-----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, L6ZkwB0pzYvqwHRyd3nEx6S3PxfcszDRwhiLU45OcxZw8tqcIxaOJugeOUeCGu65 fL8wbTx433ebpWlICJ3M/g== 0001012870-02-003450.txt : 20020814 0001012870-02-003450.hdr.sgml : 20020814 20020813213204 ACCESSION NUMBER: 0001012870-02-003450 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA MICRO DEVICES CORP CENTRAL INDEX KEY: 0000800460 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 942672609 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15449 FILM NUMBER: 02731518 BUSINESS ADDRESS: STREET 1: 215 TOPAZ ST CITY: MILPITAS STATE: CA ZIP: 95035-5430 BUSINESS PHONE: 4082633214 MAIL ADDRESS: STREET 1: 215 TOPAZ STREET STREET 2: 215 TOPAZ STREET CITY: MILPITAS STATE: CA ZIP: 95035-5430 10-Q 1 d10q.htm FORM 10-Q Prepared by R.R. Donnelley Financial -- Form 10-Q
Table of Contents
 
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
 
x
 
Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
    
 
For the Period Ended June 30, 2002
 
or
 
¨
 
Transition Report Pursuant To Section 10 Or 15(d) Of The Securities Exchange Act Of 1934
    
 
For The Transition Period From                      To                     
 
Commission File Number 0-15449
 
 
CALIFORNIA MICRO DEVICES CORPORATION
(Exact name of registrant as specified in its charter)
 
California
  
94-2672609
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
430 N. McCarthy Blvd. Milpitas, California
  
95035
(Address of principal executive offices)
  
(Zip Code)
 
(408) 263-3214
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name, former address, and former fiscal year if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    X      No          
 
Applicable Only to Corporate Issuers
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
The number of shares of the registrant’s Common Stock outstanding as of July 31, 2002 was 14,166,434.
 

Table of Contents
CALIFORNIA MICRO DEVICES CORPORATION
 
INDEX
 
PART I.    FINANCIAL INFORMATION
 
         
Page Number
Item 1.
   
Condensed Financial Statements
     
       
  3
       
  4
       
  5
       
  6
Item 2.
      
11
Item 3.
      
15
PART II.    OTHER INFORMATION
Item 1.
      
17
Item 2.
      
17
Item 6.
      
18
  
19

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ITEM 1.    Financial Statements.
 
CALIFORNIA MICRO DEVICES CORPORATION
 
CONDENSED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(Unaudited)
 
    
Three Months Ended
June 30,
  
    
2002
     
2001
  
Net sales
   
$
9,368
 
   
$
6,105
 
Costs and expenses:
                  
Cost of sales
   
 
8,148
 
   
 
6,658
 
Research and development
   
 
882
 
   
 
898
 
Selling, general and administrative
   
 
2,660
 
   
 
2,714
 
    
  
Total costs and expenses
   
 
11,690
 
   
 
10,270
 
    
  
Operating income (loss)
   
 
(2,322
)
   
 
(4,165
)
Other expense, net
   
 
241
 
   
 
126
 
    
  
Income (loss) before income taxes
   
 
(2,563
)
   
 
(4,291
)
Income taxes
   
 
—  
 
   
 
—  
 
    
  
Net income (loss)
   
$
(2,563
)
   
$
(4,291
)
    
  
Net loss per share—  basic and diluted
   
$
(0.18
)
   
$
(0.37
)
    
  
Weighted average common shares outstanding—  basic and diluted
   
 
13,927
 
   
 
11,474
 
    
  
 
The accompanying notes are an integral part of these financial statements.

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CALIFORNIA MICRO DEVICES CORPORATION
 
CONDENSED BALANCE SHEETS
(amounts in thousands, except share data)
 
    
June 30,
2002
     
March 31,
2002*
  
    
(unaudited)
         
ASSETS:
                  
Current assets:
                  
Cash, cash equivalents and short-term investments
   
$
4,206
 
   
$
7,240
 
Accounts receivable, net
   
 
5,288
 
   
 
4,561
 
Inventories
   
 
3,380
 
   
 
2,784
 
Prepaids and other current assets
   
 
753
 
   
 
679
 
    
  
Total current assets
   
 
13,627
 
   
 
15,264
 
Property, plant and equipment, net
   
 
10,550
 
   
 
10,853
 
Restricted cash
   
 
1,105
 
   
 
888
 
Other long-term assets
   
 
1,147
 
   
 
1,232
 
    
  
Total assets
   
$
26,429
 
   
$
28,237
 
    
  
LIABILITIES & SHAREHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
5,551
 
   
$
5,085
 
Accrued liabilities
   
 
3,380
 
   
 
4,345
 
Deferred margin on sales to distributors
   
 
1,339
 
   
 
