations or advance on a timely basis the numerous
aspects of product and business development would have a material adverse
effect on the Company.
UNCERTAINTIES RELATED TO CLINICAL TRIALS. The Company has limited experience
in conducting clinical trials and intends to rely primarily on the
pharmaceutical companies with which it collaborates, including Pfizer Inc.
and Eli Lilly & Company. The Company is responsible for managing the
clinical trials in its collaboration with Baxter Healthcare Corporation
("Baxter"). Before seeking regulatory approvals for the commercial sale of
products under development, the Company must demonstrate through pre-clinical
studies and clinical trials that such products are safe and effective for use
in the target indications. The results from pre-clinical studies and early
clinical trials may not be indicative of results that will be obtained in
large-scale testing, and there can be no assurance that the Company's
clinical trials will demonstrate sufficient safety and efficacy to obtain the
requisite regulatory approvals or will result in marketable products.
Clinical trials are also often conducted with patients having advanced stages
of disease. During the course of treatment, these patients can die or suffer
other adverse medical effects for reasons that may not be related to the
pharmaceutical agent being tested but which can nevertheless affect clinical
trial results. A number of companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials. Clinical trials for products being
developed by the Company and its partners may be delayed by many factors,
including enrolling a sufficient number of patients fitting the appropriate
trial profile. If any of the Company's products under development are not
shown to be safe and effective in clinical trials, the resulting delays in
developing other compounds and conducting related pre-clinical testing and
clinical trials, as well as the need for additional financing, would have a
material adverse effect on the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The
Company has not been profitable since inception and, through June 30, 1998,
has incurred a cumulative deficit of approximately $44.7 million. The Company
expects to continue to incur substantial and increasing losses over at least
the next several years as the Company's research and development efforts,
preclinical and clinical testing activities and manufacturing scale-up
efforts expand and as the Company plans and builds its late stage clinical
and early commercial production facility. All of the Company's potential
products are in research or in the early stages of development, and no
revenues have been generated from approved product sales. The Company's
revenues to date have consisted primarily of payments under short-term
research and feasibility agreements and development contracts. To achieve and
sustain profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, manufacture, introduce,
Page 10 of 20
market and sell products utilizing its pulmonary drug delivery system. There
can be no assurance that the Company can generate sufficient product or
contract research revenue to become profitable or to sustain profitability.
DEPENDENCE UPON COLLABORATIVE PARTNERS. The Company currently does not
possess the resources necessary to develop, obtain regulatory approvals, or
commercialize any of its potential therapeutic products. The Company's
ability to apply its pulmonary delivery system to a broad range of drugs will
depend upon its ability to establish and maintain collaborative arrangements
since many of the drugs currently approved for sale or in clinical testing
are covered by third-party patents. The Company has entered into
collaborative arrangements with certain of its partners to fund clinical
trials, assist in obtaining regulatory approvals, supply drugs for
formulation and market and distribute products. While Inhale has also entered
into agreements with partners to test the feasibility of its pulmonary
delivery system with certain of their proprietary molecules, there can be no
assurance that the Company will be able to enter into additional
collaborations or that its feasibility agreements will lead to
collaborations. There also can be no assurance that the Company will be able
to maintain any such collaborative arrangements or feasibility agreements or
that any such collaborative arrangements or feasibility agreements will be
successful. The failure of the Company to enter into or maintain such
collaborative arrangements and feasibility agreements would have a material
adverse effect on the Company. Moreover, the inability of the Company to
enter into a collaborative arrangement with the owner of any patented drug
may preclude the Company from working with such drug. Beginning in October
1997, Inhale announced its plan to renegotiate with Baxter certain terms of
their collaboration agreement to address concerns raised by both parties
about the overall scope and cost of the collaborative arrangement. In April
1998, the renegotiation of the collaborative agreement with Baxter was
finalized. Under the revised terms, Inhale and Baxter will focus on the
product which entered Phase I testing in November 1997 and continue to pursue
its commercialization.
The Company's existing partners have rights to pursue parallel
development of other drug delivery systems which may compete with the
Company's pulmonary drug delivery system and to terminate their agreements
with the Company at any time without significant penalty. The Company
anticipates that any future partners would have similar rights. Although the
Company intends generally to formulate and manufacture powders for partners
and to supply inhalation devices for such powders, certain partners may
choose to formulate or manufacture their own powders, or to develop or supply
their own device, thereby limiting one or more potential sources of revenue
for Inhale. In addition, the Company anticipates that it may be precluded
from entering into new arrangements with companies whose products compete
with those of its existing partners. The Company also has limited or no
control over the resources that any partner may devote to the Company's
products, over partners' development efforts, including the design and
conduct of clinical trials, and over the pricing of any such products. The
pharmaceutical and biotechnology industries are consolidating, and
acquisitions by, or of, the Company's existing or potential collaborative
partners may affect the initiation or continuation of any such
collaborations. There can be no assurances that any of the Company's present
or future collaborative partners will perform their obligations as expected,
will devote sufficient resources to the development, clinical testing or
marketing of the Company's potential products or will not terminate their
agreements with the Company prematurely or renegotiate such agreements. Any
parallel development by a partner of alternate drug delivery systems,
development by a partner rather than by Inhale of components of the delivery
system, preclusion from entering into competitive arrangements, failure to
obtain timely regulatory approvals, premature termination of an agreement,
renegotiation of an agreement, or failure by a partner to devote sufficient
resources to the development and commercialization of the Company's products
would have a material adverse effect on the Company.
LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP. To achieve the levels of
production of Inhale's dry powder drug formulations necessary to support late
stage human clinical trials and for early commercialization of any of such
products, the Company will need to scale-up its current powder processing
facilities and automated filling, build a late stage clinical and early
commercial production facility, and comply with the good manufacturing
practice ("GMP") standards prescribed by the United States Food and Drug
Administration ("FDA") and other standards prescribed by various federal,
state and local regulatory agencies in the United States and any other
country of use.
The Company has no experience manufacturing products for large scale
clinical testing or commercial purposes. To date, the Company has performed
powder processing on the small scale needed for early stage trials and for
testing formulations of certain other potential therapeutic products and
scaled-up powder processing for larger clinical trials. There can be no
assurance that manufacturing and control problems will not arise as the
Company attempts to further scale-up its powder processing facilities or that
such scale-up can be achieved in a timely manner or at a commercially
reasonable cost. Any failure to surmount such problems could delay or prevent
late stage clinical testing and commercialization of the Company's products
and would have a material adverse effect on the Company. To date, the Company
has relied on a particular method of powder processing. There can be no
assurance that this
Page 11 of 20
technology will be applicable to all drugs or that the drug losses in powder
processing will not be too high for commercial viability for certain drugs.
