-----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, QX92kWwM9e1ylQSsVw0/bsqZjoVe1N5nZc2fuWZx7ig1EAGMglJ1mgUcUbHhOXWj PvkfCKL31h1ml99kxf97yg== 0001095811-01-504158.txt : 20010815 0001095811-01-504158.hdr.sgml : 20010815 ACCESSION NUMBER: 0001095811-01-504158 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETRO CORP CENTRAL INDEX KEY: 0001087779 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 770569424 STATE OF INCORPORATION: CA FISCAL YEAR END: 1201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26963 FILM NUMBER: 1708101 BUSINESS ADDRESS: STREET 1: 3860 NORTH FIRST STREET CITY: SAN JOSE STATE: CA ZIP: 95134-1702 BUSINESS PHONE: 4082161500 MAIL ADDRESS: STREET 1: 3860 NORTH FIRST STREET CITY: SAN JOSE STATE: CA ZIP: 95134-1702 10-Q 1 f74826e10-q.txt FORM 10-Q PERIOD ENDED JUNE 30, 2001 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 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 0-26963 NETRO CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0395029 (State of incorporation) (IRS Employer Identification No.)
3860 NORTH FIRST STREET, SAN JOSE, CA 95134 (408) 216-1500 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ----------------------------- 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 [ ] The number of shares outstanding of the Registrant's Common Stock as of August 7, 2001 was 52,196,952. ================================================================================ 2 INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000........................................ 3 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000.............. 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000...................... 5 Notes to Condensed Consolidated Financial Statements.......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk... 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................ 16 Item 2. Changes in Securities and Use of Proceeds.................... 16 Item 3. Defaults Upon Senior Securities.............................. 16 Item 4. Submission of Matters to a Vote of Security Holders.......... 16 Item 5. Other Information............................................ 17 Item 6. Exhibits and Reports on Form 8-K............................. 17 SIGNATURES ........................................................... 18 EXHIBIT INDEX ......................................................... 19
2 3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NETRO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
JUNE 30, DECEMBER 31, 2001 2000 ----------- ------------ ASSETS (unaudited) Current Assets: Cash and cash equivalents ............................. $ 99,320 $ 91,660 Marketable securities ................................. 130,927 185,904 Trade accounts receivable, net ........................ 4,779 13,532 Inventory, net ........................................ 6,381 27,994 Prepaid expenses and other ............................ 3,255 5,527 --------- --------- Total current assets ............................. 244,662 324,617 Equipment and leasehold improvements ....................... 8,026 6,896 Long-term marketable securities ............................ 106,889 89,351 Other assets ............................................... 2,618 889 --------- --------- Total assets ..................................... $ 362,195 $ 421,753 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt and capital leases .. $ 1,801 $ 6,183 Trade accounts payable ................................ 3,176 9,116 Accrued liabilities ................................... 20,943 9,159 --------- --------- Total current liabilities ........................ 25,920 24,458 Long-term debt and capital leases, net of current portion .. 353 1,280 Deferred facilities rent ................................... 9 40 --------- --------- Total liabilities ................................ 26,282 25,778 --------- --------- Commitments and contingencies (Note 5) Shareholders' equity: Common stock .......................................... 505,534 503,667 Deferred stock compensation ........................... (1,452) (1,933) Accumulated other comprehensive income ................ 1,223 823 Accumulated deficit ................................... (169,392) (106,582) --------- --------- Total shareholders' equity ....................... 335,913 395,975 --------- --------- Total liabilities and shareholders' equity ....... $ 362,195 $ 421,753 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 4 NETRO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Revenues ............................................ $ 2,051 $ 15,504 $ 11,182 $ 25,958 Cost of revenues .................................... 21,182 11,393 51,885 19,641 -------- -------- -------- -------- Gross profit (loss) ................................. (19,131) 4,111 (40,703) 6,317 -------- -------- -------- -------- Operating expenses: Research and development ......................... 6,539 5,692 14,279 11,476 Sales and marketing .............................. 3,588 2,530 7,351 4,570 General and administrative ....................... 4,749 2,373 9,725 4,289 Amortization of deferred stock compensation ...... 227 263 455 560 -------- -------- -------- -------- Total operating expenses ................... 15,103 10,858 31,810 20,895 -------- -------- -------- -------- Loss from operations ................................. (34,234) (6,747) (72,513) (14,578) Other income, net .................................... 4,396 5,928 9,703 6,689 -------- -------- -------- -------- Net income(loss) ..................................... $(29,838) $ (819) $(62,810) $ (7,889) ======== ======== ======== ======== Basic and diluted net loss per share ................. $ (0.57) $ (0.02) $ (1.21) $ (0.16) ======== ======== ======== ======== Shares used to compute basic and diluted net loss per share ......................................... 52,074 50,350 51,992 48,117 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 4 5 NETRO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ......................................................... $ (62,810) $ (7,889) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ................................. 1,890 1,175 Inventory provision ........................................... 29,700 525 Provision for doubtful accounts ............................... 2,000 600 Provision for contract losses ................................. 12,000 -- Loss on disposal of fixed assets .............................. 1,078 -- Amortization of deferred stock compensation ................... 455 560 Changes in operating assets and liabilities: Trade accounts receivable .................................. 6,750 (7,335) Inventory .................................................. (8,087) (4,771) Prepaid expenses and other ................................. 3,793 (702) Trade accounts payable and accrued liabilities ............. (6,141) 4,960 --------- --------- Net cash used in operating activities ...................... (19,372) (12,877) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements ................ (4,111) (1,857) Purchase of equity investment .................................... (1,500) -- Purchases of marketable securities ............................... (210,461) (168,244) Maturities of marketable securities .............................. 246,561 40,785 --------- --------- Net cash provided by (used in) investing activities ........ 30,489 (129,316) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable and sale-leaseback ....... -- 1,070 transactions Payments on notes payable and capital leases ..................... (5,309) (2,760) Proceeds from issuance of common stock, net of issuance costs .... 1,893 354,699 Repayments of notes receivable from shareholder .................. -- 800 Repurchases of common stock ...................................... -- (31) --------- --------- Net cash provided by (used in) financing activities ........ (3,416) 353,778 --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ........ (41) -- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS ........................... 7,660 211,585 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................... 91,660 7,450 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ $ 99,320 $ 219,035 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest ........................................... $ 497 $ 577 ========= =========