1,193
 
Current maturities of long-term debt and capital lease obligations
   
 
1,156
 
   
 
2,256
 
    
  
Total current liabilities
   
 
11,426
 
   
 
12,879
 
Long-term debt and capital lease obligations, less current maturities
   
 
8,478
 
   
 
7,069
 
Other long-term liabilities
   
 
321
 
   
 
509
 
    
  
Total liabilities
   
 
20,225
 
   
 
20,457
 
    
  
Shareholders’ equity:
                  
Common stock
   
 
68,721
 
   
 
67,732
 
Accumulated other comprehensive income (loss)
   
 
—  
 
   
 
2
 
Accumulated deficit
   
 
(62,517
)
   
 
(59,954
)
    
  
Total shareholders’ equity
   
 
6,204
 
   
 
7,780
 
    
  
Total liabilities and shareholders’ equity
   
$
26,429
 
   
$
28,237
 
    
  
*
 
Derived from audited financial statements.
 
The accompanying notes are an integral part of these financial statements.

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CALIFORNIA MICRO DEVICES CORPORATION
 
CONDENSED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(Unaudited)
 
    
Three Months Ended
June 30,
  
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net (loss)
   
$
(2,563
)
   
$
(4,291
)
Adjustments to reconcile net loss to net cash used in operating activities:
                  
Depreciation and amortization
   
 
707
 
   
 
812
 
Stock based compensation
   
 
72
 
   
 
—  
 
Gain on the sale of fixed assets
   
 
(3
)
   
 
—  
 
Changes in assets and liabilities:
                  
Accounts receivable
   
 
(727
)
   
 
3,503
 
Inventories
   
 
(596
)
   
 
843
 
Prepaid expenses and other current assets
   
 
(74
)
   
 
136
 
Accounts payable and other current liabilities
   
 
(201
)
   
 
(1,060
)
Other long term assets
   
 
81
 
   
 
—  
 
Other long term liabilities
   
 
(188
)
   
 
—  
 
Deferred margin on distributor sales
   
 
146
 
   
 
12
 
    
  
Net cash used in operating activities
   
 
(3,346
)
   
 
(45
)
    
  
Cash flows from investing activities:
                  
Purchases of short-term investments
   
 
—  
 
   
 
(2,661
)
Sales of short-term investments
   
 
—  
 
   
 
3,612
 
Capital expenditures
   
 
(683
)
   
 
(486
)
Net change in restricted cash
   
 
(217
)
   
 
(214
)
    
  
Net cash (used in) provided by investing activities
   
 
(900
)
   
 
251
 
    
  
Cash flows from financing activities:
                  
Repayments of capital lease obligations
   
 
—  
 
   
 
(160
)
Repayments of long-term debt
   
 
(1,895
)
   
 
(356
)
Borrowings of long-term debt
   
 
2,190
 
   
 
—  
 
Proceeds from issuance of common stock
   
 
917
 
   
 
107
 
    
  
Net cash provided by (used in) financing activities
   
 
1,212
 
   
 
(409
)
    
  
Net decrease in cash and cash equivalents
   
 
(3,034
)
   
 
(203
)
Cash and cash equivalents at beginning of period
   
 
6,940
 
   
 
2,309
 
    
  
Cash and cash equivalents at end of period
   
$
3,906
 
   
$
2,106
 
    
  
 
The accompanying notes are an integral part of these financial statements.

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CALIFORNIA MICRO DEVICES CORPORATION
 
Notes to Condensed Financial Statements
(unaudited)
 
1.  Basis of Presentation
 
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly California Micro Devices Corporation’s (the “Company”, “we”, “us” or “our”) financial position as of June 30, 2002, results of operations for the three months ended June 30, 2002 and 2001, and cash flows for the three months ended June 30, 2002 and 2001. Results for the quarter are not necessarily indicative of fiscal year results.
 
The condensed financial statements should be read in conjunction with the financial statements included with our annual report on Form 10-K for the fiscal year ended March 31, 2002.
 
2.  Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience, input from sources outside of the company, and other relevant facts and circumstances. Actual results could differ from those estimates.
 
3.  Inventories
 
The components of inventory consist of the following (amounts in thousands):
 
    
June 30,
2002
   
March 31,
2002
Raw materials
   
$
542
   
$
355
Work-in-process
   
 
1,850
   
 
1,602
Finished goods
   
 
988
   
 
827
    
  
    
$
3,380
   
$
2,784
    
  
 
4.  Litigation
 
We are a party to lawsuits, claims, investigations, and proceedings, including commercial and employment matters, which are being handled and defended in the ordinary course of business. We review the current status of any pending or threatened proceedings with our outside counsel on a regular basis and, considering all the other known relevant facts and circumstances, recognize any loss that we consider probable and estimable as of the balance sheet date. During the three months ended June 30, 2002 and 2001, we did not recognize a liability on our balance sheet for any pending or threatened litigation, claims, or proceedings.
 
