-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AufCyMszjuu+VyDcOml+JSS6Y+G/MXKP9gq3HYxS2Klp6mQKLgB/1RJ4Kp1bFvFK 4S5ZsloYM0Z8S1/EUn8pjw== 0000950137-01-504709.txt : 20020410 0000950137-01-504709.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950137-01-504709 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENSEY NASH CORP CENTRAL INDEX KEY: 0001002811 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 363316412 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27120 FILM NUMBER: 1790697 BUSINESS ADDRESS: STREET 1: MARSH CREEK CORPORATE CENTER STREET 2: 55 EAST UWCHLAN AVE STE 204 CITY: EXTON STATE: PA ZIP: 19341 BUSINESS PHONE: 6105947156 MAIL ADDRESS: STREET 1: 55 EAST UWCHLAN AVE STREET 2: STE 201 CITY: EXTON STATE: PA ZIP: 19341 10-Q 1 c66051e10-q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From __________ to __________. Commission File Number: 0-27120 KENSEY NASH CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 36-3316412 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) MARSH CREEK CORPORATE CENTER, 55 EAST UWCHLAN AVENUE, EXTON, PENNSYLVANIA 19341 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (610) 524-0188 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of October 31, 2001, there were outstanding 10,622,293 shares of Common Stock, par value $.001, of the registrant. 1 KENSEY NASH CORPORATION QUARTER ENDED SEPTEMBER 30, 2001 INDEX
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 2001 (Unaudited) and June 30, 2001........................ 3 Consolidated Statements of Operations for the three months ended September 30, 2001 and 2000 (Unaudited)............ 4 Consolidated Statements of Stockholders' Equity as of September 30, 2001 (Unaudited) and June 30, 2001.............................. 5 Consolidated Statements of Cash Flows for the three months ended September 30, 2001 and 2000 (Unaudited)............ 6 Notes to Consolidated Financial Statements (Unaudited).......................... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................ 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 18 SIGNATURES....................................................................................... 19
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KENSEY NASH CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
SEPTEMBER 30, ASSETS 2001 JUNE 30, CURRENT ASSETS: (UNAUDITED) 2001 ------------ ------------ Cash and cash equivalents $ 6,935,644 $ 2,841,963 Investments 23,030,324 24,164,887 Trade receivables, net of allowance for doubtful accounts of $16,000 and $1,000 at September 30, 2001 and June 30, 2001, respectively 3,330,983 4,623,456 Royalties receivable 2,211,835 2,270,091 Officer loans 1,188,907 1,170,276 Other receivables (including approximately $145,000 and $41,000 at September 30, 2001 and June 30, 2001, respectively, due from employees) 279,863 244,601 Inventory 1,605,049 1,321,511 Deferred tax asset, current portion 1,790,503 2,318,741 Prepaid expenses and other 332,312 512,099 ------------ ------------ Total current assets 40,705,420 39,467,625 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, AT COST: Leasehold improvements 5,676,760 5,676,760 Machinery, furniture and equipment 9,492,575 7,853,177 Construction in progress 642,100 1,606,181 ------------ ------------ Total property, plant and equipment 15,811,435 15,136,118 Accumulated depreciation (6,560,562) (6,105,575) ------------ ------------ Net property, plant and equipment 9,250,873 9,030,543 ------------ ------------ OTHER ASSETS: Restricted investments 2,231,251 2,231,251 Property under capital leases, net 1,525 Deferred tax asset, non-current portion 1,978,871 2,125,407 Acquired patents, net of accumulated amortization of $962,423 and $896,666 at September 30, 2001 and June 30, 2001, respectively 3,133,943 3,199,700 Goodwill, net of accumulated amortization of $100,037 at September 30, 2001 and June 30, 2001 3,284,303 3,284,303 ------------ ------------ Total other assets 10,628,368 10,842,186 ------------ ------------ TOTAL $ 60,584,661 $ 59,340,354 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 999,231 $ 1,891,484 Accrued expenses 844,992 544,268 Current portion of debt and capital lease obligations 925,908 910,738 Deferred revenue 132,315 123,352 ------------ ------------ Total current liabilities 2,902,446 3,469,842 ------------ ------------ LONG TERM PORTION OF DEBT AND CAPITAL LEASE OBLIGATIONS 2,071,436 2,309,385 ------------ ------------ Total liabilities 4,973,882 5,779,227 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, 100,000 shares authorized, no shares issued or outstanding at September 30, 2001 and June 30, 2001 Common stock, $.001 par value, 25,000,000 shares authorized, 10,621,035 and 10,509,431 shares issued and outstanding at September 30, 2001 and June 30, 2001, respectively 10,621 10,509 Capital in excess of par value 64,736,945 63,974,745 Accumulated deficit (9,193,827) (10,196,713) Accumulated other comprehensive income 57,040 (227,414) ------------ ------------ Total stockholders' equity 55,610,779 53,561,127 ------------ ------------ TOTAL $ 60,584,661 $ 59,340,354 ============ ============
See notes to consolidated financial statements. 3 KENSEY NASH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - --------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, --------------------------------- 2001 2000 REVENUES: Net sales $ 4,593,179 $ 2,584,740 Research and development 105,434 1,842 Royalty income 2,211,834 1,996,984 ------------ ------------ Total revenues 6,910,447 4,583,566 OPERATING COSTS AND EXPENSES: Cost of products sold 2,185,323 1,714,823 Research and development 2,698,016 1,637,050 Selling, general and administrative 907,239 512,272 Royalty expense 4,355 ------------ ------------ Total operating costs and expenses 5,790,578 3,868,500 ------------ ------------ INCOME FROM OPERATIONS 1,119,869 715,066 OTHER INCOME: Other (4,206) Interest income 476,085 538,702 Interest expense (60,624) (25,703) ------------ ------------ Total other income - net 411,255 512,999 ------------ ------------ INCOME BEFORE INCOME TAXES 1,531,124 1,228,065 Income tax expense (528,238) ------------ ------------ NET INCOME $ 1,002,886 $ 1,228,065 ============ ============ BASIC EARNINGS PER SHARE $ 0.10 $ 0.12 ============ ============ DILUTED EARNINGS PER SHARE $ 0.09 $ 0.12 ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,539,092 10,456,199 ============ ============ DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,112,732 10,562,564 ============ ============
See notes to consolidated financial statements. 4 KENSEY NASH CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
CAPITAL ACCUMULATED COMMON STOCK IN EXCESS OTHER ------------------------ OF PAR ACCUMULATED COMPREHENSIVE SHARES AMOUNT VALUE DEFICIT (LOSS)/GAIN BALANCE, JUNE 30, 1999 7,470,710 $ 7,470 $ 37,697,452 $ (18,562,619) $ (241,402) Shares issued upon Secondary Offering 2,959,000 2,959 26,247,007 Secondary Offering costs (501,241) Exercise of stock options 25,789 26 246,824 Net income 4,749,164 Comprehensive loss (241,284) Comprehensive income ---------- ------- ------------ -------------- ---------- BALANCE, JUNE 30, 2000 10,455,499 10,455 63,690,042 (13,813,455) (482,686) ---------- ------- ------------ -------------- ---------- Secondary Offering costs (212,681) Exercise of stock options 53,932 54 497,384 Net income 3,616,742 Comprehensive gain 255,272 Comprehensive income ---------- ------- ------------ -------------- ----------- BALANCE, JUNE 30, 2001 10,509,431 $10,509 $ 63,974,745 $ (10,196,713) $ (227,414) ---------- ------- ------------ -------------- ----------- Exercise of stock options 111,604 112 762,200 Net income 1,002,886 Comprehensive gain 284,454 Comprehensive income ---------- ------- ------------ -------------- ----------- BALANCE, SEPTEMBER 30, 2001 10,621,035 $10,621 $ 64,736,945 $ (9,193,827) $ 57,040 ========== ======= ============ ============= ========== COMPREHENSIVE INCOME/ (LOSS) TOTAL BALANCE, JUNE 30, 1999 $ 18,900,901 Shares issued upon Secondary Offering 26,249,966 Secondary Offering costs (501,241) Exercise of stock options 246,850 Net income $ 4,749,164 4,749,164 Comprehensive loss (241,284) (241,284) ----------- Comprehensive income $ 4,507,880 =========== BALANCE, JUNE 30, 2000 49,404,356 ------------ Secondary Offering costs (212,681) Exercise of stock options 497,438 Net income $ 3,616,742 3,616,742 Comprehensive gain 255,272 255,272 ----------- Comprehensive income $ 3,872,014 =========== BALANCE, JUNE 30, 2001 $ 53,561,127 ------------ Exercise of stock options 762,312 Net income $ 1,002,886 1,002,886 Comprehensive gain 284,454 284,454 ----------- Comprehensive income $ 1,287,340 =========== ------------ BALANCE, SEPTEMBER 30, 2001 $ 55,610,779 ============