See accompanying notes to condensed consolidated financial statements. 5 6 NETRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ---------------- 1. DESCRIPTION OF BUSINESS: Netro Corporation (collectively, with its subsidiaries, the "Company") was incorporated in California on November 14, 1994 and reincorporated into Delaware in June 2001. Netro is a leading provider of broadband wireless access equipment used by telecommunications service providers to provide businesses with high-speed voice and data access and to provide mobile service operators with infrastructure applications. Netro's AirStar broadband access system derives its price-performance benefits from dynamic bandwidth allocation and a point-to-multipoint architecture that provides integrated voice and high-speed packet data services. The Company operates in one business segment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, and in accordance with the rules and regulations of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements at June 30, 2001 and 2000 have been included. The unaudited condensed consolidated financial statements include the accounts of Netro Corporation and its subsidiaries in Germany, France and Israel. All material intercompany accounts and transactions have been eliminated in consolidation. Results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2001. These financial statements should be read in conjunction with the Company's audited consolidated financial statements and the accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission. The condensed balance sheet at December 31, 2000 is derived from audited financial statements as of that date. CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash and cash equivalents consist of short-term, highly liquid investments with original maturities of less than three months. Investments with maturities greater than three months and less than one year are classified as short-term marketable securities. Investments with maturities greater than one year are classified as long-term marketable securities. The Company's investments, which mature at various dates through June 2003, consist of government and corporate debt securities and are classified as either "available-for-sale" or "held-to-maturity." "Available-for-sale" investments are stated at fair value, with unrealized gains and losses recorded in Accumulated Other Comprehensive Income in the balance sheet. "Held-to-maturity" investments are stated at amortized cost. INVENTORY Inventory, which includes materials and labor, is stated at the lower of cost (first-in, first-out) or market and consists of the following (in thousands): 6 7
JUNE 30, DECEMBER 31, 2001 2000 -------- ------------ Raw materials ..... $ 1,106 $ 8,118 Work-in-process ... 138 3,840 Finished goods .... 5,137 16,036 ------- ------- $ 6,381 $27,994 ======= =======
NET LOSS PER SHARE Basic and diluted net loss per share has been computed using the weighted average number of shares of common stock outstanding. Shares of common stock issuable pursuant to warrants and other stock option plans are excluded from diluted net loss per share for periods in which there is a loss as they would be antidilutive. The total number of options and warrants excluded from the diluted net loss per share computation for the three and six months ended June 30, 2001 and 2000 were as follows (in thousands):
2001 2000 ----- ----- Shares issuable pursuant to warrants to purchase common stock ..... 57 57 Shares issuable under stock option plans .......................... 6,718 6,685 ----- ----- 6,775 6,742 ===== =====
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------ 2001 2000 2001 2000 --------- ------- --------- -------- Net loss ................................................... $ (29,838) $ (819) $ (62,810) $ (7,889) ========= ======= ========= ======== Weighted average shares of common stock outstanding used to compute basic and diluted net loss per share .... 52,074 50,350 51,992 48,117 ========= ======= ========= ======== Basic and diluted net loss per share ....................... $ (0.57) $ (0.02) $ (1.21) $ (0.16) ========= ======= ========= ========
COMPREHENSIVE INCOME Comprehensive income includes unrealized gains and losses on available-for-sale equity securities and foreign currency translation gains and losses that have been excluded from net income and reflected instead in shareholders' equity. For the periods presented, comprehensive income is calculated as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net income (loss) .............................$(29,838) $ (819) $(62,810) $ (7,889) Unrealized gains on marketable securities ..... (317) -- 428 -- Foreign currency translation adjustments ...... (124) -- (28) -- -------- -------- -------- -------- Comprehensive income (loss) ...................$(30,279) $ (819) $(62,410) $ (7,889) ======== ======== ======== ========
AMORTIZATION OF DEFERRED STOCK COMPENSATION Amortization of deferred stock compensation results from the granting of stock options to employees with exercise prices per share determined to be below the estimated fair values per share of our common stock at dates of grant. For the periods presented, amortization is classified as follows (in thousands): 7 8
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2001 2000 2001 2000 ------ ------ ----- ----- Research and development ...................... $ 44 $ 74 $ 88 $150 Sales and marketing ........................... 118 122 238 258 General and administrative .................... 65 67 129 152 ---- ---- ---- ---- Amortization of deferred stock compensation ... $227 $263 $455 $560 ==== ==== ==== ====
3. SHAREHOLDERS' EQUITY: In March 2001, the Company effected a plan, under which employees holding options to purchase the Company's common stock with exercise prices in excess of $34.00 per share could choose to cancel those stock option grants in exchange for a commitment that options to purchase the same number of common shares will be granted in October 2001, provided that the participant has not terminated employment prior to such time (the "Cancel and Re-grant Program"). Options granted under the Cancel and Re-grant Program will have an exercise price equal to the fair value of the Company's common stock on the date of the new grant, and will vest according to the original vesting terms, which are typically 1/4(th) after one year and 1/48(th) per month thereafter, beginning at the date of cancellation. All other terms of options granted under the Cancel and Re-grant Program will be substantially the same as the cancelled options. 4. DEBT AND CAPITAL LEASES: The following table summarizes obligations under long-term debt and capital leases (in thousands):
JUNE 30, DECEMBER 31, 2001 2000 -------- ------------ Borrowings under bank line of credit ................. $ -- $ 3,568 Secured note payable to lender, due in monthly installments of $90,942 with interest at 12.5% .... -- 975 Capital leases, due through 2003 ..................... 2,154 2,920 ------- ------- Total long-term debt and capital leases .............. 2,154 7,463 Less: current portion ............................... (1,801) (6,183) ------- ------- $ 353 $ 1,280 ======= =======
