-----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, UgQxGmTotxeuF2HLYhA1HeXYNAP+eSo2kuPmqCeHUlAgVaFm6Zxv6a5sY3y5raIs Wsg6SOXsoD6Kit4trwx3og== 0000898430-02-000237.txt : 20020414 0000898430-02-000237.hdr.sgml : 20020413 ACCESSION NUMBER: 0000898430-02-000237 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED MICRO CIRCUITS CORP CENTRAL INDEX KEY: 0000711065 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942586591 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23193 FILM NUMBER: 02515060 BUSINESS ADDRESS: STREET 1: 6290 SEQUENCE DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194509333 MAIL ADDRESS: STREET 1: 6290 SEQUENCE DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 d10q.htm QUARTERLY REPORT Quarterly Report
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal quarter ended December 31, 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: 000-23193
 
 
APPLIED MICRO CIRCUITS CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware
  
94-2586591
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
6290 Sequence Drive, San Diego, CA 92121
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (858) 450-9333
 
 
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, as amended (the “Exchange Act”), during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No ¨
 
As of January 21, 2002, 299,345,227 shares of the Registrant’s Common Stock were issued and outstanding.
 
 
 
APPLIED MICRO CIRCUITS CORPORATION
 
INDEX
 
         
Page
Part I
   
FINANCIAL INFORMATION
     
Item 1.
   
a)   Condensed Consolidated Balance Sheets at December 31, 2001 (unaudited) and March 31, 2001
   
3
    
b)   Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended December 31, 2001 and 2000
   
4
    
c)   Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended December 31, 2001 and 2000
   
5
    
d)   Notes to Condensed Consolidated Financial Statements (unaudited)
   
6
Item 2.
   
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
11
Item 3.
   
Quantitative and Qualitative Disclosures About Market Risk
   
27
Part II
   
OTHER INFORMATION
     
Item 1.
   
Legal Proceedings
   
28
Item 6.
   
Exhibits and Reports on Form 8-K
   
28
    
Signatures
   
29

2
 
PART I.    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
APPLIED MICRO CIRCUITS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
 
    
December 31, 2001
     
March 31, 2001
  
    
(unaudited)
         
ASSETS
              
Current assets:
              
Cash and cash equivalents
   
$
95,333
 
   
$
58,197
 
Short-term investments—available-for-sale
   
 
987,439
 
   
 
1,073,896
 
Accounts receivable, net of allowance for doubtful accounts—$5,345 and $4,575 at December 31, 2001 (unaudited) and March 31, 2001, respectively
   
 
18,201
 
   
 
83,892
 
Inventories
   
 
19,070
 
   
 
32,740
 
Deferred income taxes
   
 
27,597
 
   
 
27,597
 
Other current assets
   
 
30,731
 
   
 
24,775
 
    
    
 
Total current assets
   
 
1,178,371
 
   
 
1,301,097
 
Property and equipment, net
   
 
109,270
 
   
 
112,953
 
Purchased intangibles, net
   
 
646,459
 
   
 
4,008,440
 
Strategic equity and convertible debt investments, net
   
 
14,523
 
   
 
28,023
 
Other assets
   
 
1,229
 
   
 
2,765
 
    
    
 
Total assets
   
$
1,949,852
 
   
$
5,453,278
 
    
    
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Current liabilities:
              
Accounts payable
   
$
23,830
 
   
$
38,069
 
Accrued payroll and related expenses
   
 
14,889
 
   
 
17,868
 
Other accrued liabilities
   
 
32,856
 
   
 
30,583
 
Deferred revenue
   
 
2,023
 
   
 
5,087
 
Current portion of long-term debt
   
 
702
 
   
 
668
 
Current portion of capital lease obligations
   
 
500
 
   
 
596
 
    
    
 
Total current liabilities
   
 
74,800
 
   
 
92,871
 
Long-term debt, less current portion
   
 
685
 
   
 
1,216
 
Long-term capital lease obligations, less current portion
   
 
748
 
   
 
1,050
 
Deferred income taxes
   
 
52,494
 
   
 
120,040
 
Stockholders’ equity:
              
Preferred stock, $0.01 par value:
              
Authorized shares—2,000 at December 31, 2001, none issued and outstanding
   
 
—
 
   
 
—
 
Common stock, $0.01 par value:
              
Authorized shares—630,000 at December 31, 2001
              
Issued and outstanding shares—299,110 at December 31, 2001 (unaudited) and 299,822 at March 31, 2001
   
 
2,991
 
   
 
2,998
 
Additional paid-in capital
   
 
5,931,599
 
   
 
5,947,682
 
Deferred compensation, net
   
 
(238,501
)
   
 
(348,894
)
Accumulated other comprehensive income
   
 
6,583
 
   
 
2,438
 
Accumulated deficit
   
 
(3,881,500
)
   
 
(366,076
)
Notes receivable from stockholders
   
 
(47
)
   
 
(47
)
    
    
 
Total stockholders’ equity
   
 
1,821,125
 
   
 
5,238,101
 
    
    
 
Total liabilities and stockholders’ equity
   
$
1,949,852
 
   
$
5,453,278
 
    
    
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

3
 
APPLIED MICRO CIRCUITS CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
 
    
Three Months Ended December 31,
     
Nine Months Ended December 31,
  
    
2001
     
2000
     
2001
     
2000
  
Net revenues
   
$
40,220
 
   
$
143,269
 
   
$
122,728
 
   
$
314,464
 
Cost of revenues(1)
   
 
31,307
 
   
 
61,196
 
   
 
112,732
 
   
 
105,042
 
    
    
    
    
 
Gross profit
   
 
8,913
 
   
 
82,073
 
   
 
9,996
 
   
 
209,422
 
Operating expenses:
                            
Research and development(1)
   
 
38,275
 
   
 
31,285
 
   
 
117,098
 
   
 
65,342
 
Selling, general and administrative(1)
   
 
18,277
 
   
 
20,498
 
   
 
58,069
 
   
 
45,731
 
Stock-based compensation(1)
   
 
36,793
 
   
 
35,954
 
   
 
110,379
 
   
 
36,698
 
Goodwill impairment charge
   
 
—
 
   
 
—
 
   
 
3,101,817
 
   
 
—
 
Amortization of goodwill and purchased intangibles
   
 
23,339
 
   
 
127,574
 
   
 
216,226
 
   
 
138,421
 
Acquired in-process research and development
   
 
—
 
   
 
176,700
 
   
 
—
 
   
 
202,100
 
Restructuring costs
   
 
200
 
   
 
—
 
   
 
11,377
 
   
 
—
 
    
    
    
    
 
Total operating expenses
   
 
116,884
 
   
 
392,011
 
   
 
3,614,966
 
   
 
488,292
 
    
    
    
    
 
Operating loss
   
 
(107,971
)
   
 
(309,938
)
   
 
(3,604,970
)
   
 
(278,870
)
Other income (expense), net
   
 
(401
)
   
 
—
 
   
 
(14,176
)
   
 
—
 
Interest income, net
   
 
10,840
 
   
 
14,771
 
   
 
37,665
 
   
 
40,513
 
    
    
    
    
 
Loss before income taxes
   
 
(97,532
)
   
 
(295,167
)
   
 
(3,581,481
)
   
 
(238,357
)
Income tax expense (benefit)
   
 
(16,231
)
   
 
(25,680
)
   
 
(66,057
)
   
 
4,120
 
    
    
    
    
 
Net loss
   
$
(81,301
)
   
$
(269,487
)
   
$
(3,515,424
)
   
$
(242,477
)
    
    
    
    
 
Basic loss per share:
                            
Loss per share
   
$
(0.27
)
   
$
(0.95
)
   
$
(11.78
)
   
$
(0.94
)
    
    
    
    
 
Shares used in calculating basic loss per share
   
 
297,360
 
   
 
282,313
 
   
 
298,381
 
   
 
257,688
 
    
    
    
    
 
Diluted loss per share:
                            
Loss per share
   
$
(0.27
)
   
$
(0.95
)
   
$
(11.78
)
   
$
(0.94
)
    
    
    
    
 
Shares used in calculating diluted loss per share
   
 
297,360
 
   
 
282,313
 
   
 
298,381
 
   
 
257,688
 
    
    
    
    
 
(1)  For presentation purposes, the functional line items exclude stock-based compensation charges related to acquired companies as follows (in thousands):
                            
Cost of revenues
   
$
1,227
 
   
$
1,203
 
   
$
3,681
 
   
$
1,203
 
Research and development
   
 
18,370
 
   
 
18,122
 
   
 
55,105
 
   
 
18,708
 
Selling, general and administrative
   
 
17,196
 
   
 
16,629
 
   
 
51,593
 
   
 
16,787
 
    
    
    
    
 
Total stock-based compensation
   
$
36,793
 
   
$
35,954
 
   
$
110,379
 
   
$
36,698
 
    
    
    
    
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

4
 
APPLIED MICRO CIRCUITS CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
    
Nine Months Ended December 31,
  
    
2001
     
2000
  
Operating Activities:
              
Net loss
   
$
(3,515,424
)
   
$
(242,477
)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
              
Depreciation and amortization
   
 
22,019
 
   
 
9,589
 
Amortization of purchased intangibles
   
 
259,982
 
   
 
149,118
 
Goodwill impairment charge
   
 
3,101,817
 
   
 
—
 
Acquired in-process research and development
   
 
—
 
   
 
202,100
 
Amortization of deferred compensation
   
 
110,393
 
   
 
36,807
 
Tax benefit of disqualifying dispositions
   
 
—
 
   
 
140,620
 
Noncash restructuring costs
   
 
8,727
 
   
 
—
 
Net loss on strategic equity investments
   
 
13,775
 
   
 
—
 
Net loss on asset disposal
   
 
401
 
   
 
—
 
Changes in assets and liabilities:
              
Accounts receivables
   
 
65,691
 
   
 