See notes to consolidated financial statements. 5 KENSEY NASH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, --------------------------------- 2001 2000 OPERATING ACTIVITIES: Net income $ 1,002,886 $ 1,228,065 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 522,269 430,596 Changes in assets and liabilities which provided (used) cash: Accounts receivable 1,296,836 601,225 Deferred tax asset 674,774 Prepaid expenses and other current assets 179,787 6,357 Inventory (283,538) (186,835) Accounts payable and accrued expenses (591,529) (141,775) Deferred revenue 8,963 (223,110) ------------ ------------ Net cash provided by operating activities 2,810,448 1,714,523 ------------ ------------ INVESTING ACTIVITIES: Additions to property, plant and equipment (675,317) (527,574) Acquisition of THM (6,758,108) Redemption of investments 8,735,000 Purchase of investments (7,315,984) (3,920,646) ------------ ------------ Net cash provided by (used in) investing activities 743,699 (11,206,328) ------------ ------------ FINANCING ACTIVITIES: Secondary Offering costs (192,877) Repayments of long term debt (220,910) Principal payments under capital leases (1,868) (2,903) Exercise of stock options 762,312 27,148 ------------ ------------ Net cash provided by (used in) financing activities 539,534 (168,632) ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,093,681 (9,660,437) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,841,963 24,117,502 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,935,644 $ 14,457,065 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ $ 1,598 ============ ============ Cash paid for income taxes $ 20,000 $ 20,000 ============ ============
See notes to consolidated financial statements. 6 KENSEY NASH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The consolidated balance sheet at September 30, 2001, the consolidated statements of operations for the three months ended September 30, 2001 and 2000 and the consolidated statements of cash flows for the three months ended September 30, 2001 and 2000 have been prepared by Kensey Nash Corporation (the Company) and have not been audited by the Company's Independent Auditors. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2001 and for all periods presented have been made. Certain information and note disclosures normally included in the Company's annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2001 consolidated financial statements filed with the Securities and Exchange Commission on Form 10-K. The results of operations for the period ended September 30, 2001 are not necessarily indicative of operating results for the full year. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Kensey Nash Corporation and Kensey Nash Holding Company. All intercompany transactions and balances have been eliminated. Kensey Nash Holding Company, incorporated in Delaware on January 8, 1992, was formed to hold title to certain Company patents and has no operations. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America necessarily requires management to make estimates and assumptions. These estimates and assumptions, which may differ from actual results, will affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expense during the period. CASH AND CASH EQUIVALENTS Cash and cash equivalents represent cash in banks and short-term investments having an original maturity of less than six months. EXPORT SALES There were $82,632 in export sales from the Company's U.S. operations to unaffiliated customers in Europe in the three months ended September 30, 2001. There were no export sales in the three months ended September 30, 2000. REVENUE RECOGNITION Effective in the fiscal year ending June 30, 2001, the Company adopted Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements (SAB 101), which clarifies certain conditions to be met in order to recognize revenue. The Company's adoption of SAB 101 did not have a material impact on the results of operations, financial position or cash flows. Sales revenue is recognized when the related product is shipped. Revenue under research and development contracts is recognized as the related costs are incurred. Advance payments received for products or services are recorded as deferred revenue and are recognized when the product is shipped or services are performed. 7 The Company receives a royalty (historically 12%, became 9% in October 2000 when a cumulative 1,000,000 units had been sold) on every Angio-Seal unit sold by our partner, St. Jude Medical. We recognize the revenue, in accordance with the Licensing Agreement between the Company and St. Jude Medical, at the end of each month when St. Jude Medical advises us of their total Angio-Seal sales dollars for the month. We then accrue royalty revenue equal to 9% of the total sales dollars reported to us. Royalty payments are received within 45 days of the end of each calendar quarter. EARNINGS PER SHARE Earnings per share are calculated in accordance with SFAS No. 128, Earnings per Share which requires the Company to report both basic and diluted earnings per share (EPS). Basic and diluted EPS are computed using the weighted average number of shares of common stock outstanding, with common equivalent shares from options included in the diluted computation when their effect is dilutive. COMPREHENSIVE INCOME The Company accounts for comprehensive income under the provisions of SFAS No. 130, Reporting Comprehensive Income (SFAS 130). Accordingly, accumulated other comprehensive loss is shown in the consolidated statements of shareholders' equity at September 30, 2001, June 30, 2001, 2000 and 1999, and is solely comprised of unrealized gains and losses on the Company's available-for-sale securities. The tax effect of other comprehensive income for the three months ended September 30, 2001 and for the fiscal years ended June 30, 2001 and 2000 was $147,000, $117,000 and $0, respectively. RECENT PRONOUNCEMENTS In June 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations (SFAS 141), and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), which were effective July 1, 2001 for the Company, as the Company early adopted SFAS 142. SFAS 141 requires that the purchase method of accounting be used for all business combinations subsequent to June 30, 2001 and specifies criteria for recognizing intangible assets acquired in a business combination. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized upon adoption of this standard, but instead be tested for impairment at least annually. Intangible assets with definite useful lives will continue to be amortized over their respective useful lives. The Company recorded $100,036 in goodwill amortization expense for the year ended June 30, 2001. Goodwill amortization expense for the year ending June 30, 2002 would have been $205,111 if the Company had decided not to early adopt SFAS 142. The early adoption of SFAS 142 did not result in the reclassification of any intangible assets, changes in the amortization periods for those intangible assets with definite lives or in the impairment of any intangible assets. The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS 143) and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which will both be effective for the Company's fiscal year beginning July 1, 2002. The Company is currently evaluating all of the provisions of SFAS 143 and SFAS 144 and is therefore not presently able to quantify the impact of adoption. 8 NOTE 2 -- INVENTORY Inventory is stated at the lower of cost (determined by the average cost method, which approximates first-in, first-out) or market. Inventory primarily includes the cost of material utilized in the processing of the Company's products and is as follows: SEPTEMBER 30, JUNE 30, 2001 2001 ------------- ----------- Raw materials $ 1,420,014 $ 1,062,626 Work in process 181,568 240,451 Finished Goods 3,467 18,434 ------------- ----------- Total $ 1,605,049 $ 1,321,511 ============= =========== NOTE 3 -- COMMITMENTS AND CONTINGENCIES The Company has pledged $2,231,251 in investments as collateral to secure certain bank loans to officers which were used by such officers for the payment of taxes incurred as the result of the receipt of Common Stock at the Company's Initial Public Offering in December 1995. In exchange for the Company pledging collateral for such loans, each affected officer has pledged their Common Stock as collateral to the Company. The loans are repayable at the sooner of the sale of the officer's stock or December 2001. The balance outstanding on such officer loans was $2,192,654 at September 30, 2001. NOTE 4 -- INCOME TAXES As of June 30, 2001, the Company had net operating loss (NOL) carryforwards for federal and state tax purposes totaling $5.4 and $20.0 million, respectively. A portion of the NOL may be subject to various statutory limitations as to its usage. This is our first quarter of recognizing income tax expense as a result of the recognition of a tax benefit in fiscal year 2001 related to the realization of certain deferred tax assets which had previously been offset by a valuation allowance. NOTE 5 -- THM ACQUISITION On September 1, 2000 the Company acquired THM Biomedical, Inc. (THM), a developer of porous, biodegradable, tissue-engineering devices for the repair and replacement of musculoskeletal tissues, for approximately $10.5 million plus acquisition costs of approximately $239,000. The transaction was financed with $6.6 million of the Company's cash and a note payable to the shareholders of THM in the amount of $4.5 million (the Acquisition Obligation). The Acquisition Obligation is due in equal quarterly installments of $281,250 beginning on December 31, 2000 and ending on September 30, 2004. Accordingly, the present value of the cash payments (discounted based upon the Company's available borrowing rate of 7.5%) of $3,833,970 was recorded as a liability on the Company's financial statements, with a remaining balance of $2,997,276 at September 30, 2001. The acquisition has been accounted for under the purchase method of accounting and THM's results of operations are included in those of the Company since the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The