In January 1998, the Company entered into a bank line of credit under which up to $10,000,000 is available for borrowings and letters of credit. This arrangement was renewed in December 2000 and expires in January 2002. Borrowings are limited to an aggregate amount equaling approximately 80% and 90% of domestic and foreign eligible trade accounts receivables, respectively, and 50% of eligible foreign inventories. The line of credit is secured by the Company's trade accounts receivable and inventory. The borrowings under the line are due in January 2002 and accrue interest at the 30-day LIBOR rate plus 1.5% or the bank's prime rate, at the Company's option. Under the agreement, the Company must comply with certain financial and other covenants. In April 2001, the Company paid off the outstanding balance in full. As of June 30, 2001, there were no borrowings outstanding under this agreement and amounts utilized for outstanding letters of credit were $240,000. 5. COMMITMENTS AND CONTINGENCIES: COMMITMENTS The Company has outstanding a standby letter of credit for $240,000 to secure certain of the Company's warranty obligations to one customer. The letter of credit is secured by a certificate of deposit for $80,000. The letter of credit is subject to draw if the Company fails to meet its obligations to the customer. 8 9 In July 2001, the Company issued a letter of credit for $2.0 million as a security deposit for the Company's San Jose, California office space. The letter of credit is subject to draw if the Company fails to meet its obligations under the facilities lease. 6. SEGMENT REPORTING: In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company adopted SFAS No. 131 in fiscal 1998. SFAS No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas and significant customers. The Company is organized and operates as one operating segment: the design, development, manufacturing, marketing and selling of broadband wireless point-to-multipoint access systems. 7. RECENT ACCOUNTING GUIDANCE: In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which, as amended, requires companies to value derivative financial instruments, including those used for hedging foreign currency exposures, at current market value with the impact of any change in market value being recognized either in current earnings or in other comprehensive income, depending on the use of the derivative and whether the hedging instrument is effective or ineffective when hedging changes in fair value or cash flows. The Company adopted SFAS No. 133 effective January 2001. As the Company, to date, has not entered into any derivative financial instrument contracts and does not engage in hedging activities, the adoption of SFAS No. 133 did not have a material impact on its financial position or results of operations. In July 2001, the FASB issued SFAS No.'s 141 and 142, "Business Combinations" and "Goodwill and Other Intangibles". SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment applying a fair-value based test. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. As the Company has no goodwill recorded on the books, these pronouncements are not expected to have a material impact on its financial position or results of operations. 8. SUBSEQUENT EVENTS: In July 2001, the Company adopted a stockholder rights plan. As a part of the plan, the Company has declared a dividend distribution of one right for each outstanding share of common stock to stockholders of record as of August 16, 2001. Each right entitles the holder to purchase one unit consisting of one one-hundredth of a share of a new series of participating preferred stock at an initial purchase price of $20.00 per unit. If a person or group acquires 15% or more of the Company's outstanding common stock, holders of the rights (other than the person or group triggering their exercise) will be able to purchase, in exchange for the $20.00 exercise price, shares of the Company's common stock having twice the value of the exercise price. If, following an acquisition of 15% or more of the Company's common stock by a stockholder, the Company is involved in certain mergers or other business combinations each right will entitle the holder to purchase, in exchange for the exercise price, common stock of the other party to such transaction having twice the value of the exercise price. Holders who, as of the date of adoption of the plan, already hold more than 15% of the Company's common stock will not trigger any rights under the plan so long as neither they nor their affiliates or associates acquire more than 19.9% of the Company's common stock. The rights expire on July 23, 2011 unless extended by the Company's Board of Directors. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Form 10-Q contain forward-looking statements which include, but are not limited to, statements concerning projected revenues, expenses and gross profit, need for additional capital and market acceptance of our products. The forward-looking statements are based on our current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2000. The following discussion should be read together with our consolidated financial statements and related notes included elsewhere in this Form 10-Q. OVERVIEW We are a leading provider of broadband wireless access equipment used by telecommunications service providers to provide businesses with high-speed voice and data access and to provide mobile service operators with infrastructure applications. We were incorporated in California in 1994 and reincorporated in Delaware in 2001. We introduced our first product, the AirMAN system, in 1996. The AirMAN system was designed to provide a dedicated link to connect two high traffic nodes in a network. We discontinued AirMAN in September 1998. We began development of a second system, the AirStar system, in 1996. Currently, all of our revenues are derived from sales of the AirStar system. Unlike the AirMAN system, the AirStar system allows multiple subscribers to communicate with a single hub radio in a point-to-multipoint architecture using packet based technology. The AirStar system is comprised of two principal components: - Customer Premise Equipment, which includes an outdoor radio unit which sends and receives signals to and from the hub equipment, and an indoor unit, which connects to the end-user's telecommunications and/or data network; and - Hubs, which include several outdoor radio units that send and receive signals from multiple customer premise equipment units, and an indoor unit, which aggregates data from the outdoor units and interfaces to the telecommunications service provider's core network. We began initial sales of an early AirStar system in Europe in early 1998. Since then, we have increased our product offering to encompass multiple frequencies thereby expanding our geographic coverage to include Latin America, North America and Asia. We sell our products indirectly through worldwide system integrators and local resellers in addition to through a direct sales force. Our sales to systems integrators comprised approximately 51% and 91% for both the three and six months ended June 30, 2001 and 2000, respectively. Due to ongoing realignments of our relationships with certain of our system integrator partners we are uncertain what portion of revenues systems integrators will represent in future periods. However, in the event of continued significant direct sales, we will be required to improve and expand our internal sales, customer advocacy and administration functions. Furthermore, as a result of these realignments we could experience order delays and order cancellations or fail to secure expected additional orders and, therefore, revenues during the balance of 2001 could be adversely affected. We experienced such cancellations and loss of orders during the first and second quarters of 2001. Overall, our visibility regarding potential future revenues is unclear. Sales to our largest system integrator customer represented approximately 49% of our total revenues for both the three and six months ended June 30, 2001. Sales to two customers represented 49% and 30% of revenues for the three months ended June 30, 2001. Sales to one customer represented 89% of revenues for the three months ended June 30, 2000. Sales to two customers represented 49% and 31% for the six months ended June 30, 2001. Sales to one 10 11 customer represented 90% for the six months ended June 30, 2000. Due to the nature and size of our equipment sales, we expect that certain customers will continue to account for a significant portion of our total revenues for the remaining quarters of 2001 and in the future. International revenues represented approximately 89% of revenues for the three months ended June 30, 2001 and 60% for the six months ended June 30, 2001. However, substantially all of our domestic revenues are related to products sold to systems integrators which the system integrators have resold, or plan to resell, to