(45,411
)
Inventories
   
 
13,670
 
   
 
14,669
 
Other assets
   
 
(9,449
)
   
 
(6,166
)
Accounts payable
   
 
(14,239
)
   
 
13,447
 
Accrued payroll and other accrued liabilities
   
 
(706
)
   
 
20,225
 
Deferred income taxes
   
 
(67,364
)
   
 
(136,973
)
Deferred revenue
   
 
(3,064
)
   
 
741
 
    
    
 
Net cash provided by (used for) operating activities
   
 
(13,771
)
   
 
156,289
 
Investing Activities:
              
Proceeds from sales and maturities of investments
   
 
2,160,455
 
   
 
1,496,588
 
Purchase of investments
   
 
(2,069,866
)
   
 
(1,750,830
)
Proceeds from sales of equity investments
   
 
2,902
 
   
 
—
 
Notes receivable from officers and employees
   
 
100
 
   
 
16
 
Cash received from purchase acquisitions, net of cash paid and merger expenses
   
 
—
 
   
 
13,970
 
Purchase of property and equipment
   
 
(25,711
)
   
 
(38,149
)
    
    
 
Net cash provided by (used for) investing activities
   
 
67,880
 
   
 
(278,405
)
Financing Activities:
              
Proceeds from issuance of common stock, net
   
 
13,339
 
   
 
43,909
 
Repurchase of Company stock
   
 
(29,428
)
   
 
(56
)
Payments on notes receivable from stockholders
   
 
—
 
   
 
455
 
Payments on capital lease obligations
   
 
(398
)
   
 
(579
)
Payments on long-term debt
   
 
(497
)
   
 
(2,948
)
Other
   
 
11
 
   
 
(20
)
    
    
 
Net cash provided by (used for) financing activities
   
 
(16,973
)
   
 
40,761
 
    
    
 
Net increase (decrease) in cash and cash equivalents
   
 
37,136
 
   
 
(81,355
)
Cash and cash equivalents at beginning of period
   
 
58,197
 
   
 
170,102
 
    
    
 
Cash and cash equivalents at end of period
   
$
95,333
 
   
$
88,747
 
    
    
 
Supplemental disclosure of cash flow information:
              
Cash paid for:
              
Interest
   
$
163
 
   
$
340
 
    
    
 
Income taxes
   
$
743
 
   
$
3,796
 
    
    
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

5
 
APPLIED MICRO CIRCUITS CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.    BASIS OF PRESENTATION—INTERIM FINANCIAL INFORMATION (UNAUDITED)
 
The accompanying unaudited interim condensed consolidated financial statements of Applied Micro Circuits Corporation (“AMCC” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying financial statements reflect all adjustments (consisting of normal recurring accruals), which are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company has experienced significant quarterly fluctuations in net revenues and operating results, and expects that these fluctuations in sales, expenses and net income or losses will continue.
 
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. These estimates include assessing the collectability of accounts receivable, the use and recoverability of inventory, costs of future product returns under warranty and provisions for contingencies expected to be incurred. Actual results could differ from those estimates.
 
The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended March 31, 2001.
 
Certain prior period amounts have been reclassified to conform to the current period presentation.
 
2.    LOSS PER SHARE
 
The computation of basic and diluted loss per share consists of the following (in thousands, except per share data):
 
    
Three Months Ended December 31,
     
Nine Months Ended December 31,
  
    
2001
     
2000
     
2001
     
2000
  
Shares used in basic and diluted loss per share computations—weighted average common shares outstanding
   
 
297,360
 
   
 
282,313
 
   
 
298,381
 
   
 
257,688
 
    
    
    
    
 
Net loss
   
$
(81,301
)
   
$
(269,487
)
   
$
(3,515,424
)
   
$
(242,477
)
    
    
    
    
 
Basic and diluted loss per share
   
$
(0.27
)
   
$
(0.95
)
   
$
(11.78
)
   
$
(0.94
)
    
    
    
    
 
 
Because the Company incurred losses for the three and nine months ended December 31, 2001 and 2000, the effect of dilutive securities has been excluded from the loss per share computation as its impact would be antidilutive. The dilutive securities (in thousands) totaled 8,297 and 10,502 equivalent shares for the three and nine months ended December 31, 2001, respectively, and 23,478 and 23,229 equivalent shares for the three and nine months ended December 31, 2000, respectively.

6

 
3.    CERTAIN FINANCIAL STATEMENT INFORMATION
 
    
December 31, 2001
     
March 31, 2001
  
Inventories (in thousands):
              
Finished goods
   
$
6,123
 
   
$
16,363
 
Work in process
   
 
12,221
 
   
 
14,560
 
Raw materials
   
 
726
 
   
 
1,817
 
    
    
 
    
$
19,070
 
   
$
32,740
 
    
    
 
    
December 31, 2001
     
March 31, 2001
  
Property and equipment (in thousands):
              
Machinery and equipment
   
$
79,443
 
   
$
70,358
 
Leasehold improvements
   
 
17,021
 
   
 
18,292
 
Computers, office furniture and equipment
   
 
80,434
 
   
 
73,181
 
Land
   
 
22,160
 
   
 
22,122
 
    
    
 
    
 
199,058
 
   
 
183,953
 
Less accumulated depreciation and amortization
   
 
(89,788
)
   
 
(71,000
)
    
    
 
    
$
109,270
 
   
$
112,953
 
    
    
 
 
Net goodwill and other acquisition-related intangibles were as follows (dollar amounts in thousands):
 
    
Life in Years
   
December 31, 2001
   
March 31, 2001
Goodwill
   
1–6
   
$
396,950
   
$
3,708,191
Developed core technology
   
5
   
 
224,676
   
 
268,836
Other purchased intangibles
   
3–5
   
 
24,833
   
 
31,413
    
  
  
         
$
646,459
   
$
4,008,440
         
  
 
Other purchased intangibles include items such as trademarks and workforce-in-place. Total intangibles are net of accumulated amortization and impairment charges of $3,695.9 million and $334.1 million at December 31, 2001 and March 31, 2001, respectively.
 
Amortization of goodwill and purchased intangibles, including amounts charged to cost of revenues, was $37.9 million and $260.0 million for the three and nine months ended December 31, 2001, respectively. In addition, as a result of industry conditions and lower market valuations, the Company determined that there were indicators of impairment to the carrying value of the goodwill and purchased intangibles. Based on a review and independent valuation, the Company recorded a charge of $3.1 billion in the nine months ended December 31, 2001 to write down the value of intangible assets associated with its purchase acquisitions.
 
In the nine months ended December 31, 2001, the Company realized a gain on its strategic equity investments of $1.2 million. This gain was offset by $15.0 million of recognized impairments and certain losses on fixed asset disposals.

7

 
4.    COMPREHENSIVE LOSS
 
The components of comprehensive loss, net of tax, are as follows (in thousands):
 
    
Three Months Ended December 31,
     
Nine Months Ended December 31,
  
    
2001
     
2000
     
2001
     
2000
  
Net loss
   
$
(81,301
)
   
$
(269,487
)
   
$
(3,515,424
)
   
$
(242,477
)
Change in net unrealized gain (loss) on available-for-sale investments
   
 
(851
)
   
 
645
 
   
 
4,132
 
   
 
1,316
 
Foreign currency translation adjustment
   
 
(1
)
   
 
(3
)
   
 
13
 
   
 
(21
)
    
    
    
    
 
Comprehensive loss
   
$
(82,153
)
   
$
(268,845
)
   
$
(3,511,279
)
   
$
(241,182
)
    
    
    
    
 
 
5.    RESTRUCTURING COSTS
 
As a result of continuing weak industry conditions, the Company announced a restructuring plan in July 2001. The plan includes reducing the overall cost structure of the Company and aligning manufacturing capacity with demand. Restructuring costs of $200,000 and $11.4 million were recognized as operating expense in the three and nine months ended December 31, 2001, respectively.
 
The restructuring plan is comprised of the following components:
 
Workforce reduction—The Company is continuing to implement its workforce reduction plan, which has resulted in workforce reduction charges of approximately $200,000 and $700,000 in the three and nine months ended December 31, 2001, respectively. The charges primarily related to severance and benefits for terminated employees.
 
Consolidation of excess facilities—As a result of the Company’s acquisitions and significant internal growth in fiscal 2001, the Company expanded its number of locations throughout the world. In an effort to improve the efficiency of the workforce and reduce the Company’s cost structure, the Company has implemented a plan to consolidate its workforce into certain designated facilities. As a result, a charge of approximately $2.0 million was recognized in the second quarter primarily relating to non-cancelable lease commitments.
 
Property and equipment impairments—During fiscal 2000 and 2001, the Company aggressively expanded its manufacturing capacity in order to meet demand. As a result of the sharp decrease in demand in fiscal 2002, the Company recorded a charge of approximately $5.6 million in the second quarter for the elimination of certain excess manufacturing equipment related to its older process technologies. In addition, the company recorded a charge of approximately $3.1 million in the second quarter relating to the abandonment of certain leasehold improvements and software licenses in connection with the restructuring plan.

8

 
A summary of the restructuring costs for the nine months ended December 31, 2001 is as follows (in thousands):
 
    
Total Costs
   
Noncash Charges
     
Cash Payments
     
Liability, December 31, 2001
Workforce reduction
   
$
700
   
$
—
 
   
$
(593
)
   
$
107
Consolidation of excess facilities
   
 
1,950
   
 
—
 
   
 
(329
)
   
 
1,621
Property and equipment impairments
   
 
8,727
   
 
(8,727
)
   
 
—
 
   
 
—
    
  
    
    
Total restructuring costs
   
$
11,377
   
$
(8,727
)
   
$
(922
)
   
$
1,728
    
  
    
    
 
Remaining expenditures relating to workforce reductions and payments in conjunction with restructuring activities will be substantially paid by the end of fiscal 2002. Amounts related to expense due to the consolidation of facilities will be paid over the respective lease terms through fiscal 2006. The Company’s estimated costs to exit these facilities are based on available commercial rates and an estimate of the time required to sublet the facilities. The actual loss incurred in exiting these facilities may differ from the Company’s estimates.
 