We have two cases pending in the Santa Clara County, State of California Superior Court in which the amount sought by the plaintiffs is several millions of dollars, and therefore a verdict in their favor would be materially adverse to our business. Although several years old, both cases have been stayed by courts until fairly recently; as a result, both cases are early in the discovery phase, making it difficult to assess the probability of the opposing parties or ourselves prevailing with a significant degree of confidence. As a result, we have not made any accrual for these cases.

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The first case involves counterclaims brought by our former CEO, Chan Desaigoudar, after we sued him for fraud and breach of fiduciary duty. The counterclaims are for, among other items, wrongful termination and improper termination of his stock option. The second case involves a former employee, Tarsaim L. Batra, who has sued the company and three of our former officers, Mr. Desaigoudar, Steve Hencke and Surendra Gupta, likewise for wrongful termination of his employment and for deprivation of his stock options. The U.S. government in the past has prosecuted Messrs. Desaigoudar, Hencke, and Gupta for criminal securities law violations. Mr. Gupta plead guilty before trial while Messrs. Desaigoudar and Hencke were convicted; however, their convictions were overturned and a retrial was imminent when in May 2002, they each entered a guilty plea as to one or more of the counts and are awaiting sentencing.
 
We believe that we have meritorious defenses to the claims of the opposing parties in both of these cases. Currently, we intend to vigorously pursue our defenses and/or our claims against the opposing parties in these matters. Should we unexpectedly learn facts during discovery which lead us to reasonably estimate a negative outcome to these cases, or should one or both of these cases result in a verdict for the other parties, then we will provide for such liability, as appropriate.
 
5.  Net Income (Loss) Per Share
 
The following table sets forth the computation of basic and diluted loss per share:
 
    
June 30,
  
    
2002
     
2001
  
    
(in thousands, except per share amounts)
  
Basic:
                  
Net loss
   
$
(2,563
)
   
$
(4,291
)
    
  
Weighted average shares
   
 
13,927
 
   
 
11,474
 
    
  
Net loss per share—basic
   
$
(0.18
)
   
$
(0.37
)
    
  
Diluted:
                  
Net loss
   
$
(2,563
)
   
$
(4,291
)
Weighted average shares
   
 
13,927
 
   
 
11,474
 
Dilutive effect of stock options
   
 
—  
 
   
 
—  
 
    
  
    
 
13,927
 
   
 
11,474
 
    
  
Net loss per share—diluted
   
$
(0.18
)
   
$
(0.37
)
    
  
 
Options to purchase 2,562,056 and 1,391,751 shares of common stock were outstanding during the three months ended June 30, 2002 and 2001, respectively, but were not included in the computation of diluted earnings per share as the effect of including such shares would be antidilutive. Warrants to purchase 59,250 shares of common stock outstanding at June 30, 2002 were not included in the diluted earnings per share computation, as the effect of including such shares would be antidilutive.
 
6.  Comprehensive Income/(Loss)
 
Comprehensive income/(loss) is principally comprised of net income (loss) and unrealized gains or losses on the Company’s available-for-sale securities. Comprehensive loss for the three months ended June 30, 2002 and 2001 approximated net loss for the three months ended June 30, 2002 and 2001, respectively.
 
7.  Income Taxes

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For the three-month periods ended June 30, 2002 and 2001, there was no provision for income taxes due to the net loss for the period.
 
8.  Restructuring & Impairment Charges
 
In the second quarter of fiscal 2002, our Board of Directors approved and we began to implement a program to streamline our manufacturing operations and focus our business on product and markets in which we have, or believe we can achieve, a leadership position while leveraging our core technology strengths. Key parts of this strategy include the plan to outsource a significant portion of our wafer manufacturing to an independent foundry and to discontinue certain older products.
 
In connection with outsourcing a significant portion of our wafer manufacturing, we are completing the consolidation of all of our internal wafer fabrication activities into our Tempe, AZ facility with selected high-value backend manufacturing activities continuing at our Milpitas, CA headquarters. In connection with these actions we recorded restructuring and asset impairment charges of $4.2 million in the year ended March 31, 2002. The restructuring program includes a workforce reduction and lease termination costs.
 
The following table summarizes the activity related to the restructuring liability during the quarter ended June 30, 2002:
 
      
Restructuring
Liability at
March 31, 2002
   
Cash
Payments
     
Restructuring
Liability at
June 30, 2002
      
(in thousands)
Workforce reduction
     
$
438
   
$
137
     
$
301
Facilities and other
     
 
273
   
 
—  
     
 
273
      
  
    
      
$
711
   
$
137
     
$
574
      
  
    
 
Workforce reduction
 
In connection with the restructuring program, we are reducing our headcount by approximately 61 employees, primarily in the manufacturing functions and primarily located at our Milpitas, CA facility. A total of 33 employees had been terminated as of June 30, 2002, and we expect that the majority of the remaining employees will be terminated by the end of the second quarter of fiscal 2003.
 