end customers in international locations. We have adopted a strategy of outsourcing our manufacturing operations. While we manufactured a small fraction of our products at our San Jose headquarters from 1998 to early 2000, by the fourth quarter of 2000, we achieved a goal of outsourcing substantially all of our volume product manufacturing and assembly to contract manufacturers. We will continue to maintain a small facility for prototype production in support of our research and development efforts. RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 REVENUES. Current revenues primarily consist of product revenues from the sale of the AirStar system. Revenues decreased to $2.1 million for the three months ended June 30, 2001 from $15.5 million for the same period in 2000. Revenues for the six months ended June 30, 2001 decreased to $11.2 million from $26.0 million for the same period in 2000. The decrease in revenues for each of the comparative periods was a result of delayed orders from current and potential service provider customers as well as cancelled orders from some of our system integrator partners. Substantially all of the revenues for these periods were generated from installations in international locations. GROSS PROFIT(LOSS). Gross profit(loss) represents total revenues less the cost of revenues. Cost of revenues consists of contract manufacturing costs, material costs, labor costs, manufacturing overhead, warranty reserves and other direct product costs. Gross profit(loss) decreased to a loss of $19.1 million for the three months ended June 30, 2001 from a gross profit of $4.1 million for the same period in 2000. Gross profit(loss) for the six months ended June 30, 2001 decreased to a loss of $40.7 million from a gross profit of $6.3 million for the same period in 2000. Gross profit as a percentage of revenues decreased to a negative 933% for the three months ended June 30, 2001 from a positive 27% for the same period in 2000. Gross profit percentage for the six months ended June 30, 2001 decreased to a negative 364% from a positive 24% for the same period in 2000. The decline in gross profit on a dollar basis as well as on a percentage basis for both of the comparative periods primarily reflects charges related to excess and obsolete inventory and other material-related commitments as well as an increase in the proportion of revenues coming from customer premise equipment as opposed to hub equipment, partially offset by an increase in the proportion of revenues from direct sales. These charges of $18.5 million and $41.7 million for the three and six months ended June 30, 2001, respectively, are related to increased inventory levels and other material commitments made in anticipation of significantly higher revenue volumes than those achieved. We have experienced substantial quarterly fluctuations in gross profit in past quarters. The principal drivers of the quarterly fluctuations, other than the inventory and material-related commitments in the first two quarters of 2001, are the product sales mix and the customer sales mix. In general, customer premise equipment sales result in lower gross profit percentages than hub sales. The unit ratio of customer premise equipment sales to hub sales was 32:1 and 37:1 for the three months and six months ended June 30, 2001, respectively. We expect the ratio of unit sales of customer premise equipment to hub unit sales to continue to be in excess of 20:1 in future periods. Sales to system integrators generate lower gross profit percentages than sales to direct customers. Sales to systems integrators represented 51% of revenues in both the first and second quarters of 2001. In addition, we expect average selling prices for our products to decline substantially during 2001. To the extent that we are unable to reduce our product costs at a rate faster than the rate at which average selling prices decline, gross profit as a percentage of revenues will continue to decline during the second half of 2001. We expect that the introduction of new customers, channel mix, product mix and declining average selling prices will result in fluctuations in our gross profits in future quarters. RESEARCH AND DEVELOPMENT. Research and development expenses consist of compensation costs, the cost of some software development tools, consultant fees and prototype expenses related to the design, development and testing of our products. Research and development expenses increased to $6.5 million for the three months ended June 11 12 30, 2001 from $5.7 million for the same period in 2000. The increase in research and development expenses was primarily due to an increased investment of $700,000 in Bungee Communications, our Israeli research and development subsidiary. Research and development expenses for the six months ended June 30, 2001 increased to $14.3 million from $11.5 million for the same period in 2000. The increase in research and development expenses was primarily due to an increased investment of $1.5 million in Bungee Communications and an increase of $800,000 in third-party engineering charges and expenses related to the release of new product features for the AirStar system. We expect research and development expenses to continue to increase on an absolute basis during future periods, but at a slower rate than in prior periods. SALES AND MARKETING. Sales and marketing expenses consist primarily of compensation costs, commissions, travel and related expenses for marketing, sales, customer advocacy and field service support personnel, as well as product management, trade show and promotional expenses. Sales and marketing expenses increased to $3.6 million for the three months ended June 30, 2001 from $2.5 million for the same period in 2000. Sales and marketing expenses for the six months ended June 30, 2001 increased to $7.4 million from $4.6 million for the same period in 2000. The increases were primarily due to an increase in personnel and related compensation costs related to an increase in sales and marketing personnel from 49 to 56 and increases in promotional expenses of $900,000 and $650,000 for the three and six months ended June 30, 2001, respectively. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of compensation costs and related expenses for executive, finance, management information systems, human resources and administrative personnel. These expenses also include professional fees, facilities and other general corporate expenses, such as charges for doubtful accounts. General and administrative expenses increased to $4.7 million for the three months ended June 30, 2001 from $2.4 million for the same period in 2000. The increase was primarily due to increased personnel and related costs related to an increase in general and administrative personnel from 20 to 26, severance expenses of $400,000 related to our reduction in work force effected June 30th, fixed assets disposals of $400,000 and increased facilities expenses of $600,000 associated with additional leased building space. General and administrative expenses increased to $9.7 million for the six months ended June 30, 2001 from $4.3 million for the same period in 2000. The increase was primarily due to increased personnel and related costs related to an increase in general and administrative personnel from 20 to 26, an increase of $1.6 million for doubtful account reserves, severance expenses of $400,000 related to our reduction in work force effected June 30th, fixed assets disposals of $400,000 and increased facilities expenses of $1,100,000 associated with additional leased building space. AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock compensation results from the granting of stock options to employees with exercise prices per share determined to be below the estimated fair values per share of our common stock at dates of grant. The deferred compensation that results is being amortized to expense over the vesting periods of the individual options, generally four years. A total of $4.8 million of deferred stock compensation was recorded in 1998 and 1999. Amortization of deferred stock compensation was $227,000 for the three months ended June 30, 2001, compared to $263,000 for the same period in 2000. Amortization of deferred stock compensation for the six months ended June 30, 2001 was $455,000, compared to $560,000 for the same period in 2000. For classification of amortization of deferred stock compensation, see note 2 of notes to consolidated financial statements. OTHER INCOME, NET. Other income, net, consists primarily of interest income earned on low-risk marketable securities and interest paid on outstanding debt. Other income, net decreased to $4.4 million for the three months ended June 30, 2001 from $5.9 million for the same period in 2000, due to the decrease in cash balances and a reduction in interest rates. Other income, net for the six months ended June 30, 2001 increased to $9.7 million from $6.7 million for the same period in 2000, due to greater interest earned as a result of higher average cash balances resulting from the proceeds of the follow-on offering in March 2000 and, to a lesser extent, a decrease in interest expense. NET INCOME (LOSS). Net loss increased to $29.8 million for the three months ended June 30, 2001 from $819,000 for the same period in 2000. Net loss for the six months ended June 30, 2001 increased to $62.8 million from $7.9 million for the same period in 2000. The increases in net loss are due primarily to the inventory and other material-related charges, in addition to decreases in revenues and increases in operating expenses. We believe that period-to-period comparisons of our operating results are not necessarily meaningful. You should not rely on them to predict future performance. The amount and timing of our operating expenses may fluctuate significantly in the future as a result of a variety of factors. We face a number of risks and uncertainties encountered by early stage companies, particularly those in rapidly evolving markets such as the telecommunications and data communications equipment industries. We may not be able to address these risks and difficulties successfully. Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate significantly in the future. It is likely that in some future quarter our operating results will again fall below the expectations of securities analysts and investors. In this event, the market price of our common stock could significantly decline. 12 13 Some of the factors that could affect our quarterly or annual operating results include the following: - We have a history of losses, including more significant than expected losses in the first two quarters of 2001, expect future losses and may never achieve profitability. - If we do not reduce our reliance on a single customer for most of our revenues, our business and results of operations could be adversely affected. - If we cannot reduce our product costs, our results of operations will suffer. - If we do not succeed in developing relationships directly with telecommunications service providers and in strengthening our direct and indirect sales channels, our business will be harmed. - The majority of service providers using our products are emerging companies with unproven business models. If these service providers do not succeed, there will be a more limited market for our products. - Intense competition in the market for communications equipment could prevent us from increasing or sustaining revenues or achieving or sustaining profitability. - Due to our limited operating history, it is difficult to predict future operating results or our stock price. - We have a long sales cycle, which could cause our results of operations and stock price to fluctuate. - Many projects that include our products require system integration expertise and third-party financing, which we are unable to provide. If sources for system integration or financing cannot be obtained as needed, service providers may not select our products. - Our products may contain defects that could harm our reputation, be costly to correct, expose us to litigation and harm our operating results. - Our future operating results are dependent on the sales of a single product line. If there are unexpected reductions in revenues from this product, we will not have other products to offset the negative impact on our operating results. - Our business is subject to many factors that could cause our quarterly operating results to fluctuate and our stock price to be volatile. - We depend on contract manufacturers. If these manufacturers are unable to fill our orders on a timely basis, and we are unable to find alternative sources, we may be unable to deliver products to meet customer orders. - If we do not develop new products and product features in response to customer requirements or in a timely way, customers will not buy our products. - Because some of our key components are from sole source suppliers or require long lead times, our business is subject to unexpected interruptions, which could cause our operating results to suffer. - If high-speed wireless telecommunications technology or our implementation of this technology is not accepted by service providers, we will not be able to sustain or grow our business. - Because we must sell our products in many countries that have different regulatory schemes, if we cannot develop products that work with different standards, we will be unable to sell our products. - If we are unable to manage our international operations effectively, our business would be adversely affected. - Claims that we infringe third-party intellectual property rights could result in significant expenses or restrictions on our ability to sell our products in particular markets. - Line-of-sight limitations inherent to broadband wireless products may limit deployment options and have an adverse affect on our sales. - If we are unable to hire or retain our key personnel, we might not be able to operate our business successfully. 13 14 For more information on the risks related to our Company, see the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2000. Most of our expenses, such as employee compensation and lease payments for facilities and equipment, are relatively fixed in the near term. In addition, our expense levels are based, in part, on our expectations regarding future revenues. As a result, any shortfall in revenues relative to our expectations could cause significant changes in our operating results from quarter to quarter. Due to the foregoing factors, we believe period-to-period comparisons of our revenue levels and operating results are not meaningful. You should not rely on our quarterly revenues and operating results to predict our future performance. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2001, cash and cash equivalents were $99.3 million, short-term marketable securities were $130.9 million and long-term marketable securities were $106.9 million. We have a $10.0 million bank line of credit. As of June 30, 2001, there were no borrowings outstanding and amounts utilized for outstanding letters of credit were $240,000 under this agreement. The line of credit is secured by eligible outstanding accounts receivable and inventory. Any borrowings under the line would accrue interest at the 30-day LIBOR plus 1.5% or the bank's prime rate, at our option. Capital lease obligations were $2.2 million at June 30, 2001. Future operating lease obligations were $22.2 million at June 30, 2001. Cash used in operating activities was $19.4 million for the six months ended June 30, 2001 and $12.9 million for the same period in 2000. Cash used in operations for the six months ended June 30, 2001 was primarily due to the net loss, adjusted for the inventory and contract loss provisions and increases in inventory accounts payable and accrued liabilities, partially offset by decreases in trade accounts receivable and prepaid expenses. Cash used in operations for the six months ended June 30, 2000 was primarily due to the net loss and increases in trade accounts receivable and inventory, partially offset by increases in accounts payable and accrued liabilities. Cash provided by investing activities was $30.5 million for the six months ended June 30, 2001, while cash used for investing activities for the same period in 2000 was $129.3 million. Cash provided