6.    STOCK REPURCHASE
 
On September 17, 2001, the Company’s Board of Directors approved a stock repurchase program whereby the Company is authorized to purchase up to $200 million in shares of its common stock over the next 12 months. Through December 31, 2001, the Company had repurchased and retired 3,630,000 shares for approximately $29.4 million.
 
7.    CONTINGENCIES
 
The Company is party to various claims and legal actions arising in the normal course of business, including notification of possible infringement on the intellectual property rights of third parties.
 
Starting in April 2001, a series of similar federal complaints were filed against the Company and its chief executive officer, chief financial officer and certain other officers and directors of the Company. These complaints allege essentially identical violations of the Securities Exchange Act of 1934 (the “1934 Act”). The complaints have been brought as purported shareholder class actions under Sections 10(b) and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder and seek unspecified monetary damages on behalf of the shareholder class. In general, the complaints allege that the Company and the individual defendants misrepresented the Company’s financial prospects for the fourth quarter of fiscal 2001 to inflate the value of the Company’s stock. The complaints have been consolidated into a single proceeding in the United States District Court for the Southern District of California (the “Federal Action”). An amended consolidated complaint is scheduled to be filed in the fourth fiscal quarter of fiscal 2002. The Company intends to file several motions seeking a dismissal of the Federal Action on various grounds. A briefing and hearing schedule has been set for these motions, which the Company expects will be heard and decided in the first or second quarter of fiscal 2003.
 
In May 2001, certain individuals filed derivative actions against the directors and certain executive officers in the California state courts. These state court derivative complaints allege overstatement of the financial prospects of the Company, mismanagement, inflation of stock value, and sale of stock at inflated prices for personal gain during the period from November 7, 2000 until February 5, 2001. The three state court derivative actions have been consolidated and assigned to the San Diego Superior Court (the “State Action”) and a consolidated derivative complaint was filed in December 2001. The Company has filed several motions seeking a

9

dismissal of the State Action on various grounds. In the alternative, the Company is also seeking to stay the State Action pending resolution of the Federal Action. A hearing and decision on the Company’s motions is expected to occur in the fourth quarter of fiscal 2002.
 
No discovery has been conducted in either the Federal Action or the State Action. The Company believes that the allegations in these actions are without merit and intends to defend the actions vigorously. The Company cannot predict the likely outcome of these actions, and an adverse result in either action could have a materially adverse effect on the Company. The actions have been tendered to the Company’s insurance carriers.
 
Since 1993, the Company has been named as a potentially responsible party (“PRP”) along with a large number of other companies that used Omega Chemical Corporation (“Omega”) in Whittier, California to handle and dispose of certain hazardous waste material. The Company is a member of a large group of PRPs that has agreed to fund certain remediation efforts at the Omega site for which the Company has accrued approximately $100,000. On September 14, 2000, the Company entered into a consent decree with the Environmental Protection Agency, pursuant to which the Company agreed to fund its proportionate share of the initial remediation efforts at the Whittier site. Although the ultimate outcome of these matters is not presently determinable, the Company believes that the resolution of all such pending matters, net of amounts accrued, will not have a material adverse effect on the Company’s financial position or liquidity; however, there can be no assurance that the ultimate resolution of these matters will not have a material impact on the Company’s results of operations in any period.
 
8.    NEW ACCOUNTING PRONOUNCEMENTS
 
In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations (“FAS 141”) and No. 142, Goodwill and Other Intangible Assets (“FAS 142”). FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed periodically for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt FAS 142 effective April 1, 2002. The amortization provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. For the three months ended December 31, 2001, the Company recorded a total of $37.9 million of amortization of goodwill and purchased intangibles. If the Company had given effect to the provisions of FAS 142, the resulting amortization for the three months ended December 31, 2001 would have been $15.9 million.
 
9.    STOCK OPTION EXCHANGE OFFER
 
On November 27, 2001, the Company completed the offering of a voluntary stock option exchange program to its employees, officers and board members. Under the program, participants were able to tender for cancellation stock options with an exercise price equal to or greater than $20 per share for replacement options to be granted on May 28, 2002 under certain terms & conditions as set forth in the Company’s offer. The exercise price of the replacement options will be equal to 100 percent of the market price of AMCC common stock on that date. The terms and conditions of the replacement options, including the vesting schedules, will be substantially the same as the terms and conditions of the options cancelled. The Company accepted options to purchase approximately 31.1 million shares of Company stock for exchange pursuant to this program.

10
 
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto and with Management’s Discussion and Analysis of Financial Condition and Results of Operations that are included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2001. This Quarterly Report on Form 10-Q, and in particular Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events or the future performance of the Company that involve certain risks and uncertainties including those discussed in “Risk Factors” below. Actual events or the actual future results of the Company may differ materially from any forward-looking statements due to such risks and uncertainties. Readers are cautioned not to place reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
 
Overview
 
We design, develop, manufacture and market high-performance, high-bandwidth silicon solutions empowering intelligent optical networks. We utilize a combination of digital, mixed-signal and high-frequency analog design expertise coupled with system-level knowledge and multiple silicon process technologies to offer integrated circuit (“IC”) products that enable the transport of voice and data over fiber optic networks. Our products target the Synchronous Optical Network (“SONET”), Synchronous Digital Hierarchy (“SDH”), Asynchronous Transfer Mode (“ATM”), Dense Wave Division Multiplexing (“DWDM”), Gigabit Ethernet and Fibre Channel semiconductor markets. We provide our customers with complete silicon IC solutions including higher layer processors such as network processors and switch fabrics, framer layer products such as framers and mappers, physical layer (“PHY”) products such as transceivers, and physical media dependent (“PMD”) devices such as laser drivers. Our products currently target data rates up to 40 gigabits per second.
 
Although we have focused our business and operations on communications markets, we continue to supply silicon ICs for the ATE, high-speed computing and military markets as well.
 
Results of Operations
 
Net Revenues.    Net revenues for the three and nine months ended December 31, 2001 were $40.2 million and $122.7 million, respectively, a decrease of 71.9% and 61.0% from net revenues of $143.3 million and $314.5 million for the three and nine months ended December 31, 2000, respectively. Revenues from sales of communications products decreased to 77.4% and 83.8% of net revenues for the three and nine months ended December 31, 2001 from 91.3% and 86.7% of net revenues for the three and nine months ended December 31, 2000.
 
Based on direct shipments, net revenues to customers exceeding 10% of net revenues were as follows:
 
    
Three Months Ended December 31,
     
Nine Months Ended December 31,
  
    
2001
     
2000
     
2001
     
2000
  
Insight
   
21
%
   
21
%
   
12
%
   
19
%

11
 
Looking through product shipments to distributors and subcontractors, net revenues on an end-customer basis exceeding 10% of net revenues were as follows:
 
    
Three Months Ended December 31,
     
Nine Months Ended December 31,
  
    
2001
     
2000
     
2001
     
2000
  
Cisco
   
12
%
   
10
%
   
11
%
   
7
%
Nortel
   
9
%
   
18
%
   
11
%
   
23
%
 
Sales outside of North America accounted for 25.4% and 35.0% of net revenues for the three and nine months ended December 31, 2001, respectively, compared to 18.7% and 17.6% for the three and nine months ended December 31, 2000, respectively.
 
Gross Margin.    Gross margin was 22.2% and 8.1% for the three and nine months ended December 31, 2001, respectively, compared to 57.3% and 66.6% for the three and nine months ended December 31, 2000, respectively. The gross margin for the three and nine months ended December 31, 2001 was adversely affected by the recurring developed core technology amortization charge of $14.6 million per quarter and a special charge for excess and obsolete inventory of $15.9 million in the three months ended June 30, 2001. The gross margin for the three and nine months ended December 31, 2000 was adversely affected by a $16.1 million purchase accounting charge based on an increase in the value of the MMC inventory as of the acquisition date, as well as $10.7 million of developed core technology amortization. Excluding the effect of these items, gross profit was 58.4% and 56.7% for the three and nine months ended December 31, 2001, and 76.0% and 75.1% for the three and nine months ended December 31, 2000. The decrease in gross margin, exclusive of recurring amortization charges and one time charges, reflects the under-utilization of our manufacturing facilities as a result of the continued softness in demand for our products.
 
Research and Development.    Research and development (“R&D”) expenses were approximately $38.3 million, or 95.2% of net revenues, and $117.1 million, or 95.4% of net revenues, for the three and nine months ended December 31, 2001, as compared to approximately $31.3 million, or 21.8% of net revenues, and $65.3 million, or 20.8% of net revenues, for the three and nine months ended December 31, 2000. The year over year increase relates to new product and process development efforts, investments made in new design tools for the development of new products and an increase in personnel costs as a result of acquisitions and internal hiring of R&D personnel. We expect R&D expenses to decrease modestly in the fourth quarter of fiscal 2002 when compared to the third quarter of fiscal 2002, as we continue to streamline our cost structure. We believe that a continued commitment to R&D is vital to maintain a leadership position with innovative communications products. Our R&D expenses are concentrated on the development of products for the communications markets, and we expect to continue this focus.
 
Selling, General and Administrative.    Selling, general and administrative (“SG&A”) expenses were approximately $18.3 million, or 45.4% of net revenues, and $58.1 million, or 47.3% of net revenues, for the three and nine months ended December 31, 2001, as compared to approximately $20.5 million, or 14.3% of net revenues, and $45.7 million, or 14.5% of net revenues, for the three and nine months ended December 31, 2000. The year over year increase in SG&A expenses was attributable to investments made in our corporate infrastructure, an increase in the size of our sales force as a result of acquisitions and additional marketing investments associated with the introduction of new products. In aggregate dollar terms, we expect SG&A expenses to decrease modestly in the fourth quarter of fiscal 2002 when compared to the third quarter of fiscal 2002, as we continue to streamline our cost structure.
 