In the event that the Company decides to pursue alternative powder processing
methods for some or all of its drugs, there can be no assurance that these
methods will prove commercially practical for aerosol drugs or that the
Company will have or be able to acquire rights to use such alternative
methods.
Fine particle powders and small quantity packaging (such as those to be
used in the Company's delivery system) require special handling. The Company
has designed and qualified small scale automated filling equipment for small
quantity packaging of fine powders. The Company faces significant technical
challenges scaling-up an automated filling system that can accurately and
economically handle the small dose and particle sizes of its powders in
commercial quantities. There can be no assurances that the Company will be
able to scale-up its automated filling equipment in a timely manner or at
commercially reasonable costs. Any failure or delay in such scale-up would
delay product development or bar commercialization of the Company's products
and would have a material adverse effect on the Company.
The Company also faces technical challenges in further developing its
inhalation device to achieve the efficiency necessary to deliver a broad
range of drugs, to produce such a device in quantities sufficient for later
stage clinical trials and early commercialization, and to adapt the device as
may be required for different powder formulations. There can be no assurance
that Inhale will successfully achieve such efficiencies, will be able to
produce such quantities or will be able to adapt the device as required. The
failure of the Company to overcome any such challenges would have a material
adverse effect on the Company. For late stage clinical trials and initial
commercial production, the Company intends to use one or more contract
manufacturers to produce its device. There can be no assurance that Inhale
will be able to enter into or maintain such arrangements. The failure of the
Company to enter into and maintain such arrangements would have a material
adverse effect on the Company.
UNCERTAINTY OF MARKET ACCEPTANCE. The commercial success of the Company's
pulmonary drug delivery system will depend upon market acceptance by health
care providers, payors and patients. The Company's products under development
use a new method of drug delivery, and there can be no assurance that any of
the Company's products under development will ever achieve market acceptance.
Market acceptance will depend on many factors, including the safety and
efficacy results of the Company's clinical trials, favorable regulatory
approval and product labeling, the frequency of administration, the
availability of third-party reimbursement, the availability of alternative
technologies and the price of the Company's products relative to alternative
technologies. There can be no assurance that health care providers, patients
or third-party payors will accept the Company's pulmonary drug delivery
system and the failure to do so would have a material adverse effect on the
Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company's
operations to date have consumed substantial and increasing amounts of cash.
The negative cash flow from operations is expected to continue and to
accelerate in the foreseeable future. The development of the Company's
technology and proposed products will require a commitment of substantial
funds to conduct costly and time-consuming research, preclinical and clinical
testing, establish an early commercial production facility and bring any such
products to market. The Company's future capital requirements will depend on
many factors, including continued progress in the research and development of
the Company's technology and drug delivery system, the ability of the Company
to establish and maintain collaborative arrangements with others and the
terms thereof, payments received from partners under research and development
agreements, progress with preclinical and clinical trials, the time and costs
involved in obtaining regulatory approvals, the cost of development and the
rate of scale-up of the Company's powder processing and packaging
technologies, the timing and costs of its late stage clinical and early
commercial production facility, the cost involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims, the need to acquire
licenses to new technology and the status of competitive products.
The Company expects that its existing capital resources, contract
research revenues from collaborations and the net proceeds from the November
1997 public offering and the interest thereon, will enable the Company to
maintain its current and planned operations at least through 1999.
Thereafter, the Company may need to raise substantial additional capital to
fund its operations. The Company intends to seek such additional funding
through collaborative or partnering arrangements, the extension of existing
arrangements, or through public or private equity or debt financings. There
can be no assurance that additional financing will be available on acceptable
terms or at all. If additional funds are raised by issuing equity securities,
further dilution to shareholders may result. If adequate funds are not
available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research or development programs or obtain funds
through arrangements with collaborative partners or others that may require
the Company to
Page 12 of 20
relinquish rights to certain of its technologies, product candidates or
products that the Company would otherwise seek to develop or commercialize.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF OBTAINING LICENSES OR
DEVELOPING TECHNOLOGY. The Company's success will depend in part upon
protecting its proprietary technology from infringement, misappropriation,
duplication and discovery. The Company intends to rely principally on a
combination of patent law, trade secrets and contract law to protect its
proprietary technology in the United States and abroad. Inhale has filed
patent applications covering certain aspects of its device, powder processing
technology, and powder formulations and pulmonary route of delivery for
certain molecules, and plans to file additional patent applications.
Currently the Company has been issued nine patents which cover certain
aspects of its proprietary technology and the Company has a number of patent
applications pending.. There can be no assurance that any of the patents
applied for by the Company will issue, or that any patents that issue will be
valid and enforceable. Even if such patents are enforceable, the Company
anticipates that any attempt to enforce its patents could be time consuming
and costly.
The patent positions of pharmaceutical, biotechnology and drug delivery
companies, including Inhale, are uncertain and involve complex legal and
factual issues. Additionally, the coverage claimed in a patent application
can be significantly reduced before the patent is issued. As a consequence,
the Company does not know whether any of its patent applications will result
in the issuance of patents or, if any patents issue, whether they will
provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, the
Company cannot be certain that it was the first inventor of inventions
covered by its pending patent applications or that it was the first to file
patent applications for such inventions. Moreover, the Company may have to
participate in interference proceedings declared by the PTO to determine
priority of invention, which could result in substantial cost to the Company,
even if the eventual outcome is favorable to the Company. An adverse outcome
could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from or to third parties or require
the Company to cease using the technology in dispute.
The Company is aware of numerous pending and issued U.S. and foreign
patent rights and other proprietary rights owned by third parties that relate
to aerosol devices and delivery, pharmaceutical formulations, dry powder
processing technology and the pulmonary route of delivery for certain
macromolecules. The Company cannot predict with any certainty which, if any,
patents and patent applications will be considered relevant to the Company's
technology by authorities in the various jurisdictions where such rights
exist, nor can the Company predict with certainty which, if any, of these
rights will or may be asserted against it by such third parties. The Company
is aware of an alternate dry powder processing technology which Inhale is not
using for its current products under development but may desire to use for
certain products in the future. The ownership of this powder processing
technology is unclear and the Company is aware that multiple parties,
including Inhale, claim patent, trade secret and other rights in the
technology. If the Company determines that this alternate powder processing
technology is relevant to the development of future products and further
determines that a license to this alternate powder processing technology is
needed, there can be no assurance that the Company can obtain a license from
the relevant party or parties on commercially reasonable terms, if at all.