Facilities and other
 
The restructuring plan calls for us to relocate from our Milpitas facility once all internal wafer fabrication activities have been consolidated into our Tempe, AZ facility. As required by the lease for the Milpitas facility, we are obligated to restore the Milpitas facility to its pre-lease condition. Accordingly, we recorded $251,000 in estimated renovation costs related to the Milpitas facility.
 
We expect that the remaining cash expenditures relating to the workforce reduction will be paid in the second and third quarters of fiscal 2003. The remaining cash expenditures relating to facilities and other are expected to be paid no later than the end of the third quarter of fiscal 2003. The restructuring liability is included in accrued liabilities in the balance sheet. We expect to complete the implementation of this restructuring program during the next six months.
 
9.  Long-Term Debt
 
In June 2002, we entered into a Loan and Security Agreement (“Agreement”) that allows us to borrow up to a total of

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$5.0 million under an equipment line of credit and a revolving line of credit. The amount available under the Agreement is based on the amount of eligible equipment and accounts receivable. Under the Agreement, which includes a subjective acceleration clause, we are subject to certain financial covenants and restrictions and must maintain a compensating balance of $2.75 million in order to retain the availability of the revolving credit line. Borrowings under the equipment line and the revolving line bear interest at an annual rate of prime plus 3.0% and prime plus 0.75%, respectively. Principal, in equal installments, and interest are due monthly for the term of 36 months for all borrowings made under the equipment line. Borrowings under the revolving credit line have a term of 12 months, with principal due at maturity and interest due in monthly installments. Borrowings under both lines are collateralized by substantially all of our assets. In June 2002, we borrowed $2.2 million under the equipment line, of which $1.5 million was used to pay off other capital equipment financing facilities in full. As of June 30, 2002, we were in compliance with the covenants related to this Agreement.
 
As of June 30, 2002, we were not in compliance with the financial covenants related to our industrial revenue bonds. In accordance with the terms of the bonds, our noncompliance would need to continue for at least four consecutive quarters in order for the industrial revenue bonds to be callable. We believe we will be in compliance within the period allowed. Accordingly, we have not reclassified the long-term portion of this debt of $6.5 million, to short-term on our June 30, 2002 balance sheet.
 
10.  Lease Commitments
 
In May 2002, we signed an operating lease for approximately 26,000 square feet of office and light manufacturing space in Milpitas, CA to be used as our headquarters and for selected back-end manufacturing. The lease term is 38 months. Future non-cancelable minimum lease payments under this lease at June 30, 2002 are $241,000 in the remainder of fiscal 2003, $409,000 in fiscal 2004, $472,000 in fiscal 2005 and $214,000 in fiscal 2006.
 
11.  Recent Accounting Pronouncements
 
In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangibles” (“SFAS 142”). Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their estimated useful lives. We had not recorded any goodwill or indefinite lived intangible assets prior to March 31, 2002 and accordingly, the adoption of this statement as of April 1, 2002 did not have a material impact on our financial position, results of operations or cash flow.
 
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for Impairment or Disposal of Long-Lived Assets.” SFAS 144 supercedes Statement of Financial Accounting Standards No. 121 (“SFAS 121”), “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of” and is effective for years beginning after December 15, 2001. SFAS 144 provides accounting and reporting standards for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 establishes one accounting model to be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired and resolves significant implementation issues that existed with SFAS 121. Adoption of SFAS 144 did not have a material impact on our financial statements.
 
In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principal difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect adoption of SFAS 146 will have a material impact on our financial statements.

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12.  Subsequent Event
 
In July 2002, we amended our existing lease for our wafer fabrication facility in Milpitas, CA, extending the term of the lease to October 31, 2002. Total payments under this agreement through the end of the lease period are $175,000.

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ITEM 2.    Management’s Discussion And Analysis of Financial Condition and Results of Operations.
 
Overview
 
California Micro Devices Corporation designs, develops and markets application specific integrated passive devices and related analog semiconductors. Our products provide signal integrity, electromagnetic interference filtering, electrostatic discharge protection, and power management solutions to original equipment manufacturers and contract manufacturers. Through proprietary manufacturing processes, we integrate multiple passive components onto single chips and enhance their functionality with semiconductor functions. Our products are marketed primarily to customers in the mobile electronics, computing, LED lighting, medical and other industries.
 