Stock-based Compensation.    Stock-based compensation charges were $36.8 million and $110.4 million for the three and nine months ended December 31, 2001, respectively, compared to $36.0 million and $36.7 million for the three and nine months ended December 31, 2000, respectively. The increase is directly related to our prior year acquisitions. We expect to record future amortization of deferred compensation of approximately

12
$147.2 million, $134.1 million, $63.5 million and $4.1 million during the fiscal years ending March 31, 2002, 2003, 2004 and 2005, respectively. The actual charges could be reduced based on the level of employee turnover or future acquisitions of businesses may result in substantial additional charges.
 
Goodwill Impairment Charge.    As a result of industry conditions, lower market valuations and reduced estimates of carrier capital equipment spending in the future, we determined that there were indicators of impairment to the carrying value of our goodwill and purchased intangibles. Based on our review and an independent valuation, we recorded a charge of $3.1 billion in the three months ended June 30, 2001 to write down the value of intangible assets associated with our purchase acquisitions.
 
Amortization of Goodwill and Purchased Intangibles.    Excluding the amortization of developed core technology included in cost of revenues, amortization of goodwill and purchased intangible assets was $23.3 million and $216.2 million for the three and nine months ended December 31, 2001, respectively, as compared to $127.6 million and $138.4 million for the three and nine months ended December 31, 2000. These charges are related to fiscal 2001 acquisitions. We expect the total amortization expense of goodwill and purchased intangibles, exclusive of developed core technology included in cost of revenues, to be approximately $239.6 million for fiscal 2002. As a result of our adoption of FAS 142 effective April 1, 2002 for periods after fiscal 2002, we will no longer be required to amortize goodwill and certain other intangibles. However, we will continue to amortize certain purchased intangibles other than goodwill. There can be no assurance that acquisitions of businesses by us in the future will not result in substantial changes to the expected amortization of intangible assets that will be amortized in accordance with FAS 142, which may cause fluctuations in our interim and annual operating results.
 
Restructuring Charge.    As a result of industry conditions, the Company announced a restructuring plan in July 2001. The plan includes reducing the overall cost structure of the Company and aligning manufacturing capacity with current demand. Restructuring costs of approximately $200,000 and $11.4 million were recognized as an operating expense in the three and nine months ended December 31, 2001, respectively.
 
The restructuring plan is comprised of the following components:
 
 
•
 
Workforce reduction—The Company is continuing to implement its workforce reduction plan, which has resulted in workforce reduction charges of approximately $200,000 and $700,000 in the three and nine months ended December 31, 2001.
 
 
•
 
Consolidation of excess facilities—As a result of the Company’s acquisitions and significant internal growth in fiscal 2001, the Company expanded its number of locations throughout the world. In an effort to improve the efficiency of the workforce and reduce the Company’s cost structure, the Company has implemented a plan to consolidate its workforce into certain designated facilities. As a result, a charge of approximately $2.0 million was recognized in the three months ended September 30, 2001 primarily relating to non-cancelable lease commitments.
 
 
•
 
Property and equipment impairments—During fiscal 2000 and 2001, the Company aggressively expanded its manufacturing capacity in order to meet demand. As a result of the sharp decrease in demand in fiscal 2002, the Company recorded a charge of approximately $5.6 million in three months ended September 30, 2001 for the elimination of certain excess manufacturing equipment related to its older process technologies. In addition, the company recorded a charge of approximately $3.1 million in the three months ended September 30, 2001 relating to the abandonment of certain leasehold improvements and software licenses in connection with the restructuring plan.
 
Remaining expenditures relating to workforce reductions and payments in conjunction with restructuring activities will be substantially paid by the end of fiscal 2002. Amounts related to expense due to the consolidation of facilities will be paid over the respective lease terms through fiscal 2006. The Company’s estimated costs to exit these facilities are based on available commercial rates and an estimate of the time required to sublet the facilities. The actual loss incurred in exiting these facilities may differ from the Company’s estimates.

13
 
Net Interest Income.    Net interest income was $10.8 million and $37.7 million for the three and nine months ended December 31, 2001, respectively, as compared to $14.8 million and $40.5 million for the three and nine months ended December 31, 2000.
 
Other Income (Expense).    Other income (expense) includes a gain on our strategic equity investments of $1.2 million, an impairment charge of $15 million and certain losses on fixed asset disposals.
 
Income Taxes.    Income taxes for the three and nine months ended December 31, 2001 differed from statutory rates because we are establishing valuation allowances for the net operating loss carryforwards and tax credits which are being generated in the current year.
 
Liquidity and Capital Resources
 
Our financial condition remains strong. Our principal source of liquidity as of December 31, 2001 consists of $1.1 billion in cash, cash equivalents and short-term investments. Working capital as of December 31, 2001 was $1.1 billion, slightly decreasing from $1.2 billion at March 31, 2001.
 
For the nine months ended December 31, 2001 and 2000, net cash from operations was $(13.8) million and $156.3 million, respectively. Net cash used for operations for the nine months ended December 31, 2001 primarily reflected the net operating loss before depreciation and amortization and an increase in other assets.
 
Capital expenditures totaled $25.7 million and $38.1 million for the nine months ended December 31, 2001 and 2000, respectively, which primarily consisted of the purchase of engineering hardware and design software, and manufacturing and test equipment.
 
On September 17, 2001, the Company’s Board of Directors approved a stock repurchase program whereby the Company is authorized to purchase up to $200 million in shares of its common stock over the next 12 months. Through December 31, 2001, the Company had repurchased and retired 3,630,000 shares for approximately $29.4 million.
 
We believe that our available cash, cash equivalents and short-term investments, and cash generated from operations will be sufficient to meet our capital requirements for at least the next 12 months, although we could elect or could be required to raise additional capital during such period. There can be no assurance that such additional debt or equity financing will be available on commercially reasonable terms.

14
 
RISK FACTORS
 
Our operating results may fluctuate because of a number of factors, many of which are beyond our control.
 
If our operating results are below the expectations of public market analysts or investors, then the market price of our common stock could decline. Some of the factors that affect our quarterly and annual results, but which are difficult to control or predict are:
 
 
•
 
the reduction, rescheduling or cancellation of orders by customers, whether as a result of slowing demand for our customers’ products, stockpiling of our products or otherwise;
 
 
•
 
fluctuations in the timing and amount of customer requests for product shipments;
 
 
•
 
the availability of external foundry capacity, purchased parts and raw materials;
 
 
•
 
increases in the costs of products or discontinuance of products by suppliers;
 
 
•
 
fluctuations in product life cycles;
 
 
•
 
fluctuations in manufacturing output, yields and inventory levels or other potential problems or delays in the fabrication, assembly, testing or delivery of our products;
 
 
•
 
changes in the mix of products that our customers buy;
 
 
•
 
our ability to introduce new products and technologies on a timely basis;
 
 
•
 
the announcement or introduction of products and technologies by our competitors;
 
 
•
 
competitive pressures on selling prices;
 
 
•
 
market acceptance of our products and our customers’ products;
 
 
•
 
the amounts and timing of costs associated with warranties and product returns;
 
 
•
 
the amounts and timing of investments in research and development;
 
 
•
 
the amounts and timing of the costs associated with payroll taxes related to stock option exercises;
 
 
•
 
costs associated with acquisitions and the integration of acquired companies;
 
 
•
 
costs associated with compliance with applicable environmental regulations or remediation;
 
 
•
 
costs associated with litigation, including without limitation, litigation or settlements relating to the use or ownership of intellectual property or the pending litigation against us and certain of our executive officers and directors alleging violations of federal securities laws and various state claims;
 
 
•
 
the ability of our customers to obtain components from their other suppliers;
 
 
•
 
general communications equipment industry and semiconductor industry conditions;
 
 
•
 
the effects of war or acts of terrorism, such as disruptions in general economic activity, changes in logistics and security arrangements, and reduced customer demand for our products and services; and
 
 
•
 
general economic conditions.
 
Our business, financial condition and operating results would be harmed if we do not achieve anticipated revenues.
 
We can have revenue shortfalls for a variety of reasons, including:
 
 
•
 
a decrease in demand for our customers’ products;
 
 
•
 
a stockpiling of our products by our customers resulting in a reduction in their order patterns as they work through the excess inventory of our products;

15
 
 
•
 
the reduction, rescheduling or cancellation of customer orders;
 
 
•
 
significant pricing pressures that occur because of declines in average selling prices over the life of a product;
 
 
•
 
sudden shortages of raw materials or production capacity constraints that lead our suppliers to allocate available supplies or capacity to customers with resources greater than us and, in turn, interrupt our ability to meet our production obligations;
 
 
•
 
delays in product availability; and
 
 
•
 
fabrication, test or assembly capacity constraints for devices which interrupt our ability to meet our production obligations.
 
Our business is characterized by short-term orders and shipment schedules. Customer orders typically can be canceled or rescheduled without significant penalty to the customer. Because we do not have substantial noncancellable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand which are highly unpredictable and can fluctuate substantially. Our revenues are increasingly derived from sales of application specific standard products, or ASSPs, as compared to application specific integrated circuits, or ASICs. Customer orders for ASSPs typically have shorter lead times than orders for ASICs, which makes it more difficult for us to predict revenues and inventory levels and adjust production appropriately. If we are unable to plan inventory and production levels effectively, our business, financial condition and operating results could be materially harmed.
 
From time to time, in response to anticipated long lead times to obtain inventory and materials from our outside suppliers and foundries, we may order materials in advance of anticipated customer demand. This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors render our customers’ products less marketable.
 