allocation has resulted in goodwill of approximately $3.4 million, which was originally being amortized, on a straight-line basis over 17 years. The following is a summary of the allocation (in thousands): Assets $ 400 Accrued expenses and other liabilities (702) In-process research and development 7,594 Excess of cost over net assets acquired (goodwill) 3,384 -------- $ 10,676 ======== 9 A significant portion of the purchase price was identified as acquired in-process research and development (IPR&D). The valuation of IPR&D was performed in an independent appraisal using proven valuation procedures and techniques and represents the estimated fair market value based on risk-adjusted cash flows related to the IPR&D programs. The IPR&D consists of four primary research and development programs that are expected to reach completion between late 2002 and 2005. At the date of acquisition, the development of these programs had not yet reached technological feasibility and the IPR&D had no alternative future uses. Accordingly, these costs were immediately expensed in the consolidated statement of operations on the acquisition date. The following unaudited pro-forma financial information assumes that the acquisition had occurred as of the beginning of the earliest period presented: THREE MONTHS THREE MONTHS ENDED ENDED 09/30/01 09/30/00 ------------ ------------ Total revenue $ 6,910,447 $ 5,850,461 ============ ============ IPR&D Charge $ - $ (7,593,597) ============ ============ Net income $ 1,002,886 $ 2,440,886 ============ ============ Basic earnings per share $ 0.10 $ (0.51) ============ ============ Diluted earnings per share $ 0.09 $ (0.51) ============ ============ These pro forma results are based on certain assumptions and estimates. The pro forma results do not necessarily represent results that would have occurred if the acquisition had taken place at the beginning of the specified periods, nor are they indicative of the results of future combined operations. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with and our financial statements and the related notes included in this report. OVERVIEW We were founded in 1984 and our common stock became publicly traded in December 1995. We have been profitable in our last fifteen fiscal quarters (excluding the one time IPR&D charge taken in our second quarter of fiscal year 2001). Revenues Our revenues consist of three components: net sales, research and development revenue and royalty income. Net Sales. Net sales is comprised of absorbable biomaterials products and Angio-Seal(TM)devices we manufacture. Biomaterials. The biomaterials component of net sales represents the sale of our biomaterials products to customers for use in the following markets: orthopedics, cardiology, drug/biologics delivery, dental and wound care. In 1997, our biomaterials sales were comprised almost 100% of the absorbable collagen and polymer components of the Angio-Seal supplied to our strategic alliance partner. Since that time we have experienced significant sales growth in our biomaterials products as we have brought in new customers, increased sales to those customers over the past four years, assisted in the development of new product offerings and expanded our marketing activities. In three months ended September 30, 2001, the Angio-Seal components represent only 41% of our total biomaterial sales. We believe this growth will continue because of greater acceptance by the medical community of biomaterials and technological advances which have expanded the applications for our biomaterials products. Angio-Seal. In the three months ended September 30, 2000 we manufactured and sold 6F Angio-Seal devices to St. Jude Medical to supplement their production requirements. In August 2000, St. Jude Medical transitioned the manufacturing of these devices to their facility. We do not expect any revenue from the manufacture of completed Angio-Seals in the future. The manufacture of the 6F Angio-Seal represented $358,000, or 13% of our total net sales for the three months ended September 30, 2000. While this was a significant portion of our total net sales for the three months ended September 30, 2000, because of the substantial growth of our biomaterials business from fiscal year 2001 to fiscal year 2002, we were able to achieve a 78% increase in net sales despite the loss of the 6F Angio-Seal device manufacturing business. Research and Development Revenue. Historically, research and development revenue has been derived solely from development work performed on the Angio-Seal. As anticipated, these research and development activities have transitioned to St. Jude Medical and no significant Angio-Seal research and development revenue is expected in the future. Research and development revenue in the three months ended September 30, 2000 was derived from work performed on the Angio-Seal under the research and development agreement with St. Jude Medical. Research and development revenue in the three months ended September 30, 2001 was derived from a National Institute of Standards & Technology (NIST) grant, under which we are researching cartilage regeneration utilizing our porous tissue matrix (PTM) technology. This project will continue through early fiscal year 2003. This grant was acquired in conjunction with our acquisition of THM in September 2000. 11 Royalty Income. We receive a royalty on every Angio-Seal unit sold worldwide. We anticipate sales of the Angio-Seal will continue to grow as St. Jude Medical continues to expand its sales and marketing efforts and releases future generations of the Angio-Seal. As a result, royalty income will continue to be a significant source of revenue. The unit growth for the three months ended September 30, 2001 over the three months ended September 30, 2000 was partially offset by the reduction in our royalty rate, from 12% to 9%, in accordance with our licensing agreements. This rate reduction occurred during the quarter ended December 31, 2000, when a cumulative one million Angio-Seal units had been sold. There will be one further decrease in the royalty rate, to 6%, upon reaching four million cumulative units sold. We anticipate this next reduction will not occur until fiscal year 2005. Cost of Products Sold. We have experienced an overall increase in gross margin during the three months ended September 30, 2001 reflecting the shift to higher margin sales of biomaterials products and the elimination of lower margin Angio-Seal device sales. In addition, our net sales have increased and we have been able to spread our fixed costs of manufacturing over a greater number of units. We anticipate our gross margin will continue to improve as our biomaterials sales levels increase and our product mix becomes more favorable. Research and Development Expense. Research and development expense consists of expenses incurred for the development of our proprietary technologies such as the TriActiv(TM) system, absorbable biomaterials products and technologies and other development programs, including expenses under the NIST program. While research and development on the Angio-Seal has become an insignificant portion of our overall development costs, the progression of the TriActiv system into the clinical trial phase and our continued development of proprietary biomaterials products and technologies has offset this decrease. We anticipate research and development expense will continue to increase as we pursue commercialization of the TriActiv system as well as explore opportunities for our other technologies. Selling, General and Administrative. Selling, general and administrative expenses include general and administrative costs as well as costs related to the marketing of our products. During the three months ended September 30, 2001 and 2000, the costs of our patent litigation are also included within selling, general and administrative expenses. The marketing component of selling, general and administrative expenses has increased as we move toward commercialization of the TriActiv system. We anticipate sales and marketing expenses will continue to increase as we evaluate opportunities for commercialization of the TriActiv system and expand the marketing efforts for our biomaterials business. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 Revenues. Revenues increased 51%, to $6.9 million in the three months ended September 30, 2001 from $4.6 million in the three months ended September 30, 2000. Net sales of products increased 78%, to $4.6 million from $2.6 million for the three months ended September 30, 2001 and 2000, respectively. Biomaterials sales increased 106%, as 100% of sales for the three months ended September 30, 2001 (or $4.6 million) were biomaterials sales compared to $2.2 million in the three months ended September 30, 2000. During the three months ended September 2000, we provided St. Jude Medical with 6F Angio-Seal devices for the international and U.S. markets ($358,000 in sales). However, St. Jude Medical transitioned the manufacturing of these devices to their facility in August 2000. Research and Development Revenues. Research and development revenues increased to $105,000 from $2,000, for the three months ended September 30, 2001 and 2000, respectively. Current year revenues were generated under the NIST articular cartilage development grant acquired in conjunction with the THM acquisition. Research and development revenues for the same period a year earlier were generated by work performed on 12 the Angio-Seal product for St. Jude Medical. As St. Jude Medical has transitioned the Angio-Seal product research and development to their facilities, we do not expect Angio-Seal product research and development revenues in the future. Royalty Income. Royalty income increased 11% to $2.2 million from $2.0 million in the three months ended September 30, 2001 and 2000, respectively. This increase was achieved despite the contractual 25% reduction in the Angio-Seal royalty rate from 12% to 9% during the quarter ended December 31, 2000 and reflects a greater number of units sold as well as an increase in average selling price for the Angio-Seal. Royalty units increased 43% as approximately 139,000 Angio-Seal units were sold to end-users during the three months ended September 30, 2001 compared to approximately 97,000 units sold during the three months ended September 30, 2000. This unit increase was due to St. Jude Medical's increased sales and marketing efforts and continued strong sales of the 6F and 8F Angio-Seal in the worldwide market. Cost of Products Sold. Cost of products sold increased 27% to $2.2 million in the three months ended September 30, 2001 from $1.7 million in the three months ended September 30, 2000. In addition, gross margin increased to 52% from 34%. This increase reflects the higher margins on our biomaterials products as well as continued allocation of overhead across greater sales volumes, which results in a decrease in per unit costs. Research and Development Expense. Research and development expense increased to 65% to $2.7 million in the three months ended September 30, 2001 from $1.6 million in the three months ended September 30, 2000. This increase was mainly attributable to our continued development efforts on the TriActiv system, including clinical trial expenses. We also continued to expand our development efforts on our biomaterials products including our work under the NIST articular cartilage development grant. We expect research and development expense to increase as we investigate and develop new products, conduct clinical trials and seek regulatory approvals for our proprietary products. Selling, General and Administrative. Selling, general and administrative expense increased 77% to $907,000 in the three months ended September 30, 2001 from $512,000 in the three months ended September 30, 2000. This increase was primarily the result of sales and marketing expenses which increased to $257,000 in the three months ended September 30, 2001 from $77,000 in the three months ended September 30, 2000 related to increased marketing efforts on the TriActiv system and our biomaterials products. In addition, general and administrative expenses increased $180,000, to $617,000 in the three months ended September 30, 2001 from $437,000 in the three months ended September 30, 2000. This was attributable to $110,000 of increased personnel costs to support our current sales and research and development growth as well as an increase in corporate legal fees and general expenses. Litigation expenses for our patent infringement suit increased $31,000, to $34,000 for the three months ended September 30, 2001. Net Interest Income. Interest expense increased 136% to $61,000 in the three months ended September 30, 2001 from $26,000 in the three months ended September 30, 2000. This increase was the result of interest expense on the THM Biomedical acquisition obligation for a full quarter in the current year as opposed to one month of expense in the prior year. Interest income decreased 12% to $476,000 in the three months ended September 30, 2001 from $539,000 in the three months ended September 30, 2000. This decrease was the result of a decrease in average cash and investment balances, as $6.6 million of the THM Acquisition was paid in cash on September 1, 2000, as well as an overall decline in interest rates . Other Non-Operating Income (Expense). Other non-operating expense was $4,000 for the three months ended September 30, 2001 and represents a loss on the sale of fixed assets. Net Income before Income Taxes. Net income before income taxes increased 25%, to $1.5 million from $1.2 million in the three months ended September 30, 2001 and 2000. 13 Net Income. Net income decreased 18% to $1.0 million in the three months ended September 30, 2001 from $1.2 million in the three months ended September 30, 2000 as a result of $528,00 in income tax expense. This is our first quarter of recognizing income tax expense as a result of the recognition of a tax benefit in fiscal year 2001 related to the realization of certain deferred tax assets which had previously been offset by a valuation allowance. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by our operating activities was $2.8 million and $1.7 million in the three months ended September 30, 2001 and 2000, respectively. In the three months ended September 30, 2001, changes in asset and liability balances provided $1.3 million of cash, in addition to net income of $1.0 million and non-cash depreciation and amortization of $522,000. In the three months ended September 30, 2000, changes in asset and liability balances provided $56,000 of cash, in addition to net income of $1.2 million and non-cash depreciation and amortization of $431,000. Our cash, cash equivalents and short-term investments were $30.0 million at September 30, 2001. In addition, we had $2.2 million in restricted investment accounts. We have pledged $2.2 million in investments as collateral to secure bank loans made to employees to pay taxes incurred by these employees when they received common stock at the time of our initial public offering. In exchange for our pledging this collateral, the employees have pledged their common stock to us as collateral. We have a $4.0 million capital spending plan for fiscal 2002, of which $675,000 has been expended primarily on machinery and equipment. These expenditures are related to the continued expansion of our manufacturing capabilities, principally for our biomaterials and TriActiv product lines. We plan to continue to spend substantial amounts to fund clinical trials, to gain regulatory approvals and to continue to expand research and development activities, particularly for the TriActiv system and our biomaterials products. We believe our current cash and investment balances in addition to cash generated from operations will be sufficient to meet our operating and capital requirements through at least fiscal 2003. Our future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including market acceptance of our existing and future products; the successful commercialization of products in development; progress in our product development efforts; the magnitude and scope of such efforts; progress with pre-clinical studies, clinical trials and product clearance by the FDA and other agencies, the cost and timing of our efforts to expand our manufacturing capabilities; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; competing technological and market developments; and the development of strategic alliances for the marketing of certain of our products. There can be no assurance that we will record profits in future periods. The terms of any future equity financing may be dilutive to our stockholders and the terms of any debt financing may contain restrictive covenants, which limit our ability to pursue certain courses of action. Our ability to obtain financing is dependent on the status of our future business prospects as well as conditions prevailing in the relevant capital markets. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise. Our estimate of the time periods for which cash and cash equivalents will be adequate to fund operations is a forward looking statement within the meaning of Private Securities Litigation Reform Act of 1995 and is subject to risks and uncertainties. Actual results may differ materially from those contemplated in such forward-looking statements. In addition to those described above, factors which may cause such a difference are set forth under the caption "Risks Related to Our Business " as well as in our annual report on form 10-K generally. 