The Company is also aware of an issued U.S. patent which covers a broad range
of macromolecule drugs in dry formulations. The Company is evaluating the
validity of this patent, its relevance to the Company's products and whether
the license proposed by the patent owner is of interest to the Company. There
can be no assurance that the Company can obtain any license to any technology
that the Company determines it needs, on reasonable terms, if at all, or that
Inhale could develop or otherwise obtain alternate technology. The failure of
the Company to obtain licenses if needed would have a material adverse effect
on the Company.
In June 1997, the Company acquired the intellectual property portfolio
of the BioPreservation Division of Pafra Limited of Basildon, England
("Pafra"). This portfolio includes issued U.S. and foreign Letters Patent and
pending applications relating to the stabilization of macromolecule drugs in
dry formulations. A granted European patent included in this portfolio is
currently the subject of an opposition proceeding before the European Patent
Office and the Company is continuing the defense of this patent, the
opposition to which was initiated prior to the acquisition. There can be no
assurance that the Company will be successful in the defense of this
opposition proceeding. In addition, there can be no assurance that any of the
Pafra patent applications will issue, or that any Pafra patents will be valid
and enforceable. The loss of the opposition proceeding or the inability to
obtain or defend the Pafra patents could have a material adverse effect on
the Company.
Page 13 of 20
Third parties from time to time have asserted and may assert that the
Company is employing technology that they believe is based on issued patents,
trade secrets or know-how of others. In addition, future patents may issue to
third parties which the Company's technology may infringe. The Company could
incur substantial costs in defending itself and its partners against any such
claims. Furthermore, parties making such claims may be able to obtain
injunctive or other equitable relief which could effectively block the
Company's ability to further develop or commercialize some or all of its
products in the United States and abroad, and could result in the award of
substantial damages. In the event of a claim of infringement, the Company and
its partners may be required to obtain one or more licenses from third
parties. There can be no assurances that the Company or its partners will be
able to obtain such licenses at a reasonable cost, if at all. Defense of any
lawsuit or failure to obtain any such license could have a material adverse
effect on the Company.
The Company's ability to develop and commercialize its technology will
be affected by the Company's or its partners' access to the drugs which are
to be formulated. Many drugs, including powder formulations of certain drugs
which are presently under development by the Company, are subject to issued
and pending United States and foreign patent rights which may be owned by
competing entities. There are issued patents and pending patent applications
relating to the pulmonary delivery of macromolecule drugs, including several
for which the Company is developing pulmonary delivery formulations.
Specifically, patents have been granted in the United States and Europe
directed to aerosol formulations for the treatment of the lung containing
alpha-1 antitrypsin (U.S.) and serine protease inhibitors, including alpha-1
antitrypsin (Europe). The Company's development partner for alpha-1
antitrypsin, Centeon L.L.C (a joint venture of Hoechst AG and Rhone-Poulenc
Rorer, Inc.) ("Centeon"), is negotiating with multiple partners to secure
rights under these patents. The failure by Centeon to secure rights under
these patents could result in the termination of this program by Centeon. The
resulting patent situation is highly complex, and the ability of any one
company to commercialize a particular biopharmaceutical drug is highly
unpredictable. The Company intends generally to rely on the ability of its
partners to provide access to the drugs which are to be formulated for
pulmonary delivery. There can be no assurance that the Company's partners
will be able to provide access to drug candidates for formulation for
pulmonary delivery or that, if such access is provided, the Company or its
partners will not be accused of, or determined to be, infringing a third
party's rights and will not be prohibited from working with the drug or be
found liable for damages that may not be subject to indemnification. Any such
restriction on access or liability for damages would have a material adverse
effect on the Company.
The Company also will rely on trade secrets and contract law to protect
certain of its proprietary technology. There can be no assurance that any
such contract will not be breached, or that if breached, the Company will
have adequate remedies. Furthermore, there can be no assurance that any of
the Company's trade secrets will not become known or independently discovered
by third parties.
In 1995 the PTO adopted changes to the United States patent law that
changed the term of issued patents, subject to certain transition periods, to
20 years from the date of filing rather than 17 years from date of issuance.
Beginning in June 1995, the patent term became 20 years from the earliest
effective filing date of the underlying patent application. Such change may
reduce the effective term of protection for patents that are pending for more
than three years in the PTO. In addition, as of January 1996, all inventors
who work outside of the United States are able to establish a date of
invention on the same basis as those working in the United States. Such
change could adversely affect the ability of the Company to prevail in a
priority of invention dispute with a third party located or doing work
outside of the United States. While the Company cannot predict the effect
that such changes will have on its business, such changes could have a
material adverse effect on the Company's ability to protect its proprietary
information and sustain the commercial viability of its products.
Furthermore, the possibility of extensive delays in such process, could
effectively further reduce the term during which a marketed product could be
protected by patents.
DEPENDENCE UPON AND NEED TO ATTRACT KEY PERSONNEL. The Company is highly
dependent upon the principal members of its scientific and management staff.
The Company does not have employment contracts with its key employees, nor
does the Company have key man insurance policies on them. The Company also
relies on consultants and advisors to assist the Company in formulating
research and development strategy. To pursue its product development and
commercialization plans, the Company will be required to hire additional
qualified scientific personnel to perform research and development, as well
as personnel with expertise in clinical testing, government regulation and
manufacturing. Expansion in product development and manufacturing also is
expected to require the addition of management personnel and the development
of additional expertise by existing management personnel. Retaining and
attracting qualified personnel, consultants and advisors will be critical to
the Company's success. The Company faces competition for qualified
individuals from numerous pharmaceutical, biotechnology and drug delivery
companies,
Page 14 of 20
universities and other research institutions. There can be no assurance that
the Company will be able to retain its current key employees or attract and
retain qualified additional personnel and management when needed and its
failure to do so would have a material adverse effect on the Company's
ability to develop and commercialize products.
GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL. The
production and marketing of the Company's products and its ongoing research
and development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. Prior to marketing a
new dosage form of any drug, including one developed for use with the
Company's pulmonary drug delivery system, whether or not such drug was
already approved for marketing in another dosage form, the product must
undergo rigorous preclinical and clinical testing and an extensive review
process mandated by the FDA and equivalent foreign authorities. These
processes generally take a number of years and require the expenditure of
substantial resources. None of the Company's proposed products has been
submitted to the FDA for marketing approval. The Company has no experience
obtaining such regulatory approval, does not have the expertise or other
resources to do so and intends to rely on its partners to fund clinical
testing and to obtain product approvals.