Our expense levels are relatively fixed and are based, in part, on our expectations of future revenues. We have limited ability to reduce expenses quickly in response to any revenue shortfalls.
 
The downturn in the communications equipment industry has negatively impacted our revenues and profitability.
 
We derive substantially all of our revenues from communications equipment manufacturers. The communications equipment industry, which is highly cyclical, is experiencing a significant downturn. This downturn has severely affected the demand for our products. We cannot predict how long this downturn will last. In addition, our need to continue investment in research and development during this downturn and to maintain extensive ongoing customer service and support capability, constrains our ability to reduce expenses.
 
Our business substantially depends upon the continued growth of the Internet.
 
A substantial portion of our business and revenue depends on the continued growth of the Internet. We sell our products primarily to communications equipment manufacturers that in turn sell their equipment to customers that depend on the growth of the Internet. As a result of the economic slowdown and the reduction in capital spending, spending on Internet infrastructure has declined. To the extent that the economic slowdown and reduction in capital spending continue to adversely affect spending on Internet infrastructure, our business, operating results, and financial condition will continue to be materially harmed.
 
Our customers are concentrated. The loss of one or more key customers or the diminished demand for our products from a key customer could significantly reduce our revenues and profits.
 
A relatively small number of customers have accounted for a significant portion of our revenues in any particular period. We have no long-term volume purchase commitments from any of our major customers. Many

16
of our key customers have announced dramatic declines in demand for their products into which our products are incorporated. As a result, new orders from their customers have been deferred, and customers may have overstocked our products. Continued reductions, delays and cancellation of orders from our significant customers or the loss of one or more key customers could significantly further reduce our revenues and profits. We cannot assure you that our current customers will continue to place orders with us, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.
 
Our ability to maintain or increase sales to key customers and attract new significant customers is subject to a variety of factors, including:
 
 
•
 
customers may stop incorporating our products into their own products with limited notice to us and may suffer little or no penalty;
 
 
•
 
customers or prospective customers may not incorporate our products in their future product designs;
 
 
•
 
design wins with customers may not result in sales to such customers;
 
 
•
 
the introduction of a customer’s new products may be late or less successful in the market than planned;
 
 
•
 
a customer’s product line using our products may rapidly decline or be phased out;
 
 
•
 
agreements with customers typically do not require them to purchase a minimum amount of our products;
 
 
•
 
many of our customers have pre-existing relationships with current or potential competitors that may cause them to switch from our products to competing products;
 
 
•
 
we may not be able to successfully develop relationships with additional network equipment vendors; and
 
 
•
 
our relationship with some of our larger customers may deter other potential customers (who compete with these customers) from buying our products.
 
Any one of the factors above could have a material adverse effect on our business, financial condition and results of operations.
 
An important part of our strategy is to continue our focus on the markets for high-speed communications ICs. If we are unable to expand our share of these markets further, our revenues may not grow and could decline.
 
Our markets frequently undergo transitions in which products rapidly incorporate new features and performance standards on an industry-wide basis. If our products are unable to support the new features or performance levels required by OEMs in these markets, we would be likely to lose business from an existing or potential customer and, moreover, would not have the opportunity to compete for new design wins until the next product transition occurs. If we fail to develop products with required features or performance standards, or if we experience a delay as short as a few months in bringing a new product to market, or if our customers fail to achieve market acceptance of their products, our revenues could be significantly reduced for a substantial period.
 
A significant portion of our revenues in recent periods has been, and is expected to continue to be, derived from sales of products based on SONET, SDH, ATM and DWDM transmission standards. If the communications market evolves to new standards, we may not be able to successfully design and manufacture new products that address the needs of our customers or gain substantial market acceptance. Although we have developed products for the Gigabit Ethernet and Fibre Channel communications standards, sales volumes of these products are modest, and we may not be successful in addressing the market opportunities for products based on these standards.
 
Customers for network processors generally have substantial technological capabilities and financial resources. They traditionally use these resources to internally develop the ASIC components and develop programs for the general-purpose processors utilized in our network processor products. Our future prospects are

17
dependent upon our customers’ acceptance of network processors as an alternative to ASIC components and general-purpose processors. Future prospects also are dependent upon acceptance of third-party sourcing for network processors as an alternative to in-house development. Network equipment vendors may in the future continue to use internally developed ASIC components and general-purpose processors. They also may decide to develop or acquire components, technologies or network processors that are similar to, or that may be substituted for, our network processor products.
 
If our network equipment vendor customers fail to accept network processors as an alternative, if they develop or acquire the technology to develop such components internally rather than purchase our network processor products, or if we are otherwise unable to develop strong relationships with network equipment vendors, our business, financial condition and results of operations would be materially and adversely affected.
 
Our industry is subject to consolidation.
 
There has been a trend toward industry consolidation among communications IC companies for several years. We expect this trend toward industry consolidation to continue as communications IC companies attempt to strengthen or hold their positions in evolving markets. Consolidation may result in stronger competitors, which in turn could have a material adverse effect on our business, operating results, and financial condition.
 
Our operating results are subject to fluctuations because we rely heavily on international sales.
 
International sales account for a significant part of our revenues and may account for an increasing portion of our future revenues. As a result, an increasing portion of our revenues may be subject to certain risks, including:
 
 
•
 
foreign currency exchange fluctuations;
 
 
•
 
changes in regulatory requirements;
 
 
•
 
tariffs and other barriers;
 
 
•
 
timing and availability of export licenses;
 
 
•
 
political and economic instability;
 
 
•
 
difficulties in accounts receivable collections;
 
 
•
 
difficulties in staffing and managing foreign subsidiary operations;
 
 
•
 
difficulties in managing distributors;
 
 
•
 
difficulties in obtaining governmental approvals for communications and other products;
 
 
•
 
the burden of complying with a wide variety of complex foreign laws and treaties; and
 
 
•
 
potentially adverse tax consequences.
 
We are subject to risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries. Because sales of our products have been denominated to date primarily in United States dollars, increases in the value of the United States dollar could increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales and profitability in that country. Future international activity may result in increased foreign currency denominated sales. Gains and losses on the conversion to United States dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in our results of operations. Some of our customer purchase orders and agreements are governed by foreign laws, which may differ significantly from United States laws. Therefore, we may be limited in our ability to enforce our rights under such agreements and to collect damages, if awarded.

18
 
Our markets are subject to rapid technological change, so our success depends heavily on our ability to develop and introduce new products.
 
The markets for our products are characterized by:
 
 
•
 
rapidly changing technologies;
 
 
•
 
evolving and competing industry standards;
 
 
•
 
short product life cycles;
 
 
•
 
changing customer needs;
 
 
•
 
emerging competition;
 
 
•
 
frequent new product introductions and enhancements;
 
 
•
 
increased integration with other functions; and
 
 
•
 
rapid product obsolescence.
 
To develop new products for the communications markets, we must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to develop technical and design expertise. In addition, we must have our products designed into our customers’ future products and maintain close working relationships with key customers in order to develop new products that meet customers’ changing needs. We must respond to changing industry standards, trends towards increased integration and other technological changes on a timely and cost-effective basis. If we fail to achieve design wins with key customers, our business will significantly suffer because once a customer has designed a supplier’s product into its system, the customer typically is extremely reluctant to change its supply source due to significant costs associated with qualifying a new supplier.
 
Products for communications applications are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by major systems manufacturers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins. We may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. Our pursuit of necessary technological advances may require substantial time and expense.
 
The markets in which we compete are highly competitive and subject to rapid technological change, price erosion and heightened international competition.
 
The communications IC markets are highly competitive and we expect that competition will increase in these markets. Our ability to compete successfully in our markets depends on a number of factors, including:
 
 
•
 
success in designing and subcontracting the manufacture of new products that implement new technologies;
 
 
•
 
product quality, reliability and performance;
 
 
•
 
customer support;
 
 
•
 
time-to-market;
 
 
•
 
price;
 
 
•
 
the efficiency of production;
 
 
•
 
design wins;

19
 
 
•
 
expansion of production of our products for particular systems manufacturers;
 
 
•
 
end-user acceptance of the systems manufacturers’ products;
 
 
•
 
market acceptance of competitors’ products; and
 
 
•
 
general economic conditions.
 
In addition, our competitors or customers may offer enhancements to our existing products or offer new products based on new technologies, industry standards or customer requirements including, but not limited to, all optical networking systems that are available to customers on a more timely basis than comparable products from us or that have the potential to replace or provide lower-cost or higher-performance alternatives to our products. The introduction of enhancements or new products by our competitors could render our existing and future products obsolete or unmarketable. We expect that certain of our competitors and other semiconductor companies may seek to develop and introduce products that integrate the functions performed by our IC products on a single chip, thus eliminating the need for our products.
 
In the communications markets, we compete primarily against companies such as Agere, Broadcom, Conexant, Infineon, Intel, Maxim, Multilink, PMC-Sierra, TriQuint and Vitesse. Some of these companies have significantly greater financial and other resources than us, and some of these companies use other process technologies, such as gallium arsenide, which may have certain advantages over technology we currently use. In certain circumstances, most notably with respect to ASICs supplied to Nortel, our customers or potential customers have internal IC manufacturing capabilities with which we compete.
 
Revenues that are currently derived from non-communications markets have been declining and we expect them to continue to decline in future periods.
 
We have derived significant revenues from product sales to customers in the ATE, high-speed computing and military markets and currently anticipate that we will continue to derive revenues from sales to customers in these markets in the near term. We are not currently funding product development efforts in these markets, and revenues from products in these markets have been declining and we expect them to continue to decline in future periods. The market for ATE and high-speed computing IC products is subject to extreme price competition, and we may not be able to reduce the costs of manufacturing high-speed computing IC products in response to declining average selling prices.
 