by investing activities for the six months ended June 30, 2001 was due primarily to net maturities of marketable securities, partially offset by capital equipment purchases. Cash used in investing activities for the six months ended June 30, 2000 was primarily due to purchases of marketable securities. Cash used for financing activities was $3.4 million for the six months ended June 30, 2001, while cash provided from financing activities was $353.8 million for the same period in 2000. Cash used for financing activities for the six months ended June 30, 2001 was primarily due to payments on the bank line of credit and capital leases. Cash provided by financing activities for the six months ended June 30, 2000 was primarily due to the issuance of common stock in connection with the follow-on offering. The capital required for volume manufacturing is being committed by our contract manufacturers. We provide six or twelve month forecasts to our contract manufacturers. We generally commit to purchase products to be delivered within the most recent 60 days covered by these forecasts with cancellation fees. In addition, in specific instances we may agree to assume liability for limited quantities of specialized components with lead times beyond this 60-day period. We have no other material commitments. Our future capital requirements will depend upon many factors, including the timing of research and product development efforts and expansion of our marketing efforts. We expect to continue to expend significant but smaller amounts on property and equipment related to the expansion of our facilities, and on laboratory and test equipment for research and development. We believe that our cash and cash equivalents balances, short-term and long-term marketable securities and funds available under our existing line of credit will be sufficient to satisfy our cash requirements for at least the next twelve months. Our management intends to invest our cash in excess of current operating requirements in interest-bearing, investment-grade marketable securities. 14 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FOREIGN CURRENCY HEDGING INSTRUMENTS. We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. To date, the effect of changes in foreign currency exchange rates on revenues and operating expenses have not been material. Substantially all of our revenues are earned in U.S. dollars. Operating expenses incurred by our foreign subsidiaries are denominated primarily in local currencies. We currently do not use financial instruments to hedge these operating expenses. We intend to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis. We do not use derivative financial instruments for speculative trading purposes. FIXED INCOME INVESTMENTS. Our exposure to market risks from changes in interest rates relates primarily to corporate debt securities. We place our investments with high credit quality issuers and, by policy, limit the amount of the credit exposure to any one issuer. Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents; all investments with maturities of three months or greater and less than one year are considered to be short-term marketable securities; all investments with maturities greater than one year are considered to be long-term marketable securities. All investments are classified as either "available for sale" or "held-to-maturity" and consist of government and corporate debt securities. The SEC's rule related to market risk disclosure requires that we describe and quantify our potential losses from market risk sensitive instruments attributable to reasonably possible market changes. We are exposed to changes in interest rates on our investments in marketable securities. All of our investments are in funds that hold investment grade commercial paper, treasury bills or other U.S. government obligations. This investment policy reduces our exposure to long-term interest rate changes. A hypothetical 100 basis point decline in short-term interest rates would reduce the annualized earnings on our $322.9 million of marketable securities at June 30, 2001 by approximately $3.2 million. 15 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, the Company is involved in various legal proceedings in the ordinary course of business. The Company is not currently involved in any litigation which, in management's opinion, would have a material adverse effect on its business, operating results or financial condition, however there can be no assurance that any such proceeding will not escalate or otherwise become material to the Company's business in the future. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Effective June 19, 2001, the Company changed its state of incorporation from California to Delaware. The reincorporation was accomplished through a merger (the "Merger") of Netro Corporation, a California corporation ("Netro California"), into its wholly owned Delaware subsidiary of the same name ("Netro Delaware"). As a result of the Merger, each outstanding share of Netro California common stock, par value $.001 per share, was automatically converted into one share of Netro Delaware common stock, par value $.001 per share. The reincorporation proposal was approved by the Company's shareholders at the Company's 2001 annual meeting of shareholders, as held on May 31, 2001 and reconvened on June 1, 2001. In July 2001, the Company adopted a stockholder rights plan. As a part of the plan, the Company has declared a dividend distribution of one right for each outstanding share of common stock to stockholders of record as of August 16, 2001. Each right entitles the holder to purchase one unit consisting of one one-hundredth of a share of a new series of participating preferred stock at an initial purchase price of $20.00 per unit. If a person or group acquires 15% or more of the Company's outstanding common stock, holders of the rights (other than the person or group triggering their exercise) will be able to purchase, in exchange for the $20.00 exercise price, shares of the Company's common stock having twice the value of the exercise price. If, following an acquisition of 15% or more of the Company's common stock by a stockholder, the Company is involved in certain mergers or other business combinations each right will entitle the holder to purchase, in exchange for the exercise price, common stock of the other party to such transaction having twice the value of the exercise price. Holders who, as of the date of adoption of the plan, already hold more than 15% of the Company's common stock will not trigger any rights under the plan so long as neither they nor their affiliates or associates acquire more than 19.9% of the Company's common stock. The rights expire on July 23, 2011 unless extended by the Company's Board of Directors. ITEM 3. DEFAULT UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 31, 2001, the Company held its annual meeting of shareholders. The meeting was adjourned and reconvened on June 1, 2001. The following summarizes the matters submitted to a vote of the shareholders: 1. The election of the following nominees to serve as members of Class II of the Board of Directors:
NOMINEE IN FAVOR AGAINST WITHHELD ABSTAIN - --------------------- ----------- ---------- ----------- ---------- Gideon Ben-Efraim 47,150,239 1,039,727 -- -- Richard M. Moley 47,500,546 689,420 -- -- Sanford Robertson 47,503,125 686,841 -- --
The directors who continued after the meeting as members of Class I were Thomas R. Baruch, Irwin Federman and Robert J. Wynne. 16 17 2. The approval of the change of the Company's state of incorporation from California to Delaware:
IN FAVOR AGAINST WITHHELD ABSTAIN ------------- ----------- ------------ ----------- 26,283,352 7,108,011 14,735,931 62,672
3. The approval of the amendment of the Company's 1996 Stock Option Plan to increase the number of authorized shares under that plan by 1,500,000 shares, and to increase the automatic annual increase in shares added to the plan to the least of 1,500,000 shares, 3% of the outstanding common stock on the last day of the immediately preceding fiscal year or a number of shares determined by the administrator of the plan.