The time required for completing such testing and obtaining such
approvals is uncertain. Further refinement of the device prototype, further
scale-up of the powder processing system and automated powder filling and
packaging system will need to be accomplished before initiation of later
stage clinical trials. Any delay in any of these components of product
development may delay testing. In addition, delays or rejections may be
encountered based upon changes in FDA policy, including FDA policy relating
to GMP compliance, during the period of product development. Similar delays
may also be encountered in other countries. If regulatory approval of a
product is granted, such approval may entail limitations on the indicated
uses for which the product may be marketed, and the marketed product, its
manufacturer, and its manufacturing facilities remain subject to continual
review and periodic inspections. Later discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions
on such product or manufacturer, including withdrawal of the product from the
market. There can be no assurance that regulatory approval will be obtained
for any products developed by the Company on a timely basis, or at all. The
failure to obtain timely regulatory approval of its products, any product
marketing limitations or a product withdrawal would have a material adverse
effect on the Company.
UNCERTAINTY RELATED TO THE HEALTH CARE INDUSTRY AND THIRD-PARTY
REIMBURSEMENT. Political, economic and regulatory influences are subjecting
the health care industry in the United States to fundamental change. Recent
initiatives to reduce the federal deficit and to reform health care delivery
are increasing cost-containment efforts. The Company anticipates that
Congress, state legislatures and the private sector will continue to review
and assess alternative benefits, controls on health care spending through
limitations on the growth of private health insurance premiums and Medicare
and Medicaid spending, the creation of large insurance purchasing groups,
price controls on pharmaceuticals and other fundamental changes to the health
care delivery system. Any such proposed or actual changes could cause the
Company or its collaborative partners to limit or eliminate spending on
development projects. Legislative debate is expected to continue in the
future, and market forces are expected to demand reduced costs. Inhale cannot
predict what effect the adoption of any federal or state health care reform
measures or future private sector reforms may have on its business.
In both domestic and foreign markets, sales of the Company's products
under development will depend in part upon the availability of reimbursement
from third-party payors, such as government health administration
authorities, managed care providers, private health insurers and other
organizations. In addition, other third-party payors are increasingly
challenging the price and cost effectiveness of medical products and
services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products. There can be no assurance that the
Company's proposed products will be considered cost effective or that
adequate third-party reimbursement will be available to enable Inhale to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. Legislation and regulations affecting the
pricing of pharmaceuticals may change before the Company's proposed products
are approved for marketing. Adoption of such legislation could further limit
reimbursement for medical products. If adequate coverage and reimbursement
levels are not provided by the government and third-party payors for the
Company's potential products, the market acceptance of these products would
be adversely affected, which would have a material adverse effect on the
Company.
HIGHLY COMPETITIVE INDUSTRY; RISK OF TECHNOLOGICAL OBSOLESCENCE. The
biotechnology and pharmaceutical industries are highly competitive and
rapidly evolving and significant developments are expected to continue at a
rapid pace. The Company's success depends upon maintaining a competitive
position in the development of products and technologies
Page 15 of 20
for pulmonary delivery of pharmaceutical drugs. If a competing company were
to develop or acquire rights to a better dry powder pulmonary delivery device
or fine powder processing technology, a better system for efficiently and
reproducibly delivering drugs to the deep lung, a non-invasive drug delivery
system which is more attractive for the delivery of drugs than pulmonary
delivery, or an invasive delivery system which overcomes some of the
drawbacks of current invasive systems for chronic or subchronic indications
(such as a sustained release system), the Company's business could be
materially adversely affected.
The Company is in competition with pharmaceutical, biotechnology and
drug delivery companies, hospitals, research organizations, individual
scientists and nonprofit organizations engaged in the development of
alternative drug delivery systems or new drug research and testing, as well
as with entities producing and developing injectable drugs. The Company is
aware of a number of companies currently seeking to develop new products and
non-invasive alternatives to injectable drug delivery, including oral
delivery systems, intranasal delivery systems, transdermal systems and
colonic absorption systems. Several of these companies may have developed or
be developing dry powder devices that could be used for pulmonary delivery.
The Company is also aware of other companies currently engaged in the
development and commercialization of pulmonary drug delivery systems and
enhanced injectable drug delivery systems. Many of these companies and
entities have greater research and development capabilities, experience,
manufacturing, marketing, financial and managerial resources than the Company
and represent significant competition for the Company. Acquisitions of
competing drug delivery companies by large pharmaceutical companies could
enhance competitors' financial, marketing and other resources. Accordingly,
the Company's competitors may succeed in developing competing technologies,
obtaining FDA approval for products or gain market acceptance more rapidly
than the Company. There can be no assurance that developments by others will
not render the Company's products or technologies uncompetitive or obsolete.
PRODUCT LIABILITY; AVAILABILITY OF INSURANCE. The design, development and
manufacture of the Company's products involve an inherent risk of product
liability claims and associated adverse publicity. Although the Company
currently maintains general liability insurance, there can be no assurance
that the coverage limits of the Company's insurance policies will be
adequate. The Company obtained clinical trial product liability insurance of
$3.0 million per event for certain clinical trials and intends to obtain
insurance for future clinical trials of insulin and other products under
development. There can be no assurance, however, that the Company will be
able to obtain or maintain insurance for any future clinical trials. Such
insurance is expensive, difficult to obtain and may not be available in the
future on acceptable terms, or at all. A successful claim brought against the
Company in excess of the Company's insurance coverage would have a material
adverse effect upon the Company and its financial condition.
HAZARDOUS MATERIALS. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company. The
Company may incur substantial costs to comply with environmental regulations.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Certificate of
Incorporation and the Delaware General Corporation Law could discourage a
third party from attempting to acquire, or make it more difficult for a third
party to acquire, control of the Company without approval of the Company's
Board of Directors. Such provisions could also limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.
Certain of the provisions allow the Board of Directors to authorize the
issuance of Preferred Stock with rights superior to those of the Common
Stock.