We expect that certain competitors will seek to develop and introduce products that integrate the functions performed by our ATE and high-speed computing IC products on single chips. One or more of our customers may choose to utilize discrete components to perform the functions served by our high-speed computing IC products or may use their own design and fabrication facilities to create a similar product. In either case, the need for ATE and high-speed computing customers to purchase our IC products could be eliminated.
 
Our future success depends in part on the continued service of our key design engineering, sales, marketing, manufacturing and executive personnel and our ability to identify, hire and retain additional personnel.
 
There is intense competition for qualified personnel in the semiconductor industry, in particular design engineers, and we may not be able to continue to attract and train engineers or other qualified personnel necessary for the development of our business or to replace engineers or other qualified personnel who may leave our employ in the future. Periods of contraction in our business may inhibit our ability to attract and retain our personnel. Loss of the services of, or failure to recruit, key design engineers or other technical and management personnel could be significantly detrimental to our product and process development programs.
 
In November 2001, we implemented a stock option exchange program. The sole purpose of the program was to improve our ability to retain and motivate employees, officers and board members. We cannot be certain that the program will result in increased retention of employees or board members.

20
 
To manage operations effectively, we will be required to continue to improve our operational, financial and management systems and to successfully hire, train, motivate and manage our employees. The integration of past and future potential acquisitions will require significant additional management, technical and administrative resources. We cannot be certain that we will be able to manage our expanded operations effectively.
 
A disruption in the manufacturing capabilities of our outside foundries would negatively impact the production of certain of our products.
 
We rely on outside foundries for the manufacture of the majority of our products, including all of our products designed on complementary metal oxide semiconductor, or CMOS, and silicon germanium, or SiGe, processes. These outside foundries manufacture our products on a purchase order basis. A majority of our products are only qualified for production at a single foundry. These suppliers can allocate, and in the past have allocated, capacity to the production of other companies’ products while reducing deliveries to us on a short notice. Because establishing relationships and ramping production with new outside foundries may take over a year, there is no readily available alternative source of supply for these products. A manufacturing disruption experienced by one or more of our outside foundries or a disruption of our relationship with an outside foundry would negatively impact the production of certain of our products for a substantial period of time. The transition to the next generation of manufacturing technologies at one or more of our outside foundries could be unsuccessful or delayed.
 
Our operating results depend on manufacturing output and yields, which may not meet expectations.
 
We manufacture a portion of our ICs at our San Diego manufacturing facilities. Because the majority of our costs of manufacturing are relatively fixed, downturns in the volumes manufactured by our internal process such as wafer fabrication and test and assembly will result in substantially higher unit costs and may result in reduced gross profit and net income. The current downturn had a significant impact on our gross margin in the first three quarters of fiscal 2002.
 
Manufacturing ICs requires manufacturing tools which are unique to each product being produced. If one of these unique manufacturing tools was damaged or destroyed, then our ability to manufacture the related product would be impaired and our business would suffer until the tools were repaired or replaced.
 
Our yields decline whenever a substantial percentage of wafers must be rejected or a significant number of die on each wafer are nonfunctional. Such declines can be caused by many factors, including minute levels of contaminants in the manufacturing environment, design issues, defects in masks used to print circuits on a wafer and difficulties in the fabrication process. Design iterations and process changes by our suppliers can cause a risk of contamination. Many of these problems are difficult to diagnose, and are time consuming and expensive to remedy and can result in shipment delays.
 
We estimate yields per wafer in order to estimate the value of inventory. If yields are materially different than projected, work-in-process inventory may need to be revalued. We have in the past, and may in the future from time to time, take inventory write-downs as a result of decreases in manufacturing yields. We may suffer periodic yield problems in connection with new or existing products or in connection with the commencement of production at a new or expanded manufacturing facility.
 
In addition, our manufacturing output or yields may decline as a result of power outages, supply shortages, accidents, natural disasters or other disruptions to the manufacturing process.
 
Due to an industry transition to six-inch, eight-inch and twelve-inch wafer fabrication facilities, there is a limited number of suppliers of the four-inch wafers that we use to build products in our existing manufacturing facility, and we rely on a single supplier for these wafers. Although we believe that we will have sufficient access to four-inch wafers to support production in our existing fabrication facility for the foreseeable future, we cannot

21
be certain that our current supplier will continue to supply us with four-inch wafers on a long-term basis. The availability of manufacturing equipment needed for a four-inch process is limited, and certain new equipment required for more advanced processes may not be available for a four-inch process.
 
Our dependence on third-party manufacturing and supply relationships increases the risk that we will not have an adequate supply of products to meet demand or that our cost of materials will be higher than expected.
 
The risks associated with our dependence upon third parties which manufacture, assemble or package certain of our products, include:
 
 
•
 
reduced control over delivery schedules and quality;
 
 
•
 
risks of inadequate manufacturing yields and excessive costs;
 
 
•
 
difficulties selecting and integrating new subcontractors;
 
 
•
 
the potential lack of adequate capacity during periods of excess demand;
 
 
•
 
limited warranties on products supplied to us;
 
 
•
 
potential increases in prices; and
 
 
•
 
potential misappropriation of our intellectual property.
 
Difficulties associated with adapting our technology and product design to the proprietary process technology and design rules of outside foundries can lead to reduced yields. The process technology of an outside foundry is typically proprietary to the manufacturer. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. As a result, yield problems may not be identified until well into the production process, and resolution of yield problems may require cooperation between ourselves and our manufacturer. This risk could be compounded by the offshore location of certain of our manufacturers, increasing the effort and time required to identify, communicate and resolve manufacturing yield problems. Manufacturing defects that we do not discover during the manufacturing or testing process may lead to costly product recalls. These risks may lead to increased costs or delay product delivery, which would harm our profitability and customer relationships.
 
If the subcontractors we use to manufacture our products discontinue the manufacturing processes needed to meet our demands, or fail to upgrade their technologies needed to manufacture our products, we may face production delays.
 
Our requirements typically represent a very small portion of the total production of the third-party foundries. As a result, we are subject to the risk that a producer will cease production on an older or lower-volume process that it uses to produce our parts. We cannot be certain our external foundries will continue to devote resources to the production of our products or continue to advance the process design technologies on which the manufacturing of our products are based. Each of these events could increase our costs and materially impact our ability to deliver our products on time. In addition, a significant natural disaster or other catastrophic event, such as war or acts of terrorism, could have a material adverse impact on our business, financial condition and operating results.
 
We must develop or otherwise gain access to improved process technologies.
 
Our future success will depend upon our ability to continue to improve existing process technologies, to develop or acquire new process technologies including SiGe processes, and to adapt our process technologies to emerging industry standards. In the future, we may be required to transition one or more of our products to process technologies with smaller geometries, other materials or higher speeds in order to reduce costs and/or

22
improve product performance. We may not be able to improve our process technologies and develop or otherwise gain access to new process technologies, including both SiGe and CMOS process technologies, in a timely or affordable manner. In addition, products based on these technologies may not achieve market acceptance.
 
The complexity of our products frequently leads to errors, defects and bugs when they are first introduced, which could negatively impact our reputation with customers.
 
Products as complex as ours frequently contain errors, defects and bugs when first introduced or as new versions are released. Our products have in the past experienced such errors, defects and bugs. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of the products. This, in turn, could damage our reputation and adversely affect our ability to retain existing customers and to attract new customers. Errors, defects or bugs could cause problems, interruptions, delays or cessation of sales to our customers.
 
We may be required to make significant expenditures of capital and resources to resolve such problems. There can be no assurance that problems will not be found in new products after commencement of commercial production, despite testing by us, our suppliers or our customers. This could result in:
 
 
•
 
additional development costs;
 
 
•
 
loss of, or delays in, market acceptance;
 
 
•
 
diversion of technical and other resources from our other development efforts;
 
 
•
 
claims by our customers or others against us; and
 
 
•
 
loss of credibility with our current and prospective customers.
 
Any such event could have a material adverse effect on our business, financial condition and results of operations.
 
Our ability to manufacture a sufficient number of products to meet demand could be severely hampered by a shortage of water, electricity or other supplies, or by natural disasters or other catastrophes.
 
We use significant amounts of water throughout our manufacturing process. Previous droughts in California have resulted in restrictions being placed on water use by manufacturers and residents in California. In the event of future drought, reductions in water use may be mandated generally, and it is unclear how such reductions will be allocated among California’s different users.
 
California has experienced shortages in the available power supply. We equipped our internal manufacturing facilities with generators to minimize disruption in case of a power outage. Power outages at vendors we rely on could have material adverse consequences to our ability to meet demand, and thus our results of operations. Power outages at our customers may adversely affect their demand for our products.
 
Our internal manufacturing facilities are located in San Diego, California which is subject to natural disasters such as earthquakes or floods. We do not have earthquake insurance for these facilities, because adequate coverage is not offered at economically justifiable rates. A significant natural disaster or other catastrophic event, such as war or acts of terrorism, could have a material adverse impact on our business, financial condition and operating results.
 
In addition, the effects of war or acts of terrorism could have a material adverse effect on our business, operating results and financial condition. The recent terrorist attacks in New York and Washington, D.C. on September 11, 2001 disrupted commerce throughout the world and intensified the uncertainty of the U.S. economy and other economies around the world. The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to these

23
economies and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders, or the manufacture or shipment of our products, our business, operating results and financial condition could be materially an adversely affected.
 
We could incur substantial fines or litigation costs associated with our storage, use and disposal of hazardous materials.
 
We are subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. Any failure to comply with present or future regulations could result in the imposition of fines, the suspension of production or a cessation of operations. These regulations could restrict our ability to expand our facilities at the present location or construct or operate new facilities or could require us to acquire costly equipment or incur other significant expenses to comply with environmental regulations or clean up prior discharges. Since 1993, we have been named as a potentially responsible party, along with a large number of other companies that used Omega Chemical Corporation in Whittier, California to handle and dispose of certain hazardous waste material. We are a member of a large group of potentially responsible parties that has agreed to fund certain remediation efforts at the Omega site, which efforts are ongoing. To date, our payment obligations with respect to these funding efforts have not been material, and we believe that our future obligations to fund these efforts will not have a material adverse effect on our business, financial condition or operating results. Although we believe that we are currently in material compliance with applicable environmental laws and regulations, we cannot assure you that we are or will be in material compliance with these laws or regulations or that our future obligations to fund any remediation efforts, including those at the Omega site, will not have a material adverse effect on our business.
 