IN FAVOR AGAINST WITHHELD ABSTAIN ------------- ----------- ----------- ----------- 29,665,424 18,373,437 -- 151,105
4. The ratification of the appointment of Arthur Andersen LLP as the Independent Public Accountants of the Company for the fiscal year ending December 31, 2001:
IN FAVOR AGAINST WITHHELD ABSTAIN ------------- ----------- ------------ ----------- 47,918,098 236,762 -- 35,106
ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 3.1 Restated Certificate of Incorporation 3.2 Bylaws (b) Reports on Form 8-K. The Company filed a report on Form 8-K with the Securities and Exchange Commission on July 5, 2001, announcing its completion of the change of its state of incorporation from California to Delaware. The Company filed a report on Form 8-K with the Securities and Exchange Commission on July 24, 2001, announcing that its Board of Directors had adopted a Stockholder Rights Plan. 17 18 NETRO CORPORATION 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. NETRO CORPORATION Date: August 10, 2001 By: /s/ Sanjay K. Khare ------------------------------------------ Sanjay K. Khare Vice President and Chief Financial Officer (Principal Financial Officer) By: /s/ Lisa A. Evins ------------------------------------------ Lisa A. Evins Vice President of Finance (Principal Accounting Officer) 18 19 EXHIBIT INDEX 3.1 Restated Certificate of Incorporation 3.2 Bylaws 19 EX-3.1 3 f74826ex3-1.txt EXHIBIT 3.1 1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF NETRO CORPORATION * * * * * FIRST: The name of the Corporation is Netro Corporation. SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("DELAWARE LAW"). FOURTH: The total number of shares of stock that the Corporation shall have authority to issue is 105,000,000, consisting of 100,000,000 shares of Common Stock, par value $0.001 per share (the "COMMON STOCK"), and 5,000,000 shares of Preferred Stock, par value $0.001 per share (the "PREFERRED STOCK"). The Board of Directors is hereby empowered to authorize by resolution or resolutions from time to time the issuance of one or more classes or series of Preferred Stock and to fix the designations, powers, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to each such class or series of Preferred Stock and the number of shares constituting each such class or series, and to increase or decrease the number of shares of any such class or series to the extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time. FIFTH: (a) The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. (b) The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected, provided that directors initially designated as Class I directors shall serve for a term ending on the date of the 2002 annual meeting, 2 directors initially designated as Class II directors shall serve for a term ending on the 2003 annual meeting, and directors initially designated as Class III directors shall serve for a term ending on the date of the 2004 annual meeting. Notwithstanding the foregoing, each director shall hold office until such director's successor shall have been duly elected and qualified or until such director's earlier death, resignation or removal. In the event of any change in the number of directors, the Board of Directors shall apportion any newly created directorships among, or reduce the number of directorships in, such class or classes as shall equalize, as nearly as possible, the number of directors in each class. In no event will a decrease in the number of directors shorten the term of any incumbent director. (c) The names and mailing addresses of the persons who are to serve initially as directors of each Class shall be set forth in a resolution adopted by the Board of Directors in accordance with the Bylaws of the corporation. (d) There shall be no cumulative voting in the election of directors. Election of directors need not be by written ballot unless the bylaws of the Corporation so provide. (e) Vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director, and each director so elected shall hold office for a term that shall coincide with the term of the Class to which such director shall have been elected. (f) No director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than a majority of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. SIXTH: Election of directors need not be by written ballot unless the bylaws of the Corporation so provide. SEVENTH: (1) A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware Law. (2)(a) Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by 2 3 the Corporation to the fullest extent permitted by Delaware Law. The right to indemnification conferred in this ARTICLE SEVENTH shall also include the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Delaware Law. The right to indemnification conferred in this ARTICLE SEVENTH shall be a contract right. (b) The Corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the Corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law. (3) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under Delaware Law. (4) The rights and authority conferred in this ARTICLE SEVENTH shall not be exclusive of any other right which any person may otherwise have or hereafter acquire. (5) Neither the amendment nor repeal of this ARTICLE SEVENTH, nor the adoption of any provision of this Certificate of Incorporation or the bylaws of the Corporation, nor, to the fullest extent permitted by Delaware Law, any modification of law, shall eliminate or reduce the effect of this ARTICLE SEVENTH in respect of any acts or omissions occurring prior to such amendment, repeal, adoption or modification. EIGHTH: Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the General Corporation Law of the State of Delaware, as amended from time to time, and may not be taken by written consent of stockholders without a meeting. NINTH: Special meetings of stockholders may be called by the Board of Directors or the Chairman of the Board and shall be called by the Secretary at the request in writing of holders of record of a majority of the outstanding capital stock of the Corporation entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 3 4 TENTH: The Corporation reserves the right to amend this Certificate of Incorporation in any manner permitted by Delaware Law and, with the sole exception of those rights and powers conferred under the above ARTICLE SEVENTH, all rights and powers conferred herein on stockholders, directors and officers, if any, are subject to this reserved power. Signed and attested to on June 19, 2001. By: /s/ Gideon Ben-Efraim ------------------------------- Name: Gideon Ben-Efraim Title: President Attest: /s/ Francis S. Currie - ---------------------------------- Name: Francis S. Currie Title: Secretary 4 EX-3.2 4 f74826ex3-2.txt EXHIBIT 3.2 1 EXHIBIT 3.2 BYLAWS OF NETRO CORPORATION * * * * * ARTICLE 1 Offices Section 1.01. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle/City of Dover, County of Kent, State of Delaware. Section 1.02. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. Section 1.03. Books. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 MEETINGS OF STOCKHOLDERS Section 2.01. Time And Place Of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). Section 2.02. Annual Meetings. An annual meeting of stockholders, commencing with the year 2002, shall be held for the election of directors and to transact such other business as may properly be brought before the meeting. Section 2.03. Special Meetings. Special meetings of stockholders may be called by the Board of Directors or the Chairman of the Board and shall be called by the Secretary at the request in writing of holders of record of a majority of the outstanding capital stock of the Corporation entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 2 Section 2.04. Notice of Meetings and Adjourned Meetings; Waivers of Notice. (a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the General Corporation Law of the State of Delaware ("Delaware Law"), such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Unless these bylaws otherwise require, when a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place, if any, thereof and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 2.05. Quorum. Unless otherwise provided under the certificate of incorporation or these bylaws and subject to Delaware Law, the presence, in person or by proxy, of the holders of a majority of the shares of the outstanding capital stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders present in person or represented by proxy may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present or represented. 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 2.06. Voting. (a) Unless otherwise provided in the certificate of incorporation and subject to Delaware Law, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by 2 3 such stockholder. Any share of capital stock of the Corporation held by the Corporation shall have no voting rights. Unless otherwise provided in Delaware Law, the certificate of incorporation or these bylaws, the affirmative vote of a majority of the shares of capital stock of the Corporation present, in person or by written proxy, at a meeting of stockholders and entitled to vote on the subject matter shall be the act of the stockholders. (b) Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by written proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 2.07. Action by Consent. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with Delaware Law and may not be taken by written consent of stockholders without a meeting. Section 2.08. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or in his absence or if one shall not have been elected, the director designated by the vote of the majority of the directors present at such meeting, shall act as chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. Section 2.09. Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting. Section 2.10. Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in these bylaws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 2.10, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th calendar day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 calendar days before or after such anniversary date or that no annual meeting was held in the prior year, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 90th calendar day prior to such annual meeting or the 3 4 10th calendar day following the calendar day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "SEC PROXY RULES") (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 (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation 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 Corporation 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 Corporation unless nominated in accordance with the procedures set forth in this bylaw. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 2.10, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, and the rules and regulations thereunder with respect to the matters set forth in this Section 2.10. Section 2.11. Notice of Business at an Annual Meeting. At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 2.11, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2.11. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th calendar day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 calendar days before or after such anniversary date or that no annual meeting was held in the prior year, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 90th calendar day prior to such annual meeting or the 10th calendar day following the calendar day on which public announcement of the date of such meeting is first made by 4 5 the Corporation. In the event any business other than nominations is properly brought by a stockholder before an annual meeting less than 90 calendar days prior to such annual meeting pursuant to the proviso in the foregoing sentence, the Board's proxy may confer discretionary authority on its holder to vote on such business for which notice is received after public announcement of the date of such meeting is first made by the Corporation. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, (d) any material interest of the stockholder in such business and (e) any other information that may be required with respect to such proposal under the SEC Proxy Rules. Notwithstanding anything in the bylaws to the contrary, no business shall be conducted at an annual stockholder meeting except in accordance with the procedures set forth in this Section 2.11. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the bylaws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.11, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, and the rules and regulations thereunder with respect to the matters set forth in this Section 2.11. Section 2.12. Notice of Business at a Special Meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by (i) the person or persons calling such meeting pursuant to Section 2.03 of these bylaws and, (ii) if such meeting is called at the request of stockholders, by the Board of Directors. ARTICLE 3 DIRECTORS Section 3.01. General Powers. Except as otherwise provided in Delaware Law or the certificate of incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 3.02. Number, Election and Term of Office. The Board of Directors shall consist of not less than three nor more than nine directors, with the exact number of directors to be determined from time to time solely by resolution adopted by the affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Except as 5 6 otherwise provided in the certificate of incorporation, each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director shall hold office until such director's successor shall have been duly elected and qualified or until such director's earlier death, resignation or removal. Directors need not be stockholders. Section 3.03. Quorum and Manner of Acting. Unless the certificate of incorporation or these bylaws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat shall adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.04. Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). Section 3.05. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 3.07 herein or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice. Section 3.06. Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given. Section 3.07. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, President or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors 6 7 shall be given to each director at least forty-eight hours before the date and time of the meeting in such manner as is determined by the Board of Directors or the Chairman of the Board, in the absence of such determination. Section 3.08. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board 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 Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matter: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by Delaware Law to be submitted to the stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 3.09. Action by Consent. 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 or by electronic transmission, and the writing or writings or electronic transmission or transmissions, are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form. Section 3.10. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 3.11. Resignation. Any director may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 7 8 Section 3.12. Vacancies. Unless otherwise provided in the certificate of incorporation, vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director. Each director so elected shall hold office for a term that shall coincide with the term of the Class to which such director shall have been elected. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the certificate of incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of the other vacancies. Section 3.13. Removal. No director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than a majority of the total voting power of all outstanding securities of the corporation then entitled to vote generally in the election of directors, voting together as a single class. Section 3.14. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses. ARTICLE 4 OFFICERS Section 4.01. Principal Officers. The principal officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including one or more Controllers, as the Board may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of President and Secretary. Section 4.02. Election, Term of Office and Remuneration. The principal officers of the Corporation shall be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine. 8 9 Section 4.03. Subordinate Officers. In addition to the principal officers enumerated in Section 4.01 herein, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. Section 4.04. Removal. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. Section 4.05. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.06. Powers and Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors. ARTICLE 5 INDEMNIFICATION Section 5.01. Indemnification of Directors and Officers. (a) Third Party Actions. The Corporation shall indemnify and hold harmless each person who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Corporation) actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon 9 10 a plea of nolo contendere or its equivalent, shall not, in itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) Actions by or in the Right of the Corporation. The Corporation shall indemnify and hold harmless each person who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) and amounts paid in settlement (if such settlement is approved in advance by the Corporation) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, except that, if applicable law so provides, no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article 5, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. Section 5.02. Indemnification of Employees and Agents. The Corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the Corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law. Section 5.03. Successful Defense. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 5.01 and Section 5.03, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection therewith. Section 5.04. Determination of Conduct. Any indemnification under Section 5.01 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of 10 11 the director or officer is proper in the circumstances because the person has met the applicable standard of conduct set forth in Section 5.01. Any indemnification under Section 5.02 (unless ordered by a court) shall be made by the Corporation upon a determination that such indemnification is appropriate and authorized by Delaware law. Such determination shall be made (1) by a majority vote of the disinterested directors, even though less than a quorum, (2) by independent legal counsel in a written opinion, or (3) by the stockholders. Notwithstanding the foregoing, a director or officer of the Corporation shall be entitled to contest any determination that the director or officer has not met the applicable standard of conduct set forth in Section 5.01 by petitioning a court of competent jurisdiction. Section 5.05. Selection of Independent Counsel. If the determination of entitlement to indemnification is to be made by independent counsel pursuant to Section 5.04 hereof, the independent counsel shall be selected as provided in this Section 5.05. The independent counsel shall be selected jointly by such director or officer and the Corporation. In the event such director or officer and the Corporation cannot agree on a selection for the independent counsel, either party may petition the Delaware Court of Chancery or other court of competent jurisdiction to resolve the issue or to make its own provisions for the selection of independent counsel. The Corporation shall pay any and all reasonable fees and expenses of independent counsel incurred by such independent counsel in connection with acting pursuant to Section 5.04 hereof, and the Corporation shall pay all reasonable fees and expenses incident to the procedures of this Section 5.05, regardless of the manner in which such independent counsel was selected or appointed. Section 5.06. Payment of Expenses in Advance. Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who is determined to be entitled to indemnification pursuant to Section 5.01, shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that the individual is not entitled to be indemnified by the Corporation as authorized in this Article 5; provided, however, that the Corporation shall not be required to advance expenses to any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was authorized in advance by the board of directors of the Corporation; and provided further that no advance shall be made by the Corporation to a director or officer of the Corporation in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of disinterested directors or (ii) by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation. 11 12 Section 5.07. Indemnity Not Exclusive. The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article 5 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any other provision of these bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office. Section 5.08. Insurance Indemnification. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, against any expense, liability incurred by such person in any such capacity or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under Delaware Law. Section 5.09. The Corporation. For purposes of this Article 5, references to "the Corporation" shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article 5 (including, without limitation, the provisions of Section 5.01 and Section 5.02) with respect to the resulting or surviving corporation as the person would have with respect to such constituent corporation if its separate existence had continued. Section 5.10. Continuation of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 5 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. Section 5.11. Amendments. Any repeal or modification of this Article 5 shall only be prospective and shall not affect the rights under this bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Corporation. 12 13 ARTICLE 6 GENERAL PROVISIONS Section 6.01. Fixing the Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 6.02. Dividends. Subject to limitations contained in Delaware Law and the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation. Section 6.03. Fiscal Year. The fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year. Section 6.04. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. Section 6.05. Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. 13 14 Section 6.06. Amendments. These bylaws or any of them, may be altered, amended or repealed, or new bylaws may be made, by the stockholders entitled to vote thereon at any annual or special meeting thereof or by the Board of Directors. 14 -----END PRIVACY-ENHANCED MESSAGE-----