14 ACQUISITION OF THM BIOMEDICAL, INC. AND IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE On September 1, 2000 we acquired THM Biomedical, Inc. (THM), a developer of porous, biodegradable, tissue-engineering devices for the repair and replacement of muskuloskeletal tissues, for approximately $10.5 million plus acquisition costs of approximately $228,000. The transaction was financed with $6.6 million in cash and a note payable to the shareholders of THM in the amount of $4.5 million (the Acquisition Obligation). The Acquisition Obligation is due in equal quarterly installments of $281,250 beginning on December 31, 2000 and ending on September 30, 2004. Accordingly, the present value of the cash payments (discounted based upon our available borrowing rate of 7.5%) of $3.9 million was recorded as a liability on the Company's financial statements, with a remaining balance of $3.0 million at September 30, 2001. The $7.6 million IPR&D charge represents the estimated fair value of purchased in-process technology which has not yet reached technological feasibility and has no alternative future use and was comprised of the following projects: Articular Cartilage ($5.4 million), Bone Fusion ($389,000), Other Bone Applications ($261,000), and Drug Delivery ($1.5 million). Each of the four projects utilizes the core open-cell poly lactic acid (OPLA) technology, a porous tissue matrix (PTM) technology developed by THM. PTM technology facilitates wound healing in both bone and soft tissue and is bioabsorbable at controlled rates for specific functions and tissues. Each of the IPR&D projects utilizes these properties of the PTM technology to address its respective market. For example, the articular cartilage project uses the PTM technology as the foundation for an articular cartilage repair and regrowth product. The total IPR&D value was determined by estimating the stage of completion of each IPR&D project at the date of the acquisition, estimating the costs to develop each IPR&D project into commercially viable products, estimating the resulting net cash flows from such projects, and discounting the net cash flows back to their present values. The discount rate in each project takes into account the uncertainty surrounding the successful development and commercialization of the purchased in-process technology. The stage of completion for all projects ranged from 48% to 72% as of the acquisition date with the weighted average completion rate approximately 56%. As of that date, the estimated costs to bring the projects under development to technological feasibility and through clinical trials were approximately $7.3 million. Since the date of the acquisition, as planned, we have primarily devoted our development efforts on PTM technology to the articular cartilage application and have expended $433,000 on such efforts through September 30, 2001. In addition, we are currently seeking regulatory approval for two proprietary PTM based products with applications in the orthopedics market. The net cash flows from IPR&D projects were based on management's best estimates of revenue, cost of sales, research and development costs, general and administrative costs, and income taxes from such projects. These estimates were determined considering our historical experience and industry trends and averages. The cash flow estimates from sales of products incorporating these technologies are expected to commence between the fiscal years 2003 and 2005, depending on the project, with revenue growth rates in the 50% range in the immediate years following worldwide market launch, declining to the 5% range as each market nears maturity. These projections were based on our best estimates of market size and growth, expected trends in technology and the nature and expected timing of new product introductions by us and our competitors. The cash flows from revenues in each period are reduced by related expenses, capital expenditures, the cost of working capital and an assigned contribution to the core technology serving as a foundation for the research and development. The discount rates used in discounting the net cash flows from purchased in-process technology were 80% for articular cartilage, 85% for bone fusion, 78% for other bone applications and 83% for drug delivery. These discount rates for each project were determined upon consideration of the stage of completion of the project, 15 the assumptions, nature and timing of the remaining efforts for completion and risks and uncertainties of the project. Substantial further research and development, pre-clinical testing and clinical trials will be required to determine the technical feasibility and commercial viability of the products under development. There can be no assurance such efforts will be successful. If these projects are not successfully developed, our revenue and profitability may be adversely affected in future periods. We are continuously monitoring our development projects and believe that the assumptions used in the valuation of purchased in-process technology reasonably estimate the future benefits attributable to such purchased in-process technology. No assurance can be given that actual results will not deviate from those assumptions in future periods. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our interest income and expense are sensitive to changes in the general level of interest rates. In this regard, changes in interest rates affect the interest earned on our cash, cash equivalents and investments as well as interest paid on our debt. Our investment portfolio consists primarily of high quality U.S. government securities and certificates of deposit with an average maturity of eight years. We mitigate default risk by investing in what we believe are the safest and highest credit quality securities and by monitoring the credit rating of investment issuers. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity and there are limitations regarding duration of investments. These available-for-sale securities are subject to interest rate risk and decrease in market value if interest rates increase. At September 30, 2001, our total portfolio consisted of approximately $23.0 million of investments, with maturities ranging from one to fifteen years. Additionally, we generally hold securities until the earlier of their call date or their maturity. Therefore, we do not expect our results of operations or cash flows to be materially impacted due to a sudden change in interest rates. We have $3.0 million in outstanding debt at September 30, 2001 related to the acquisition of THM. FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS This document and other documents we have filed with the Securities and Exchange Commission (SEC) have forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements might include one or more of the following: - - Projections of revenues, income earnings per share, capital expenditures, capital structure or other financial items; - - Descriptions of plans or objectives of management for future operations, products or services, including future acquisition objectives; - - Forecasts of future economic performance; and - - Descriptions of assumptions underlying or relating to any of the foregoing Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe", "expect", "anticipate", "intend", "plan", "estimate", or words of similar meaning, or future conditional verbs such as "will", "would", "should", "could" or "may". Such statements give our expectations or predictions of future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Some of these factors are described as "Risks Related to our Business" below. Factors relating to the regulation 16 and supervision of our company are also described or incorporated in our Annual Report on Form 10-K filed with the SEC. There are other factors besides those described or incorporated in this report or in the Form 10-K that could cause actual conditions, events or results to differ from those in the forward-looking statements. Forward-looking statements speak only as of the day they are made. We do not undertake to publicly update or revise forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. RISKS RELATED TO OUR BUSINESS There are many risk factors that could adversely affect our business, operating results and financial condition. These risk factors, described in detail in our Annual Report on Form 10-K, include but are not limited to: - - the success of our biomaterials products; - - our dependence on our biomaterials customers for marketing and obtaining regulatory approval for their products; - - our ability to obtain regulatory approvals for the TriActiv system; - - subsequent to regulatory approval, the successful commercialization of the TriActiv system; - - our reliance on revenues from the Angio-Seal product line; - - the performance of St. Jude Medical as the manufacturer, marketer and distributor of the Angio-Seal product; - - our ability to obtain any additional required funding for future development and marketing of the TriActiv product as well as our biomaterials products; - - the competitive markets for our products and our ability to respond more quickly than our competitors to new or emerging technologies and or changes in customer requirements; - - the acceptance of our products by the medical community; - - our dependence on key vendors and key personnel; - - the use of hazardous materials which could expose us to future environmental liabilities; - - our failure to expand our management systems and controls to support anticipated growth; - - the ownership of our stockholders may be diluted by future acquisitions or strategic alliances; - - risks related to our intellectual property, including patent and proprietary rights and trademarks; and - - risks related to our industry including potential for litigation, ability to obtain reimbursement for our products and our products exposure to extensive government regulation. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution that a number of important factors could cause our actual results for fiscal year 2002 and beyond to differ materially from those in any forward-looking statements made by us or on our behalf. These important factors include, without limitation, the success of our biomaterials products, our ability to obtain the necessary regulatory approvals for, fund and commercialize the TriActiv system, the success of St. Jude Medical in manufacturing, marketing and distributing the Angio-Seal product line, the ability of our customers to market and obtain regulatory approvals for their biomaterials products, the acceptance of our products by the medical community, our ability to maintain key vendors and personnel, competition in our markets, general business conditions in the healthcare industry and general economic conditions. Our results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of our common stock. 