We have in the past and may in the future make acquisitions that will involve numerous risks. We may not be able to address these risks successfully without substantial expense, delay or other operational or financial problems.
 
The risks involved with acquisitions include:
 
 
•
 
diversion of management’s attention;
 
 
•
 
failure to retain key personnel;
 
 
•
 
difficulty in completing an acquired company’s in-process research or development projects;
 
 
•
 
amortization of acquired intangible assets and deferred compensation;
 
 
•
 
client dissatisfaction or performance problems with an acquired company’s products or services;
 
 
•
 
the cost associated with acquisitions and the integration of acquired operations;
 
 
•
 
ability of the acquired companies to meet their financial projections; and
 
 
•
 
assumption of unknown liabilities, or other unanticipated events or circumstances.
 
As with past purchase acquisitions, future acquisitions could adversely affect operating results. In particular, if we were to acquire a company or assets and record the acquisition as a purchase, we may capitalize a significant amount of purchased intangibles. These assets would be amortized over their expected period of benefit. The resulting amortization expense could seriously impact operating results for many years. We are required to periodically review the carrying value of our purchased intangible assets for impairment. In the first quarter of fiscal 2002, we recorded a $3.1 billion charge to write down the value of acquired intangible assets, the value of which had become impaired. There can be no assurance that we will not be required to take additional significant one-time charges as a result of an impairment to the carrying value of these and other intangible assets.
 
Any of these risks could materially harm our business, financial condition and results of operations. Any business that we acquire may not achieve anticipated revenues or operating results.

24
 
We have been named as a defendant in recently initiated securities class action litigation that could result in substantial costs and divert management’s attention and resources.
 
We are aware of several lawsuits in which we, our chief executive officer, chief financial officer and certain of our other executive officers and directors, have been sued for alleged violations of federal securities laws related to alleged misrepresentations regarding our financial prospects for the fourth quarter of fiscal 2001. We believe that the claims being brought against us, our officers and directors are without merit, and we intend to engage in a vigorous defense of such claims. If we are not successful in our defense of such claims, we could be forced to make significant payments to our stockholders and their lawyers, and such payments could have a material adverse effect on our business, financial condition and results of operations if not covered by our insurance carriers. Even if such claims are not successful, the litigation could result in substantial costs and divert management’s attention and resources, which could have an adverse effect on our business.
 
We may not be able to protect our intellectual property adequately.
 
We rely in part on patents to protect our intellectual property. We cannot assure you that our pending patent applications or any future applications will be approved, or that any issued patents will provide us with competitive advantages or will not be challenged by third parties, or that if challenged, will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on our ability to do business. Furthermore, others may independently develop similar products or processes, duplicate our products or processes or design around any patents that may be issued to us.
 
To protect our intellectual property, we also rely on the combination of mask work protection under the Federal Semiconductor Chip Protection Act of 1984, trademarks, copyrights, trade secret laws, employee and third-party nondisclosure agreements and licensing arrangements. Despite these efforts, we cannot be certain that others will not independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property, or disclose such intellectual property or trade secrets, or that we can meaningfully protect our intellectual property.
 
We could be harmed by litigation involving patents and proprietary rights.
 
Litigation may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or misappropriation. The semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. Such litigation could result in substantial costs and diversion of resources, including the attention of our management and technical personnel and could have a material adverse effect on our business, financial condition and results of operations. We may be accused of infringing the intellectual property rights of third parties. We have certain indemnification obligations to customers with respect to the infringement of third-party intellectual property rights by our products. We cannot be certain that infringement claims by third parties or claims for indemnification by customers or end users resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not harm our business.
 
Any litigation relating to the intellectual property rights of third parties, whether or not determined in our favor or settled by us, would at a minimum be costly and could divert the efforts and attention of our management and technical personnel. In the event of any adverse ruling in any such litigation, we could be required to pay substantial damages, cease the manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license under the intellectual property rights of the third party claiming infringement. A license might not be available on reasonable terms, or at all.
 
We cannot predict the impact of recent SEC actions and comments.
 
The Securities and Exchange Commission has been reviewing companies’ valuation methodologies for acquired in-process research and development. We believe that we are in compliance with the existing SEC rules

25
related to acquired in-process research and development in connection with our acquisitions. The SEC may change these rules or issue new guidance applicable to our business. We cannot assure you that the SEC will not seek to reduce the amount of in-process research and development previously expensed by us. This could result in the restatement of our previously filed financial statements and have a material adverse effect on our operating results and financial condition for periods after the acquisitions.
 
Our stock price is volatile.
 
The market price of our common stock has fluctuated significantly. In the future, the market price of our common stock could be subject to significant fluctuations due to general economic and market conditions and in response to quarter-to-quarter variations in:
 
 
•
 
our anticipated or actual operating results;
 
 
•
 
announcements or introductions of new products;
 
 
•
 
technological innovations or setbacks by us or our competitors;
 
 
•
 
conditions in the semiconductor, telecommunications, data communications or high-speed computing markets;
 
 
•
 
the commencement of litigation;
 
 
•
 
changes in estimates of our performance by securities analysts;
 
 
•
 
announcements of merger or acquisition transactions; and
 
 
•
 
other events or factors.
 
In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, particularly semiconductor companies, and that have often been unrelated or disproportionate to the operating performance of those companies. These fluctuations may harm the market price of our common stock.
 
The anti-takeover provisions of our certificate of incorporation and of the Delaware general corporation law may delay, defer or prevent a change of control.
 
Our board of directors has the authority to issue up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock. The issuance of preferred stock could have a dilutive effect on our stockholders.
 
If we issue additional shares of stock in the future, it may have a dilutive effect on our stockholders.
 
We have a significant number of authorized and unissued shares of our common stock available. These shares will provide us with the flexibility to issue our common stock for proper corporate purposes, which may include making acquisitions through the use of stock, adopting additional equity incentive plans and raising equity capital. Any subsequent issuance of our common stock may result in immediate dilution of our then current stockholders.

26
 
ITEM 3.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange, interest rates and a decline in the stock market. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We are exposed to market risks related to changes in interest rates and foreign currency exchange rates.
 
At December 31, 2001, our investment portfolio included fixed-income securities of $987.4 million. These securities are subject to interest rate risk and will decline in value if interest rates increase. Because the average maturity date of the investment portfolio is relatively short, an immediate 100 basis point increase in interest rates would have no material impact on our financial condition or results of operations.
 
We invest in equity instruments of private companies for business and strategic purposes, most of which are communications companies, specifically IC, software and high-end device. These investments are classified as long-term strategic equity and convertible debt investments and are valued based on prices recently paid, or expected to be paid, for the securities. In the nine months ended December 31, 2001, we recognized a charge of $15 million attributable to the impairment of certain of these investments. The estimated fair values are not necessarily representative of the amounts that the Company could realize in a current transaction.
 
We generally conduct business, including sales to foreign customers, in U.S. dollars and as a result, have limited foreign currency exchange rate risk. The effect of an immediate 10 percent change in foreign exchange rates would not have a material impact on our financial condition or results of operations.

27
 
PART II.    OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS
 
Starting in April 2001, a series of similar federal complaints were filed against the Company and its chief executive officer, chief financial officer and certain other officers and directors of the Company. These complaints allege essentially identical violations of the Securities Exchange Act of 1934 (the “1934 Act”). The complaints have been brought as purported shareholder class actions under Sections 10(b) and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder and seek unspecified monetary damages on behalf of the shareholder class. In general, the complaints allege that the Company and the individual defendants misrepresented the Company’s financial prospects for the fourth quarter of fiscal 2001 to inflate the value of the Company’s stock. The complaints have been consolidated into a single proceeding in the United States District Court for the Southern District of California (the “Federal Action”). An amended consolidated complaint is scheduled to be filed in the fourth fiscal quarter of fiscal 2002. The Company intends to file several motions seeking a dismissal of the Federal Action on various grounds. A briefing and hearing schedule has been set for these motions, which the Company expects will be heard and decided in the first or second quarter of fiscal 2003.
 
In May 2001, certain individuals filed derivative actions against the directors and certain executive officers in the California state courts. These state court derivative complaints allege overstatement of the financial prospects of the Company, mismanagement, inflation of stock value, and sale of stock at inflated prices for personal gain during the period from November 7, 2000 until February 5, 2001. The three state court derivative actions have been consolidated and assigned to the San Diego Superior Court (the “State Action”) and a consolidated derivative complaint was filed in December 2001. The Company has filed several motions seeking a dismissal of the State Action on various grounds. In the alternative, the Company is also seeking to stay the State Action pending resolution of the Federal Action. A hearing and decision on the Company’s motions is expected to occur in the fourth quarter of fiscal 2002.
 
No discovery has been conducted in either the Federal Action or the State Action. The Company believes that the allegations in these actions are without merit and intends to defend the actions vigorously. The Company cannot predict the likely outcome of these actions, and an adverse result in either action could have a materially adverse effect on the Company. The actions have been tendered to the Company’s insurance carriers.
 
In addition, from time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this Annual Report on Form 10-K, except as described herein, the Company is not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on its business, financial condition or operating results.
 
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K
 
(a)  Exhibits
 
 
3.2
 
Amended and Restated Bylaws of the Company.
 
(b)  Reports on Form 8-K
 
The Company did not file any current reports on Form 8-K with the Commission during the quarter ended December 31, 2001.
 