In the second quarter of fiscal 2002, our board of directors approved and we began to implement a program to streamline our manufacturing operations and focus our business on high volume products and in markets where we have, or believe we can achieve, a leadership position while leveraging our core technology strengths. Key parts of this strategy include the plan to outsource a significant portion of our wafer manufacturing to independent foundries and to discontinue certain older products.
 
Results of Operations
 
Net sales.    Net sales for the three months ended June 30, 2002 were $9.4 million, an increase of $3.3 million or 54% from the three months ended June 30, 2001. Net sales in the mobile, computing and lighting markets increased in the three months ended June 30, 2002 as compared to the same period in fiscal 2002. The largest component of this increase was in the mobile market, in which net sales increased $1.0 million or 302%, to $1.3 million in the quarter ended June 30, 2002. Sales into the lighting market more than trebled during the three months ended June 30, 2002 as compared to the three months ended June 30, 2001, with net sales of $1.2 million in the quarter ended June 30, 2002. Net sales in the computing market increased approximately $980,000 or 42% in the three months ended June 30, 2002 as compared to the same period in the prior year. Also contributing to the increase in net sales was the medical market, in which net sales increased $500,000 or 91%, to $1.0 million in the quarter ended June 30, 2002 as compared to the quarter ended June 30, 2001. Decreases in net sales in the communication infrastructure, legacy and other markets, partially offset these increases. Units shipped during the quarter ended June 30, 2002 increased 62% to 32.0 million units from the quarter ended June 30, 2001. Average selling prices for our products based on units shipped decreased approximately 24% for the quarter ended June 30, 2001 from the quarter ended June 30, 2001, primarily as a result of product mix.
 
Gross Margin.    Gross margin is composed of net sales less cost of sales. Gross margin, as a percentage of net sales, increased to a positive 13% in the quarter ended June 30, 2002 from a negative 9% in the quarter ended June 30, 2001. Gross margin for the quarter ended June 30, 2002, includes a benefit of $470,000 related to the sale of inventory that was fully reserved and charges of approximately $3.5 million related to idle capacity costs, which are expensed as incurred. For the quarter ended June 30, 2001, gross margin included a charge of $1.3 million resulting from a provision for excess/slow moving inventory and $1.4 million of idle capacity costs. Excluding these items, gross margin, as a percentage of net sales, increased from the quarter ended June 30, 2001 to the quarter ended June 30, 2002. This improvement is the result of improved manufacturing efficiencies on increased production volumes, decreased fixed manufacturing costs, and the impact of our wafer fabrication outsourcing strategy that was implemented in fiscal 2002. We expect that gross margin will increase in the future as we continue to outsource our wafer fabrication and, as a result, cost of sales decreases.
 
Research and Development.    Research and development expenses consist primarily of compensation and related costs for employees, prototypes, masks, and other expenses for the development of process technology, new packages and products. Research and development expenses remained relatively constant at $882,000 and $898,000 for the quarters ended June 30, 2002 and 2001, respectively.
 
Selling, General and Administrative.    Selling, general and administrative expenses consist primarily of compensation and related costs for employees, sales commissions, marketing and promotional expenses, and legal and other professional fees. Selling, general, and administrative expenses remained flat at $2.7 million for the quarters ended June

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30, 2002 and 2001. Lower compensation and related costs for employees resulting from lower headcount in the quarter ended June 30, 2002 were offset by higher legal costs.
 
Special Charges.    During fiscal 2002, we recorded restructuring and other special charges of $4.2 million related to our decision to outsource a significant portion of our wafer manufacturing. In connection with this decision, we are completing the consolidation of all of our internal wafer fabrication activities into our Tempe, AZ facility, with selected high-value backend manufacturing activities continuing at our Milpitas, CA headquarters. The $4.2 million of special charges consists of expenses related to a workforce reduction, write-down of certain manufacturing equipment and lease termination costs.
 
The following table summarizes the activity related to the restructuring liability during the three months ended June 30, 2002:
 
      
Restructuring
Liability at
March 31, 2002
   
Cash
Payments
     
Restructuring
Liability at
June 30, 2002
      
(in thousands)
Workforce reduction
     
$
438
   
$
137
     
$
301
Facilities and other
     
 
273
   
 
—  
     
 
273
      
  
    
      
$
711
   
$
137
     
$
574
      
  
    
 
Workforce reduction
 
In connection with the restructuring program, we are reducing our headcount by approximately 61 employees, primarily in the manufacturing functions and primarily located at our Milpitas, CA facility. A total of 33 employees had been terminated as of June 30, 2002, and we expect that the majority of the remaining employees will be terminated by the end of the second quarter of fiscal 2003.
 
Facilities and other
 
The restructuring plan calls for us to relocate from our Milpitas facility once all internal wafer fabrication activities have been consolidated into our Tempe, AZ facility. As required by the lease for the Milpitas facility, we are obligated to restore the Milpitas facility to its pre-lease condition. Accordingly, we recorded $251,000 in estimated renovation costs related to the Milpitas facility.
 