POTENTIAL VOLATILITY OF STOCK PRICE. The market prices for securities of
early stage biotechnology companies have historically been highly volatile
and the market from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products or the
announcement or termination of collaborative relationships by the Company or
its competitors, governmental regulation, clinical trial results,
developments in patent or other proprietary rights, public concern as to the
safety of drug formulations developed by the Company or others and general
market conditions may have a significant effect on the market price of the
Common Stock. The Company's securities are subject to a high degree of risk
and volatility. In the past, following periods of volatility in the market
price of a company's securities, class action securities litigation has often
been instituted against such a company. Any such litigation instigated
against the Company could result in substantial costs
Page 16 of 20
and a diversion of management's attention and resources, which could have a
material adverse effect on the Company's business, financial condition and
operating results.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Inhale Therapeutic Systems
was held on June 23, 1998.
(b) The matters voted upon at the meeting and the voting of
shareholders with respect thereto are as follows:
The election of Robert B. Chess, Ajit S. Gill, John S. Patton,
Terry L. Opdendyk, Mark J. Gabrielson, James B. Glavin and Melvin
Perelman to the Board of Directors to hold office until the next
annual meeting of shareholders and until his successor is elected
and has qualified, or until such director's earlier death,
resignation or removal:
FOR WITHHELD
--- --------
Robert B. Chess 14,049,968 151,898
Ajit S. Gill 14,054,146 147,720
John S. Patton 14,016,896 184,970
Terry L. Opdendyk 14,054,146 147,720
Mark J. Gabrielson 14,054,046 147,820
James B. Glavin 14,054,146 147,720
Melvin Perelman 14,039,570 162,296
Approval of the reincorporation of the Company in the State of
Delaware:
For: 9,527,104 Against: 2,491,546 Abstain: 3,560
Approval of the Company's 1994 Equity Incentive Plan, as amended,
to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 775,000 shares, from
3,900,000 shares to 4,675,000 shares:
For: 11,003,329 Against: 3,145,121 Abstain: 53,416
Ratification of Ernst & Young, LLP as independent auditors of the
Company for its fiscal year ending December 31, 1998:
For: 14,189,223 Against: 5,118 Abstain: 7,525
Based on the voting results, each of the directors nominated was
elected, and the Company's reincorporation in Delaware, the
increase in the aggregate number of shares of Common Stock
authorized for issuance, and the ratification of Ernst & Young, LLP
as independent auditors of the Company were approved.
Item 5. Other Information
Pursuant to the Company's bylaws, stockholders who wish to bring
matters or propose nominees for director at the Company's 1999
Annual Meeting of Stockholders must provide specified information
to the Company between March 25, 1999 and April 24, 1999 (unless
such matters are included in the
Page 17 of 20
Company's proxy statement pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, as amended).
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed herewith or incorporated by
reference
EXHIBIT EXHIBIT TITLE
- -----------------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 through 3.2.
4.2 (1) Restated Investor Rights Agreement among the Registrant and certain other
persons named therein, dated April 29, 1993, as amended October 29, 1993.
4.6 (1) Specimen stock certificate.
4.9 (2) Stock Purchase Agreement between the Registrant and Pfizer Inc., dated
January 18, 1995.
4.12 (9) Form of Stock Purchase Agreement between the Registrant and the Selling
Shareholders dated January 28, 1997.
10.1 (4) Registrant's 1994 Equity Incentive Plan, as amended (the "Equity Incentive
Plan").
10.2 (1) Form of Incentive Stock Option under the Equity Incentive Plan.
10.3 (1) Form of Nonstatutory Stock Option under the Equity Incentive Plan.
10.4 (7) Registrant's 1994 Non-Employee Directors' Stock Option Plan, as amended.
10.5 (1) Registrant's 1994 Employee Stock Purchase Plan.
10.6 (1) Standard Industrial Lease between the Registrant and W.F. Batton & Co.,
Inc., dated September 17, 1992, as amended September 18, 1992.
10.8 (1) Senior Loan and Security Agreement between the Registrant and Phoenix
Leasing Incorporated, dated September 15, 1993.
10.9 (1) Sublicense Agreement between the Registrant and John S. Patton, dated
September 13, 1991.
10.11(2) Lease dated September 17, 1992, between the Registrant and W.F. Batton &
Marie A. Batton.
10.13 (6) Addendum Number One to Lease dated September 17, 1992, between the
Registrant and W.F. Batton & Marie A. Batton.
10.15 (6) Addendum Number Two to Lease dated September 17, 1992, between the
Registrant and W.F. Batton & Marie A. Batton.
10.16 (5) Stock Purchase Agreement between the Registrant and Baxter World Trade
Corporation, dated March 1, 1996.
10.17 (8) Sublease and Lease Agreement, dated October 2, 1996 between the Registrant
and T.M.T. Associates L.L.C.
27.1 Financial Data Schedule___________
- -----------
(1) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement (No. 33-75942), as amended.
(2) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement (No. 33-89502), as amended.
(3) Incorporated by reference to the indicated exhibit in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 333-59735).
(5) Incorporated by reference to the indicated exhibit in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(6) Incorporated by reference to the indicated exhibit in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to the indicated exhibit in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
Page 18 of 20
(8) Incorporated by reference to the indicated exhibit in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
(9) Incorporated by reference to the Company's Registration Statement on
Form S-3 (No. 333-20787).
(b) Reports on Form 8-K.
On April 7, 1998, the Company filed a Current Report on Form 8-K
reporting the completion of a renegotiation of its collaborative
agreement with Baxter International, Inc.
(c) See Exhibits listed under Item 14(a)(3).
Page 19 of 20
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.
INHALE THERAPEUTIC SYSTEMS, INC.
DATE: August 13, 1998 BY: /s/ Robert B. Chess
---------------- -----------------------------------
Robert B. Chess
President, Chief Executive Officer
and Director
(Duly Authorized Officer)
BY: /s/ Christian O. Henry
-----------------------------------
Christian O. Henry
Corporate Controller
(Chief Accounting Officer)
Page 20 of 20
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of June 4, 1998, by and between INHALE THERAPEUTIC
SYSTEMS, a California corporation ("Inhale California"), and INHALE THERAPEUTIC
SYSTEMS (DELAWARE), INC., a Delaware corporation ("Inhale Delaware"). Inhale
California and Inhale Delaware are sometimes referred to as the "Constituent
Corporations."
The authorized capital stock of Inhale California consists of thirty-million
(30,000,000) shares of Common Stock, no par value, and ten million (10,000,000)
shares of Preferred Stock, no par value. The authorized capital stock of Inhale
Delaware, upon effectuation of the transactions set forth in this Merger
Agreement, will consist of fifty million (50,000,000) shares of Common Stock,
each having a par value of one-hundredth of one cent (.0001), and ten million
(10,000,000) shares of Preferred Stock, each having a par value of one-hundredth
of one cent (.0001).