17 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits. 3.3 Second Amended and Restated Bylaws B. Reports on Form 8-K. None 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KENSEY NASH CORPORATION Date: November 14, 2001 By: /s/ Wendy F. DiCicco ------------------------------- Wendy F. DiCicco Chief Financial Officer 19 EX-3.3 3 c66051ex3-3.txt SECOND AMENDED AND RESTATED BYLAWS EXHIBIT 3.3 KENSEY NASH CORPORATION SECOND AMENDED AND RESTATED BYLAWS (ADOPTED AUGUST 6, 1984 AND RESTATED OCTOBER 23, 1995 AND OCTOBER 30, 2001) ARTICLE I OFFICES Section 1.1. Registered Office. The registered office of Kensey Nash Corporation (the "Company") shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 1.2. Other Offices. The Company may also have offices at such other places both within and without the State of Delaware as the Board of Directors of the Company may from time to time determine or the business of the Company may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.1. Place of Meeting. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated by the Board of Directors in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.2. Voting Lists. The officer who has charge of the ledger of the Company shall prepare and make, at least 10 days before every meeting of stockholders, a complete list, with respect to each issue to be considered at such meeting, of the stockholders entitled to vote at the meeting on such issue, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.3. Time of Annual Meeting. Annual meetings of all stockholders shall be held on the first Wednesday in December, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which stockholders shall elect directors to hold office for the term provided in SECTION 3.2 of these Bylaws and conduct such other business as shall be considered. Section 2.4. Annual Meeting Agenda Items. At an annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors, or (ii) by any stockholder of the Company who complies with the notice procedures set forth below in the time herein provided. For business to be properly brought before an annual meeting by a stockholder, the stockholder must deliver written notice to, or mail such written notice so that it is received by, the secretary of the Company, at the principal executive offices of the Company, not less than 120 nor more than 150 days prior to the first anniversary of the date of the Company's consent solicitation or proxy statement released to stockholders in connection with the previous year's election of directors or meeting of stockholders, except that if no annual meeting of stockholders or election by consent was held in the previous year, a proposal must be received by the Company within 10 days after the Company has "publicly disclosed" the date of the meeting in the manner provided below. The stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (A) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (B) the name and address, as they appear on the Company's books, of the stockholder proposing such business, (C) the class and number of shares of the Company which are beneficially owned by the stockholder, and (D) any material interest of the stockholder in such business. At an annual meeting, the presiding officer shall, if the facts warrant, determine and declare to the meeting that such business was not properly brought before the meeting in accordance with the provisions of this SECTION 2.4, and if he or she should so determine, he or she shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Whether or not the foregoing procedures are followed, no matter which is not a proper matter for stockholder consideration shall be brought before the meeting. For purposes of these Bylaws, "publicly disclosed" or "public disclosure" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, or a comparable national news service or in a document publicly filed by the Company with the Securities and Exchange Commission. Section 2.5. Notice of Annual Meetings. Except as otherwise required by law, written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. Section 2.6. Director Nominations. Only persons who are nominated in accordance with the following procedure shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Company at a meeting of stockholders may be made (i) by or at the direction of the Board of Directors, or (ii) by any stockholder of the Company entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this SECTION 2.6. 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 Company. To be timely, a stockholder's notice must be delivered to, or mailed -2- and received by, the secretary of the Company at the principal executive offices of the Company not less than 60 nor more than 90 days prior to the meeting; provided, however, that if the Company has not "publicly disclosed" (in the manner provided in the last sentence of SECTION 2.4) the date of the meeting at least 70 days prior to the meeting date, notice may be timely made by a stockholder under this Section if received by the secretary of the Company not later than the close of business on the tenth day following the day on which the Company "publicly disclosed" the meeting date. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving notice (A) the name and address, as they appear on the Company's books, of such stockholder, and (B) the class and number of shares of the Company which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the Company that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director of the Company unless nominated in accordance with the procedure set forth herein. The presiding officer shall, if the facts so warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if such officer should so determine, such officer shall so declare to the meeting and the defective nomination shall be disregarded. Section 2.7. Special Meetings of the Stockholders. Special meetings of all of the stockholders of the Company may only be called by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors or at the request in writing of stockholders owning at least fifty percent (50%) of the entire capital stock of the Company issued and outstanding and entitled to vote. The business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice for the meeting transmitted to stockholders. Section 2.8. Notice of Special Meetings. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given by the secretary of the Company not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 2.9. Quorum and Adjournments. The holders of a majority of the voting power of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or the Company's Certificate of Incorporation. If, however, such quorum shall not be present or represented at any such meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented; provided that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed by -3- the directors for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 2.10. Fixing of Record Date. For purposes of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted, and which shall be (i) not more than 60 nor less than 10 days before the date of a meeting, and (ii) not more than 60 days prior to the other action. 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 any adjourned meeting. Section 2.11. Vote Required. When a quorum is present at any meeting of all stockholders, the affirmative vote of holders of a majority of the voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation requires a different vote, in which case such express provision shall govern and control the decision of such question. Section 2.12. Voting Rights. Unless otherwise provided in the Certificate of Incorporation, each stockholder having voting power shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three (3) years from its date, unless the proxy provides for a longer period. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided that, such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including the election of directors but except where otherwise required by law, may be by a voice vote; provided, however, that upon demand by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The Company may, and to the extent required by law shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Company may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law shall, appoint one or more inspectors to act at the meeting. Each -4- inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. Section 2.13. The chairman of the Board of Directors shall preside at all meetings of the stockholders. In the absence or inability to act of the chairman, the chief executive officer, the president, the chief financial officer or an executive vice president (in that order) shall preside, and in their absence or inability to act another person designated by one of them shall preside. The secretary of the Company shall act as secretary of each meeting of the stockholders. In the event of his or her absence or inability to act, the chairman of the meeting shall appoint a person who need not be a stockholder to act as secretary of the meeting. Section 2.14. Meetings of the stockholders shall be conducted in a fair manner but need not be governed by any prescribed rules of order. The presiding officer's rulings on procedural matters shall