We expect that the remaining cash expenditures relating to the workforce reduction will be paid in the second and third quarters of fiscal 2003. The remaining cash expenditures relating to facilities and other are expected to be paid no later than the end of the third quarter of fiscal 2003. We expect to complete the implementation of this restructuring program during the next six months.
 
Other Expense, Net.    Other expense, net, for the quarter ended June 30, 2002 and 2001, were $241,000 and $126,000, respectively. Lower interest income on lower average investment balances and losses in the market value of investments related to our executive deferred compensation plan resulted in the increase in other expense, net for the quarter ended June 30, 2002 as compared to the quarter ended June 30, 2001.
 
Income Taxes.    For the three months ended June 30, 2002 and 2001, there was no provision for income taxes due to the net loss for the period.
 
Recent Accounting Pronouncements.
 
In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangibles” (“SFAS 142”). Under SFAS 142, goodwill and indefinite lived intangible

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assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their estimated useful lives. We had not recorded any goodwill or indefinite lived intangible assets prior to March 31, 2002 and accordingly, the adoption of this statement as of April 1, 2002 did not have a material impact on our financial position, results of operations or cash flow.
 
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for Impairment or Disposal of Long-Lived Assets.” SFAS 144 supercedes Statement of Financial Accounting Standards No. 121 (“SFAS 121”), “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of” and is effective for years beginning after December 15, 2001. SFAS 144 provides accounting and reporting standards for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 establishes one accounting model to be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired and resolves significant implementation issues that existed with SFAS 121. Adoption of SFAS 144 did not have a material impact on our financial statements.
 
In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principle difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect adoption of SFAS 146 will have a material impact on our financial statements.
 
Critical Accounting Policies and Estimates
 
We described our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended March 31, 2002.
 
Our critical accounting policies and estimates are those that relate to financial line items that are key indicators of our financial performance and/or that require significant management judgment. Our critical accounting policies include those regarding (1) revenue recognition, (2) inventory and related reserves, (3) impairment of long-lived assets, and (4) litigation. We believe that we have consistently applied judgments and estimates and such consistent application fairly depicts our financial condition and results of operations for all periods presented. During the three months ended June 30, 2002, there were no significant changes in the assumptions underlying the judgments and estimates made by management.
 
Liquidity and Capital Resources
 
We have historically financed our operations through a combination of debt and equity financing and cash generated from operations. Total cash, cash equivalents and short-term investments as of June 30, 2002, was $4.2 million compared to $7.2 million at March 31, 2002. Receivables increased to $5.3 million at June 30, 2002 compared to $4.6 million at March 31, 2002, primarily as a result of increased sales. Receivables days sales outstanding remained constant at 53 days as of June 30, 2002 and March 31, 2002. Inventories increased $596,000 from March 31, 2002 to $3.4 million at June 30, 2002, as a result of increased levels of production in response to customer demand. Capital expenditures for the three months ended June 30, 2002, totaled $683,000, reflecting primarily our investment in new equipment to support our production of chip scale products, which are expected to ramp up throughout this fiscal year.
 
Operating activities used $3.3 million of cash in the quarter ended June 30, 2002. The most significant usage of our cash was our net loss before non-cash charges of $1.8 million. Increases in accounts receivable, inventories, prepaids and other current assets and decreases in accounts payable and other long-term liabilities used an additional $1.8 million of cash. These uses of cash were partially offset by a decrease in other long-term assets and an increase in deferred margin on shipments to distributors of $227,000.

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We used $0.9 million of cash in investing activities for the three months ended June 30, 2002, which was the result of capital expenditures of $683,000 and an increase in restricted cash related to our long-term debt.
 
Net cash provided by financing activities of $1.2 million for the three months ended June 30, 2002 is primarily the result of proceeds from the issuance of common stock upon the exercise of employee stock options of $1.0 million.
 
In June 2002, we entered into a Loan and Security Agreement that allows us to borrow up to a total of $5.0 million under an equipment line of credit and a revolving line of credit, each of which cannot individually exceed $3.5 million. The amount available under the agreement is based on the amount of eligible equipment and accounts receivable. Under this agreement, which includes a subjective acceleration clause, we are subject to certain financial covenants and restrictions and must maintain a compensating balance of $2.75 million in order to retain the availability of the revolving credit line. Borrowings under the equipment line and the revolving line bear interest at an annual rate of prime plus 3.0% and prime plus 0.75%, respectively. Principal, in equal installments, and interest are due monthly for a term of 36 months for all borrowings made under the equipment line. Borrowings under the revolving credit line have a term of 12 months, with principal due at maturity and interest due in monthly installments. Borrowings under both lines are collateralized by substantially all of our assets. In June 2002, we borrowed $2.2 million under the equipment line, of which $1.5 million was used to pay off in full borrowings outstanding under our four existing capital equipment financing agreements described below. Future maturities of this debt at June 30, 2002 are $487,000 in the remainder of fiscal 2003, $730,000 in fiscal 2004, $730,000 in fiscal 2005 and $243,000 in fiscal 2006. As of June 30, 2002, we were in compliance with the covenants related to the Loan and Security Agreement.
 