The directors of the Constituent Corporations deem it advisable and to the
advantage of the Constituent Corporations that Inhale California merge into
Inhale Delaware upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Inhale California
shall merge into Inhale Delaware on the following terms, conditions and other
provisions:
1. TERMS AND CONDITIONS.
1.1 MERGER. Inhale California shall be merged with and into Inhale
Delaware (the "Merger"), and Inhale Delaware shall be the surviving corporation
(the "Surviving Corporation") effective upon the date when this Merger Agreement
is filed with the Secretary of State of Delaware (the "Effective Date").
1.2 NAME CHANGE. On the Effective Date, the name of Inhale Delaware shall
be Inhale Therapeutic Systems, Inc.
1.3 SUCCESSION. On the Effective Date, Inhale Delaware shall continue its
corporate existence under the laws of the State of Delaware, and the separate
existence and corporate organization of Inhale California, except insofar as it
may be continued by operation of law, shall be terminated and cease.
1.4 TRANSFER OF ASSETS AND LIABILITIES. On the Effective Date, the rights,
privileges, powers and franchises, both of a public as well as of a private
nature, of each of the Constituent Corporations shall be vested in and possessed
by the Surviving Corporation, subject to all of the disabilities, duties and
restrictions of or upon each of the Constituent Corporations; and all and
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, of each of the
Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their shareholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the Merger had not taken place
except as they may be modified with the consent of such creditors and all debts,
liabilities and duties of or upon each of the Constituent Corporations shall
attach to the Surviving
1
Corporation, and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
1.5 COMMON STOCK OF INHALE CALIFORNIA AND INHALE DELAWARE. On the
Effective Date, by virtue of the Merger and without any further action on the
part of the Constituent Corporations or their shareholders, each share of Common
Stock of Inhale California issued and outstanding immediately prior thereto
shall be converted into one (1) fully paid and nonassessable share of the Common
Stock of Inhale Delaware and each share of Common Stock of Inhale Delaware
issued and outstanding immediately prior thereto shall be canceled and returned
to the status of authorized but unissued shares.
1.6 STOCK CERTIFICATES. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock or of the Preferred Stock of Inhale California shall be deemed for
all purposes to evidence ownership of and to represent the shares of Inhale
Delaware into which the shares of Inhale California represented by such
certificates have been converted as herein provided and shall be so registered
on the books and records of the Surviving Corporation or its transfer agents.
The registered owner of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
any dividend and other distributions upon the shares of Inhale Delaware
evidenced by such outstanding certificate as above provided.
1.7 OPTIONS. On the Effective Date, the Surviving Corporation will assume
and continue Inhale California's 1994 Non-Employee Directors' Stock Option Plan,
Employee Stock Purchase Plan, and 1994 Equity Incentive Plan and any and all
other stock option plans of Inhale California and the outstanding and
unexercised portions of all options to purchase Common Stock of Inhale
California, including without limitation all options outstanding under such
stock plans and any other outstanding options, shall be converted into options
of Inhale Delaware, such that an option for one (1) share of Inhale California
shall be converted into an option for one (1) share of Inhale Delaware, with no
change in the exercise price of the Inhale Delaware option. No other changes in
the terms and conditions of such options will occur. Effective on the Effective
Date, Inhale Delaware hereby assumes the outstanding and unexercised portions of
such options and the obligations of Inhale California with respect thereto.
1.8 EMPLOYEE BENEFIT PLANS. On the Effective Date, the Surviving
Corporation shall assume all obligations of Inhale California under any and all
of Inhale California's employee benefit plans, including the Employee Stock
Purchase Plan, in effect as of such date. On the Effective Date, the Surviving
Corporation shall adopt and continue in effect all such employee benefit plans
upon the same terms and conditions as were in effect immediately prior to the
Merger and shall reserve that number of shares of Inhale Delaware Common Stock
with respect to each such employee benefit plan as is proportional to the number
of shares of Inhale California Common Stock (if any) so reserved on the
Effective Date.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Inhale Delaware in effect on the Effective Date
shall continue to be the Certificate of Incorporation and Bylaws of the
Surviving Corporation, except that Article I of the Certificate of Incorporation
and Bylaws of the Surviving Corporation shall, effective upon the filing of this
Merger Agreement with the Secretary of State of the State of Delaware, be
amended to read in its entirety as follows: "The name of this corporation is
Inhale Therapeutic Systems, Inc."
2.2 DIRECTORS. The directors of Inhale California immediately preceding
the Effective Date shall become the directors of the Surviving Corporation on
and after the Effective Date to serve until the expiration of their terms and
until their successors are elected and qualified.
2
2.3 OFFICERS. The officers of Inhale California immediately preceding the
Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS.
3.1 FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Inhale California such deeds and other instruments,
and there shall be taken or caused to be taken by it such further and other
action, as shall be appropriate or necessary in order to vest or perfect in or
to conform of record or otherwise, in the Surviving Corporation the title to and
possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Inhale California and otherwise
to carry out the purposes of this Merger Agreement, and the officers and
directors of the Surviving Corporation are fully authorized in the name and on
behalf of Inhale California or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
3.2 AMENDMENT. At any time before or after approval by the shareholders of
Inhale California, this Merger Agreement may be amended in any manner (except
that, after the approval of the Merger Agreement by the shareholders of Inhale
California, the principal terms may not be amended without the further approval
of the shareholders of Inhale California) as may be determined in the judgment
of the respective Board of Directors of Inhale Delaware and Inhale California to
be necessary, desirable, or expedient in order to clarify the intention of the
parties hereto or to effect or facilitate the purpose and intent of this Merger
Agreement.
3.3 CONDITIONS TO MERGER. The obligations of the Constituent Corporations
to effect the transactions contemplated hereby is subject to satisfaction of the
following conditions (any or all of which may be waived by either of the
Constituent Corporations in its sole discretion to the extent permitted by law):
(a) the Merger shall have been approved by the shareholders of Inhale
California in accordance with applicable provisions of the General
Corporation Law of the State of California; and
(b) Inhale California, as sole stockholder of Inhale Delaware, shall
have approved the Merger in accordance with the General Corporation Law of
the State of Delaware; and
(c) any and all consents, permits, authorizations, approvals, and orders
deemed in the sole discretion of Inhale California to be material to
consummation of the Merger shall have been obtained.