be final. The presiding officer is authorized to impose reasonable time limits on the remarks of individual stockholders and may take such steps as such officer may deem necessary or appropriate to assure that the business of the meeting is conducted in a fair and orderly manner. ARTICLE III DIRECTORS Section 3.1. General Powers. The business of the Company shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the Company and do all such lawful acts and things as are not required by statute, by the Certificate of Incorporation, or by these Bylaws to be done by the stockholders. Directors need not be residents of the State of Delaware or stockholders of the Company. Section 3.2. Election. Directors shall be elected as specified in the Certificate of Incorporation, and each director elected shall hold office during the term for which he or she is elected and until his or her successor is elected and qualified. Section 3.3. Removal. Directors may only be removed for cause, except as otherwise provided by law, by the holders of a majority of the shares entitled to vote at an election of directors. Section 3.4. Vacancies. Any vacancies occurring in the Board of Directors and newly created directorships shall be filled in the manner provided in the Certificate of Incorporation of the Company. Section 3.5. Place of Meetings. The Board of Directors of the Company may hold meetings, both regular and special, either within or without the State of Delaware. The first -5- meeting of each newly elected Board of Directors shall be held immediately following the adjournment of the annual meeting of the stockholders at the same place as such annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 3.6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 3.7. Special Meetings. Special meetings of the Board of Directors may be called by the chairman, the chief executive officer, the president or the chief financial officer on at least one days' notice to each director, either personally, or by courier, telephone, facsimile, mail or telegram. Special meetings shall be called by the chairman, the chief executive officer, the president or the chief financial officer in like manner and on like notice at the written request of one-half or more of the directors comprising the Board of Directors stating the purpose or purposes for which such meeting is requested. Notice of any meeting of the Board of Directors for which a notice is required may be waived in writing signed by the person or persons entitled to such notice, whether before or after the time of such meeting, and such waiver shall be equivalent to the giving of such notice. Attendance of a director at any such meeting shall constitute a waiver of notice thereof, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because such meeting is not lawfully convened. Neither the business to be transacted at nor the purpose of any meeting of the Board of Directors for which a notice is required need be specified in the notice, or waiver of notice, of such meeting. The chairman shall preside at all meetings of the Board of Directors. In the absence or inability to act of the chairman, the chief executive officer, the president, the chief financial officer or an executive vice president (in that order) shall preside, and in their absence or inability to act another director designated by one of them shall preside. Section 3.8. Quorum; No Action on Certain Matters. At all meetings of the Board of Directors, a majority of the then duly elected directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.9. Resignations. Any director of the Company may resign at any time by giving written notice to the Board of Directors, the chairman, the chief executive officer, the president, the chief financial officer or the secretary of the Company. Such resignation shall take effect at the time specified therein and, unless tendered to take effect upon acceptance thereof, the acceptance of such resignation shall not be necessary to make it effective. -6- Section 3.10. Informal Action. 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 the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 3.11. Participation by Conference Telephone. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by such Board of Directors, may participate in a meeting of such Board of Directors, or committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting. Section 3.12. Presumption of Assent. A director of the Company who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Company immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 3.13. Compensation. In the discretion of the Board of Directors, the directors may be paid their expenses, if any, for attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. -7- ARTICLE IV COMMITTEES OF DIRECTORS Section 4.1. Appointment and Powers. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Company. 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. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, 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 Company, and may authorize the seal of the Company to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in subsection (a) of Section 151 of the Delaware General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Company or the conversion into, or the exchange of such shares for, shares of any other class or classes of stock of the Company or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), and if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide, such other items or tasks as may be determined from time to time by resolution adopted by the Board of Directors. Section 4.2. Committee Minutes. Each committee shall keep regular minutes of its meetings and shall file such minutes and all written consents executed by its members with the Secretary of the Company. Each committee may determine the procedural rules for meeting and conducing its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. -8- ARTICLE V NOTICES Section 5.1. Manner of Notice. Whenever, under applicable law or the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, unless otherwise provided in the Certificate of Incorporation or these Bylaws, such notice may be given in writing, by courier or mail, addressed to such director or stockholder, at his or her address as it appears on the records of the Company, with freight or postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall have been deposited with such courier or in the United States mail. Notice to directors may also be given by telegram, mailgram, telex or telecopier. Section 5.2. Waiver. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI OFFICERS Section 6.1. Number and Qualifications. The officers of the Company shall be chosen by the Board of Directors and may consist of a chairman of the board, a chief executive officer, a president, a chief financial officer, one or more vice-presidents and a secretary. The Board of Directors may also choose additional co-chairman, a Chairman Emeritus, additional vice-presidents, a treasurer, one or more assistant secretaries and assistant treasurers and such additional officers as the Board of Directors may deem necessary or appropriate from time to time. Membership on the Board of Directors shall not be a prerequisite to the holding of any other office or the Chairman Emeritus position. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. Section 6.2. Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall elect a chairman of the board, a chief executive officer, a president, a chief financial officer, one or more vice-presidents (one of whom may be chosen vice-president), and a secretary, and may choose a treasurer, one or more assistant secretaries and assistant treasurers and such other officers as the Board of Directors shall deem desirable. Section 6.3. Other Officers and Agents. The Board of Directors may choose such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. -9- Section 6.4. Salaries. The salaries of all officers and agents of the Company shall be fixed by the Board of Directors. Section 6.5. Term of Office. The officers of the Company shall hold office until their successors are chosen and qualify or until their earlier resignation or removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Company shall be filled by the Board of Directors. Section 6.6. The Chairman of the Board. The chairman of the board shall preside at all meetings of the stockholders and of the Board of Directors and shall see that orders and resolutions of the Board of Directors are carried into effect. The chairman of the board shall perform such duties as may be assigned to him by the Board of Directors. Section 6.7. The Chief Executive Officer. The chief executive officer shall be the principal executive officer of the Company and shall, in general, supervise and control all of the business and affairs of the Company, unless otherwise provided by the Board of Directors. He or she shall preside at all meetings of the stockholders and of the Board of Directors and shall see that orders and resolutions of the Board of Directors are carried into effect. He or she may sign bonds, mortgages, certificates for shares and all other contracts and documents whether or not under the seal of the Company except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors or by these Bylaws to some other officer or agent of the Company. He or she shall have general powers of supervision and shall be the