*
 
Naiditch v. Applied Micro Circuits Corporation, et al., case number 01-CV-0649 K (AJB), pending in the United States District Court for the Southern District of California; Congregation Givate v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0675 K (AJB), pending in United States District Court for the Southern District of California; Harris v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0675 K (AJB), pending in United States District Court for the Southern District of California; Shapiro v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0743 IEG (RBB), pending in the United States District Court for the Southern District of California; Kucera v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0772K (JAH), pending in United States District Court for the Southern District of California; Fairland Management v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0798 IEG (CGA), pending in United States District Court for the Southern District of California; Hsu & Graef v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0799 B (CGA), pending in United States District Court for the Southern District of California; Scofield v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0804 IEG (LAB), pending in United States District Court for the Southern District of California; Reed v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0808 TW (JAH), pending in United States District Court for the Southern District of California; and Kregal v. Applied Micro Circuits Corporation, et al., case no. 01-CV 1034 BTM (JAH).

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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.
 
Date:  January 23, 2002
 
 
AP
PLIED MICRO CIRCUITS CORPORATION
 
 
By
:                  /s/    WILLIAM BENDUSH                      
 
            William Bendush  
Senior Vice President and Chief Financial Officer
(Duly Authorized Signatory and Principal Financial
and Accounting Officer)

29
EX-3.2 3 dex32.txt AMENDED BYLAWS OF THE COMPANY EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF APPLIED MICRO CIRCUITS CORPORATION Table of Contents
Page ARTICLE 1 CORPORATE OFFICES................................................................. 1 1.1 REGISTERED OFFICE.................................................................... 1 1.2 OTHER OFFICES........................................................................ 1 ARTICLE 2 MEETINGS OF STOCKHOLDERS.......................................................... 1 2.1 PLACE OF MEETINGS.................................................................... 1 2.2 ANNUAL MEETING....................................................................... 1 2.4 NOTICE OF STOCKHOLDERS' MEETINGS; AFFIDAVIT OF NOTICE................................ 1 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES............................................... 2 2.6 QUORUM............................................................................... 4 2.7 ADJOURNED MEETING; NOTICE............................................................ 4 2.8 CONDUCT OF BUSINESS.................................................................. 4 2.9 VOTING............................................................................... 4 2.10 WAIVER OF NOTICE..................................................................... 4 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING........................................... 5 2.12 PROXIES.............................................................................. 5 2.13 RECORD DATE FOR ACTION BY WRITTEN CONSENT............................................ 5 2.14 INSPECTORS OF WRITTEN CONSENTS....................................................... 6 2.15 EFFECTIVENESS OF WRITTEN CONSENTS.................................................... 6 ARTICLE 3 DIRECTORS......................................................................... 6 3.1 POWERS............................................................................... 6 3.2 NUMBER OF DIRECTORS.................................................................. 7 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.............................. 7 3.4 RESIGNATION AND VACANCIES............................................................ 7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................................. 8 3.6 REGULAR MEETINGS..................................................................... 8 3.7 SPECIAL MEETINGS; NOTICE............................................................. 8 3.8 QUORUM............................................................................... 8 3.9 WAIVER OF NOTICE..................................................................... 9 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................................... 9
i Table of Contents (CONTINUED)
Page 3.11 FEES AND COMPENSATION OF DIRECTORS...................................................9 3.12 APPROVAL OF LOANS TO OFFICERS........................................................9 3.13 REMOVAL OF DIRECTORS.................................................................9 3.14 CHAIRMAN OF THE BOARD OF DIRECTORS..................................................10 ARTICLE 4 COMMITTEES....................................................................10 4.1 COMMITTEES OF DIRECTORS.............................................................10 4.2 COMMITTEE MINUTES...................................................................10 4.3 MEETINGS AND ACTION OF COMMITTEES...................................................10 ARTICLE 5 OFFICERS......................................................................11 5.1 OFFICERS............................................................................11 5.2 APPOINTMENT OF OFFICERS.............................................................11 5.3 SUBORDINATE OFFICERS................................................................11 5.4 REMOVAL AND RESIGNATION OF OFFICERS.................................................11 5.5 VACANCIES IN OFFICES................................................................12 5.6 CHIEF EXECUTIVE OFFICER.............................................................12 5.7 PRESIDENT...........................................................................12 5.8 VICE PRESIDENTS.....................................................................12 5.9 SECRETARY...........................................................................12 5.10 CHIEF FINANCIAL OFFICER.............................................................13 5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS......................................13 5.12 AUTHORITY AND DUTIES OF OFFICERS....................................................13 ARTICLE 6 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS...........13 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................................13 6.2 INDEMNIFICATION OF OTHERS...........................................................13 6.3 PAYMENT OF EXPENSES IN ADVANCE......................................................14 6.4 INDEMNITY NOT EXCLUSIVE.............................................................14 6.5 INSURANCE...........................................................................14 6.6 CONFLICTS...........................................................................14
ii. Table Of Contents (CONTINUED)
Page ARTICLE 7 RECORDS AND REPORTS............................................................. 15 7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................... 15 7.2 INSPECTION BY DIRECTORS............................................................. 15 7.3 ANNUAL STATEMENT TO STOCKHOLDERS.................................................... 15 ARTICLE 8 GENERAL MATTERS................................................................. 15 8.1 CHECKS.............................................................................. 15 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.................................... 15 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.............................................. 16 8.4 SPECIAL DESIGNATION ON CERTIFICATES................................................. 16 8.5 LOST CERTIFICATES................................................................... 17 8.6 CONSTRUCTION; DEFINITIONS........................................................... 17 8.7 DIVIDENDS........................................................................... 17 8.8 FISCAL YEAR......................................................................... 17 8.9 SEAL................................................................................ 17 8.10 TRANSFER OF STOCK................................................................... 17 8.11 STOCK TRANSFER AGREEMENTS........................................................... 17 8.12 REGISTERED STOCKHOLDERS............................................................. 17 ARTICLE 9 AMENDMENTS...................................................................... 18
iii. AMENDED AND RESTATED BYLAWS OF APPLIED MICRO CIRCUITS CORPORATION ARTICLE 1 CORPORATE OFFICES 1.1 REGISTERED OFFICE. The registered office of the corporation shall be in the City of Dover, County of Kent, State of Delaware. The name of the registered agent of the corporation at such location is Incorporating Services Limited. 1.2 OTHER OFFICES. The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE 2 MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETING. The annual meeting of stockholders shall be held on such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETING. A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board or the president. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS; AFFIDAVIT OF NOTICE. All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with this Section 2.4 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting (or such longer or shorter time as is required by Section 2.5 of these Bylaws, if applicable). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 1 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES. (a) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 2.5. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of Section 2.5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the General Corporation Law of Delaware (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this Section 2.5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 2.5. 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 ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. 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 proposed 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 in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the 2. business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice"). (c) Notwithstanding anything in the second sentence of Section 2.5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 2.5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation. (d) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded. (e) Notwithstanding the foregoing provisions of this Section 2.5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders' meeting, stockholders must provide notice as required by the regulations promulgated under the Securities Exchange Act of 1934, as amended. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended. (f) For purposes of this Section 2.5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the 3. Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. 2.6 QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 CONDUCT OF BUSINESS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. 2.9 VOTING. (a) The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). (b) Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed 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 a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be 4. specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date: (a) 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. (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 2.12 PROXIES. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.13 RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, 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 date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the Board of Directors pursuant to the first sentence of this Section 2.13). If no record date has been fixed by the Board of Directors pursuant to the first sentence of this Section 5. 2.13 or otherwise within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal executive office, or to any officer or agent of the corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. 2.14 INSPECTORS OF WRITTEN CONSENTS. In the event of the delivery, in the manner provided by Section 2.13, to the corporation of the requisite written consents to take corporate action and/or any related revocation or revocations, the corporation shall engage independent inspectors of elections for the purpose of performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the corporation that the consents delivered to the corporation in accordance with Section 2.13 represent at least the minimum number of votes that would be necessary to take the corporate action under applicable law, the Certificate of Incorporation and these Bylaws. Nothing contained in this Section 2.14 shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). 2.15 EFFECTIVENESS OF WRITTEN CONSENTS. Every written consent shall bear that date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated written consent received in accordance with Section 2.13, a written consent or consents signed by a sufficient number of holders to take such action, under applicable law, the Certificate of Incorporation and these Bylaws, are delivered to the corporation in the manner prescribed in Section 2.13. ARTICLE 3 DIRECTORS 3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 6. 3.2 NUMBER OF DIRECTORS. Upon the adoption of these Bylaws, the number of directors constituting the entire Board of Directors shall be six. Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these Bylaws: (a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or 7. stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. 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 any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM. At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 8. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed 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 a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. 3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3.12 APPROVAL OF LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. 9. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.14 CHAIRMAN OF THE BOARD OF DIRECTORS. The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation. ARTICLE 4 COMMITTEES 4.1 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, with 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 thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board 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 or in the Bylaws of the corporation, 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 that may require it; but no such committee shall have the power or authority to (a) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (b) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (d) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (e) amend the Bylaws of the corporation; and, unless the board resolution establishing the committee, the Bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), 10. Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE 5 OFFICERS 5.1 OFFICERS. The officers of the corporation shall be a chief executive officer, a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the attention of the Secretary of the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 11. 5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. 5.6 CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS. In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board. 5.9 SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 12. 5.10 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. 5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. 5.12 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders. ARTICLE 6 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who 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, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, 13. to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation 6.5 INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. 6.6 CONFLICTS. No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. 14. ARTICLE 7 RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. ARTICLE 8 GENERAL MATTERS 8.1 CHECKS. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer 15. or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 16. 8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS. The directors of the corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.9 SEAL. The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS. The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the 17. person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE 9 AMENDMENTS The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. 18. -----END PRIVACY-ENHANCED MESSAGE-----