3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective Date, this
Merger Agreement may be terminated and the Merger may be abandoned by the Board
of Directors of either Inhale California or Inhale Delaware or both,
notwithstanding the approval of this Merger Agreement by the shareholders of
Inhale California or Inhale Delaware, or the consummation of the Merger may be
deferred for a reasonable period of time if, in the opinion of the Boards of
Directors of Inhale California and Inhale Delaware, such action would be in the
best interest of such corporations. In the event of termination of this Merger
Agreement, this Merger Agreement shall become void and of no effect and there
shall be no liability on the part of either Constituent Corporation or its Board
of Directors or shareholders with respect thereto, except that Inhale California
shall pay all expenses incurred in connection with the Merger or in respect of
this Merger Agreement or relating thereto.
3.5 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
3
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the Board of Directors of Inhale California and Inhale Delaware, is hereby
executed on behalf of each said corporation and attested by their respective
officers thereunto duly authorized.
INHALE THERAPEUTIC SYSTEMS
a California corporation
By /s/ Robert B. Chess
--------------------------------
Robert B. Chess
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ATTEST:
/s/ Mark P. Tanoury
- -----------------------------------
Mark P. Tanoury
SECRETARY
INHALE THERAPEUTIC SYSTEMS (DELAWARE),
INC.
a Delaware corporation
By /s/ Robert B. Chess
--------------------------------
Robert B. Chess
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ATTEST:
/s/ Mark P. Tanoury
- -----------------------------------
Mark P. Tanoury
SECRETARY
4
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
INHALE THERAPEUTIC SYSTEMS (DELAWARE), INC.
The undersigned, a natural person (the "Sole Incorporator"), for the purpose
of organizing a corporation to conduct the business and promote the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Inhale Therapeutic Systems (Delaware), Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange St., City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State Delaware at such
address is CT Corporation.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is sixty
million (60,000,000) shares. Fifty million (50,000,000) shares shall be
Common Stock, each having a par value of one-hundredth of one cent ($.0001).
Ten million (10,000,000) shares shall be Preferred Stock, each having a par
value of one-hundredth of one cent ($.0001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of the
corporation, and in further definition, limitation and regulation of the powers
of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
1
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the
directors shall be divided into three classes designated as Class I, Class
II and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the
adoption and filing of this Certificate of Incorporation, the term of office
of the Class I directors shall expire and Class I directors shall be elected
for a full term of three years. At the second annual meeting of stockholders
following the adoption and filing of this Certificate of Incorporation, the
term of office of the Class II directors shall expire and Class II directors
shall be elected for a full term of three years. At the third annual meeting
of stockholders following the adoption and filing of this Certificate of
Incorporation, the term of office of the Class III directors shall expire
and Class III directors shall be elected for a full term of three years. At
each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose
terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of Preferred
Stock, no director shall be removed without cause. Subject to limitations
imposed by law, the Board of Directors or any individual director may be
removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares
of voting stock of the corporation, entitled to vote at an election of
directors (the "Voting Stock").
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by the
stockholders, except as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, even though
less than a quorum of the Board of Directors, and not by the stockholders.
Any director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the director for which the
vacancy was created or occurred and until such director's successor shall
have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66 2/3%) of the voting power of all
of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the Bylaws.
4. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), or (iv) by the holders of the
2
shares entitled to cast not less than ten percent (10%) of the votes at the
meeting, and shall be held at such place, on such date, and at such time as
the Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the corporation shall be given in the manner provided
in the Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
- --------------------------------------------- ---------------------------------------------
Mark P. Tanoury Cooley Godward LLP
3000 Sand Hill Road, Building 3, Suite 230
Menlo Park, CA 94025
IN WITNESS WHEREOF, this Certificate has been subscribed this 1st day of
June, 1998 by the undersigned who affirms that the statements made herein are
true and correct.
/s/ Mark P. Tanoury
--------------------------------
Mark P. Tanoury
SOLE INCORPORATOR
3
EXHIBIT 3.2
BYLAWS
OF
INHALE THERAPEUTIC SYSTEMS, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
PAGE
ARTICLE I OFFICES............................................................... 1
Section 1. Registered Office..................................................... 1
Section 2. Other Offices......................................................... 1
ARTICLE II CORPORATE SEAL........................................................ 1
Section 3. Corporate Seal........................................................ 1
ARTICLE III STOCKHOLDERS' MEETINGS................................................ 1
Section 4. Place Of Meetings..................................................... 1
Section 5. Annual Meetings....................................................... 1
Section 6. Special Meetings...................................................... 3
Section 7. Notice Of Meetings.................................................... 3
Section 8. Quorum................................................................ 3
Section 9. Adjournment And Notice Of Adjourned Meetings.......................... 4
Section 10. Voting Rights......................................................... 4
Section 11. Joint Owners Of Stock................................................. 4
Section 12. List Of Stockholders.................................................. 4
Section 13. Action Without Meeting................................................ 4
Section 14. Organization.......................................................... 5
ARTICLE IV DIRECTORS............................................................. 5
Section 15. Number And Term Of Office............................................. 5
Section 16. Powers................................................................ 5
Section 17. Classes Of Directors.................................................. 5
Section 18. Vacancies............................................................. 6
Section 19. Resignation........................................................... 6
Section 20. Removal............................................................... 6
Section 21. Meetings.............................................................. 6
(a) Annual Meetings....................................................... 6
(b) Regular Meetings...................................................... 6
(c) Special Meetings...................................................... 6
(d) Telephone Meetings.................................................... 6
(e) Notice Of Meetings.................................................... 6
(f) Waiver Of Notice...................................................... 7
Section 22. Quorum And Voting..................................................... 7
Section 23. Action Without Meeting................................................ 7
Section 24. Fees And Compensation................................................. 7
Section 25. Committees............................................................ 7
(a) Executive Committee................................................... 7
(b) Other Committees...................................................... 7
(c) Term.................................................................. 8
(d) Meetings.............................................................. 8
Section 26. Organization.......................................................... 8
i
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE V OFFICERS.............................................................. 8
Section 27. Officers Designated................................................... 8
Section 28. Tenure And Duties Of Officers......................................... 9
(a) General............................................................... 9
(b) Duties Of Chairman Of The Board Of Directors.......................... 9
(c) Duties Of President................................................... 9
(d) Duties Of Vice Presidents............................................. 9
(e) Duties Of Secretary................................................... 9
(f) Duties Of Chief Financial Officer..................................... 9
Section 29. Delegation Of Authority............................................... 10
Section 30. Resignations.......................................................... 10
Section 31. Removal............................................................... 10
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY
THE CORPORATION...................................................... 10
Section 32. Execution Of Corporate Instruments.................................... 10
Section 33. Voting Of Securities Owned By The Corporation......................... 10
ARTICLE VII SHARES OF STOCK....................................................... 10
Section 34. Form And Execution Of Certificates.................................... 10
Section 35. Lost Certificates..................................................... 11
Section 36. Transfers............................................................. 11
Section 37. Fixing Record Dates................................................... 11
Section 38. Registered Stockholders............................................... 12
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION................................... 12