final arbiter of all differences between officers of the Company and his or her decision as to any matter affecting the Company shall be final and binding as between the officers of the Company subject only to its Board of Directors. Section 6.8. The President. Unless another party has been designated as chief operating officer, the president shall be the chief operating officer of the Company responsible for the day-to-day active management of the business of the Company, under the general supervision of the chief executive officer. In the absence of the chief executive officer, the president shall perform the duties of the chief executive officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the chief executive officer. He or she shall have concurrent power with the chief executive officer to sign bonds, mortgages, certificates for shares and other contracts and documents, whether or not under the seal of the Company except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors, or by these Bylaws to some other officer or agent of the Company. In general, he or she shall perform all duties incident to the office of president and such other duties as the chief executive officer or the Board of Directors may from time to time prescribe. Section 6.9. The Chief Operating Officer. The Board of Directors shall designate whether the president or some other party shall be the chief operating officer of the Company. If the president has not been designated as chief operating officer, the chief operating officer shall -10- have such duties and responsibilities, under the general supervision of the president, as the president or Board of Directors may from time to time prescribe. Section 6.10. The Chief Financial Officer. The chief financial officer shall be the principal accounting and financial officer of the Company. He or she shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the Company; (b) have charge and custody of all funds and securities of the Company, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of the chief financial officer and such other duties as from time to time may be assigned to him by the president or by the Board of Directors. If required by the Board of Directors, the chief financial officer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors may determine. Section 6.11. The Vice-Presidents. In the absence of the president or in the event of his or her inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the executive vice-president and then the other vice-president or vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the chief executive officer or the Board of Directors may from time to time prescribe. Section 6.12. The Secretary. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Company and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He or she shall give, or cause to be given, or cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the chief executive officer, under whose supervision he or she shall be. He or she shall have custody of the corporate seal of the Company and he or she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Company and to attest the affixing by his or her signature. Section 6.13. The Treasurer. In the absence of the chief financial officer or in the event of his or her inability or refusal to act, the treasurer shall perform the duties of the chief financial officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the chief financial officer. The treasurer shall perform such other duties and have such other powers as the chief executive officer or the Board of Directors may from time to time prescribe. Section 6.14. The Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of -11- the secretary and shall perform such other duties and have such other powers as the chief executive officer or the Board of Directors may from time to time prescribe. Section 6.15. The Assistant Treasurer. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the chief executive officer or the Board of Directors may from time to time prescribe. Section 6.16. Chairman Emeritus. The honorary position of Chairman Emeritus, if there be any, shall be appointed by the Board of Directors in recognition of past service to the Company. Chairman Emeriti have no official capacity, obligation or power to act on behalf or in the interest of the Company and shall not be deemed to be officers or directors of the Company. ARTICLE VII CERTIFICATES OF STOCK, TRANSFERS, AND RECORD DATES Section 7.1. Form of Certificates. Every holder of stock in the Company shall be entitled to have a certificate, signed by, or in the name of the Company by, the chairman of the Board of Directors, the chief executive officer, the president, the chief financial officer, a vice-president, the treasurer, an assistant treasurer, the secretary or an assistant secretary of the Company, certifying the number of shares owned by him or her in the Company. If the Company shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designation, 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 shall be set forth in full or summarized on the face or back of the certificate which the Company shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth in full or summarized on the face or back of the certificate which the Company shall issue to represent such class or series of stock, a statement that the Company 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. Subject to the foregoing, certificates for stock of the Company shall be in form as the Board of Directors may from time to time prescribe. Section 7.2. Facsimile Signatures. Where a certificate is countersigned (1) by a transfer agent other than the Company or its employee, or, (2) by a registrar other than the Company or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. -12- Section 7.3. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Company 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. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or give the Company a bond in such sum as it may direct as indemnifying against any claim that may be made against the Company or its transfer agent or registrar with respect to the certificate alleged to have been lost, stolen or destroyed. Section 7.4. Transfers of Stock. Upon surrender to the Company or the transfer agent of the Company of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Company to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 7.5. Registered Stockholders. The Company 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 to hold liable for calls and assessments a person registered on its books as the owner of shares, 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 GENERAL PROVISIONS Section 8.1. Dividends. Dividends upon the capital stock of the Company, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock or rights to acquire the same, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Company available for dividends such sum or sums as the 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 Company, or for such other purpose as the directors shall think conducive to the interest of the Company, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 8.2. Checks. All checks or demands for money and notes of the Company shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. -13- Section 8.3. Fiscal Year. The fiscal year of the Company shall end on the thirtieth (30th) day of June of each year unless otherwise fixed by resolution of the Board of Directors. Section 8.4. Seal. The corporate seal shall have inscribed thereon the name of the Company and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 8.5. Stock in Other Corporations. Shares of any other corporation which may from time to time be held by this Company may be represented and voted at any meeting of shareholders of such corporation by the chairman of the board, the chief executive officer, the president, the chief financial officer or a vice president, or by any proxy appointed in writing by the chairman of the board, the chief executive officer, the president, the chief financial officer or a vice-president of the Company, or by any other person or persons thereunto authorized by the Board of Directors. Shares represented by certificates standing in the name of the Company may be endorsed for sale or transfer in the name of the Company by the chairman of the board, the chief executive officer, the president, the chief financial officer or any vice-president or by any other officer or officers thereunto authorized by the Board of Directors. Shares belonging to the Company need not stand in the name of the Company, but may be held for the benefit of the Company in the individual name of the chief financial officer or of any other nominee designated for the purpose of the Board of Directors. ARTICLE IX AMENDMENTS These Bylaws may be altered, amended or repealed or new Bylaws may be adopted only in the manner provided in the Company's Certificate of Incorporation. ARTICLE X CONFLICT OF INTERESTS Section 10.1. No contract or transaction between the Company and one or more of its directors or officers, or between the Company and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract -14- or transaction is specifically approved in good faith by vote of the stockholders; or (iii) The contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Section 10.2. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. -15- -----END PRIVACY-ENHANCED MESSAGE-----