During fiscal 2000 through fiscal 2002, we entered into four capital equipment financing facilities for a total of $4.0 million. During fiscal 2000 through fiscal 2002, we borrowed $3.0 million under these facilities. Borrowings under three of these facilities bore interest at an annual rate of prime plus 0.75% and borrowings under the remaining facility bore interest at an annual rate of prime plus 0.5%. Principal, in equal installments, and interest were due in monthly installments through February 2004. In June 2002, we terminated these facilities and paid off the related debt in full with the proceeds received from the Loan and Security Agreement described above.
 
As of June 30, 2002, we were not in compliance with our financial covenants related to our industrial revenue bonds. In accordance with the terms of the industrial revenue bonds, our non-compliance would need to continue for at least four consecutive quarters in order for the industrial revenue bonds to become callable and accordingly, there is no impact on our short-term liquidity due to our present non-compliance. We believe we will be in compliance within the period allowed and therefore, we have continued to classify the bonds as long-term debt rather than short-term debt.
 
Future maturities of long-term debt and sinking fund payments as of June 30, 2002 are $847,000 in the remainder of fiscal 2003, $1.2 million in fiscal 2004, $1.2 million in fiscal 2005, $493,000 in fiscal 2006, $275,000 in fiscal 2007 and $5.6 million thereafter.
 
In May 2002, we signed an operating lease for approximately 26,000 square feet of office and light manufacturing space in Milpitas, CA to be used as our headquarters and for selected back-end manufacturing. The lease term is 38 months. Future non-cancelable minimum lease payments under this lease are $271,000 in fiscal 2003, $409,000 in fiscal 2004, $472,000 in fiscal 2005 and $214,000 in fiscal 2006. In July 2002, we entered into a lease amendment for our wafer fabrication facility in Milpitas, CA, extending the term of the lease to October 31, 2002. Total minimum payments under this agreement through the end of the lease period are $175,000.
 
Operating and capital requirements depend on many factors, including the levels at which we maintain revenue, margins, inventory, accounts receivable and operating expenses. Our operating plan for fiscal 2003 forecasts revenue growth and profit improvement, due in part to our focused sales and marketing efforts and in part to gross margin improvement and expense reductions resulting from our manufacturing outsourcing. As part of this operating plan, during the next quarter or two, we may be required to build substantial inventory in advance of firm orders. This would place additional strain on our cash and expose us to risk if the orders do not materialize or are delayed. In order to achieve this plan we may require additional equipment financing beyond the $1.3 million available under our equipment line of credit facility and additional cash for working capital and reserves beyond the $1.5 million available under our revolving line of credit. As a result, if we are unable to increase our credit facilities adequately, we may be required to raise additional equity capital in order to achieve our operating plan. We may not be able to raise such capital on terms we consider reasonable, if at all, in which case, we would need to scale back our operating plan, which could adversely affect revenue growth and profitability. If we do not achieve our operating plan, we will need to further adjust our operations in order to conserve our cash, which will be used to fund operating losses instead of growth. In such event, we may also need to raise additional equity capital in order to continue operations, although such funds may not be available on favorable terms, if at all.

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ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk.
 
No material changes have occurred from our report on Form 10-K for the period ending March 31, 2002.

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Cautionary Statement
 
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are not historical facts and are based on current expectations, estimates, and projections about our industry; our beliefs and assumptions; and our goals and objectives. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, and “estimates”, and variations of these words and similar expressions are intended to identify forward-looking statements. Examples of the kinds of forward-looking statements in this report include statements regarding the following (1) our expectation that our production of chip scale products will ramp throughout this year, (2) our schedule for closing down our Milpitas plant and the timing of the balance of our remaining manufacturing transition charges, (3) plan for revenue growth and profit improvement due to focused sales and marketing effort and manufacturing outsourcing, (4) our expectation that we have meritous defenses to pending litigation claims,(5) our belief that we will be in compliance with the financial covenants related to our industrial revenue bonds within the one-year period allowed, (6) our expectation that our expenses will decrease and our gross margin will increase as we continue to outsource our wafer fabrication, and the corresponding expectation that cost of sales will decrease, (7) our plan to outsource a significant portion of our wafer manufacturing and to consolidate all of our internal wafer fabrication activities into our Tempe, AZ facility, with selected high-value backend manufacturing operations continuing at our Milpitas, CA headquarters, and (8) our requirements and plans for future equity financing . These statements are only predictions, are not guarantees of future performance, and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those set forth in this report and in our other SEC filings, in particular our annual report on Form 10-K for fiscal 2002 ended March 31, 2002. These risks and uncertainties also include whether our marketing and sales focus will enable us to penetrate our selected markets; whether those markets continue to exhibit demand for our products; whether our market focus, which has lead to Motorola, Hewlett Packard, Guidant Corporation and Lumileds each comprising more than 10% of our sales, will increase our customer concentration and leave us vulnerable to problems involving or sourcing decisions of our larger customers; our ability to forecast our cash requirements and cash availability and our ability to stay in compliance with our bank credit line and bond covenants; and the ability of our third party wafer fab vendor to meet in a timely manner our demand for high yield, high quality wafers. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