Section 39. Execution Of Other Securities......................................... 12
ARTICLE IX DIVIDENDS............................................................. 12
Section 40. Declaration Of Dividends.............................................. 12
Section 41. Dividend Reserve...................................................... 12
ARTICLE X FISCAL YEAR........................................................... 12
Section 42. Fiscal Year........................................................... 12
ARTICLE XI INDEMNIFICATION....................................................... 13
Section 43. Indemnification Of Directors, Executive Officers, Other Officers,
Employees And Other Agents........................................... 13
(a) Directors And Executive Officers...................................... 13
(b) Other Officers Employees and Other Agents............................. 13
(c) Expenses.............................................................. 13
(d) Enforcement........................................................... 13
(e) Non-Exclusivity Of Rights............................................. 14
(f) Survival Of Rights.................................................... 14
(g) Insurance............................................................. 14
(h) Amendments............................................................ 14
(i) Saving Clause......................................................... 14
(j) Certain Definitions................................................... 14
ii
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE XII NOTICES............................................................... 15
Section 44. Notices............................................................... 15
(a) Notice To Stockholders................................................ 15
(b) Notice To Directors................................................... 15
(c) Affidavit Of Mailing.................................................. 15
(d) Time Notices Deemed Given............................................. 15
(e) Methods Of Notice..................................................... 15
(f) Failure To Receive Notice............................................. 15
(g) Notice To Person With Whom Communication Is Unlawful.................. 15
(h) Notice To Person With Undeliverable Address........................... 16
ARTICLE XIII AMENDMENTS............................................................ 16
Section 45. Amendments............................................................ 16
ARTICLE XIV LOANS TO OFFICERS..................................................... 16
Section 46. Loans To Officers..................................................... 16
iii
BYLAWS
OF
INHALE THERAPEUTIC SYSTEMS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy
1
statement, notice by the stockholder to be timely must be so received not
earlier than the close of business on the ninetieth (90th) day prior to such
annual meeting and not later than the close of business on the later of the
sixtieth (60th) day prior to such annual meeting or, in the event public
announcement of the date of such annual meeting is first made by the corporation
fewer than seventy (70) days prior to the date of such annual meeting, the close
of business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the corporation. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a
2
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer, (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption), or (iv) by the holders of the shares entitled to cast not less than
ten percent (10%) of the votes at the meeting, and shall be held at such place,
on such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; PROVIDED, HOWEVER, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or
3
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by the
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of directors) of
the votes cast, including abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meetinG.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) No action shall be taken by the stockholders except at an annual or
special meeting of stockholders called in accordance with these Bylaws, and no
action shall be taken by the stockholders by written consent.
4
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and regulations
of the Board of Directors, if any, the chairman of the meeting shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into three classes as provided in
the Company's Certificate of Incorporation, as amended from time to time.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be
5
deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be
held immediately before or after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of the
Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number and
except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
6
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is present,
all questions and business shall be determined by the affirmative vote of a
majority of the directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
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, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and 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; but no such committee shall have the
power or authority in reference to (i) approving or adopting, or recommending to
the stockholders, any action or matter expressly required by Delaware the
General Corporation Law to be submitted to stockholders for approval, or (ii)
adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall serve
a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, 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
7
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board of
Directors and until their successors shall have been duly elected and qualified,
unless sooner removed. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors. If the office of
any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors, when present, shall preside at all meetings of the stockholders
and the Board of Directors. The Chairman of the Board of Directors shall perform
other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time. If there is no President, then the Chairman of the Board of
Directors shall also serve as the Chief Executive Officer of the corporation and
shall have the powers and duties prescribed in paragraph (c) of this Section 28.
8
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors, unless the Chairman
of the Board of Directors has been appointed and is present. Unless some other
officer has been elected Chief Executive Officer of the corporation, the
President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform
the duties of the President in the absence or disability of the President or
whenever the office of President is vacant. The Vice Presidents shall perform
other duties commonly incident to their office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
9
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. 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 with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the
10
registered owner thereof a written notice containing the information required to
be set forth or stated on certificates pursuant to this section or otherwise
required by law or with respect to this section a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(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,
the Board of Directors may fix, in advance, 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 shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting. If no
record date is fixed by the Board of Directors, 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. 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.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted
11
thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Chief Financial Officer or Treasurer or an Assistant
Treasurer; PROVIDED, HOWEVER, that where any such bond, debenture or other
corporate security shall be authenticated by the manual signature, or where
permissible facsimile signature, of a trustee under an indenture pursuant to
which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its
directors and executive officers (for the purposes of this Article XI,
"executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; PROVIDED, HOWEVER, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, PROVIDED, FURTHER, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation
12
under the Delaware General Corporation Law or (iv) such indemnification is
required to be made under subsection (d).
(b) OTHER OFFICERS EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its other officers, employees and other agents as set forth
in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to 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, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of 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 because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
13
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each director and executive officer to the full extent
not prohibited by any applicable portion of this Bylaw that shall not have been
invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall include,
without limitation, the investigation, preparation, prosecution, defense,
settlement, arbitration and appeal of, and the giving of testimony in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of
any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Bylaw with respect
to the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation
as, respectively, a director, executive officer, officer, employee, trustee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
(5) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to
be in the interest of
14
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws,
notice is required to be given to any stockholder, it shall be given in writing,
timely and duly deposited in the United States mail, postage prepaid, and
addressed to his last known post office address as shown by the stock record of
the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any director
may be given by the method stated in subsection (a), or by facsimile, telex or
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice
is required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to
15
such person shall not be required. Any action or meeting which shall be taken or
held without notice to such person shall have the same force and effect as if
such notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
16
5
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
28,481
45,824
0
0
0
76,557
40,033
(6,625)
110,067
13,081
0
0
0
136,578
0
110,067
0
10,544
0
19,812
0
0
0
(6,999)
0
(6,999)
0
0
0
(6,999)
(0.45)
0