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PART II.    OTHER INFORMATION
 
ITEM 1.    Legal Proceedings.
 
We are a party to lawsuits, claims, investigations, and proceedings, including commercial and employment matters, which are being handled and defended in the ordinary course of business. We are not aware of any pending legal proceedings against us that, individually or in the aggregate, would have a material adverse effect on our business, operating results, or financial condition. See Note 4 of Notes to Condensed Financial Statements.
 
ITEM 2.    Changes in Securities and Use of Proceeds.
 
None.

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ITEM 6.    Exhibits and Reports on Form 8-K.
 
(a)  Exhibits
 
3(ii)
   
Bylaws, as amended.
10.14
   
Form of Officer and Director Indemnification Agreement.
 
(b)  Form 8-K
 
On May 15, 2002, we filed a Form 8-K under Item 5, reporting financial information for the quarter and fiscal year ended March 31, 2002.

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SIGNATURE
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
       
CALIFORNIA MICRO DEVICES CORPORATION
(Registrant)
Date:
  
August 13, 2002
          
/s/    KENNETH E. THORNBRUGH
               
Kenneth E. Thornbrugh
Vice President Finance & Administration
Chief Financial Officer

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EX-3.(II) 3 dex3ii.txt BYLAWS, AS AMENDED Exhibit 3(ii) BY-LAWS OF CALIFORNIA MICRO DEVICES CORPORATION a California corporation ---------------------- Article I --------- DIRECTORS: MANAGEMENT --------------------- Section 1. a. Powers ------ Subject to the provisions of the General Corporation Law of California, effective January 1, 1977 (to which the various Section numbers quoted herein relate) and subject to any limitation in the Articles of Incorporation and the By-laws relating to action, required to be approved by the Shareholders (Sec. 153) or by the outstanding shares (Sec. 153), the business and affairs of this corporation shall be managed by and all corporate powers shall be exercised by or under direction of the Board of Directors. b. Standard Care. ------------- Each Director shall exercise such powers and otherwise perform such duties in good faith, in the manner such Director believes to be in the best interests the corporation, and with such care, including reasonable inquiry, using ordinary prudence, as a person in a life position would use under similar circumstances. (Sec. 309). c. Exception for Close Corporation. ------------------------------- Notwithstanding the provisions of Section 1, in the event that this corporation shall elect to become a close corporation as defined in Sec. 158, its Shareholders may enter into a Shareholders' Agreement as provided in Sec. 300 (b). Said agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the Shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose on each Shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Sec. 300(d). Section 2. Number and Qualification. ------------------------- The authorized number of Directors of the corporation shall be at least five, and no more than nine. This number may be changed by amendment to the Articles of Incorporation or by an amendment to this Section 2, Article I, of these By-Laws, adopted by the vote or written assent of the Shareholders entitled to exercise majority voting power as provided in Sec. 212. Section 2.a. Exact Number of Directors. ------------------------- The exact number of directors of this corporation, within the range authorized elsewhere in these By-Laws, shall be as determined by the Board of Directors. Unless and until otherwise determined by the Board of Directors, the exact number shall be seven (7) until the election of the board of directors at the Company's upcoming 2002 annual shareholders meeting, at which time the exact number shall be six (6). Section 3. Election and Tenure of Office. ------------------------------ The Directors shall be elected by ballot at the annual meeting of the Shareholders, to serve for one year or until their successors are elected and have qualified. Their term of office shall begin immediately after election. Section 4. Vacancies. ---------- Vacancies in the Board of Directors may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected at an annual meeting of Shareholders or at a special meeting called for that purpose. The Shareholders may at any time elect a Director to fill any vacancy not filled by the Directors, and may elect the additional Directors at the meeting at which an amendment of the By-Laws is voted authorizing an increase in the number of Directors. A vacancy or vacancies shall be deemed to exist in case of an expansion of the number of members of the Board of Directors within the limits set forth in Section 2 of this ARTICLE, the death, resignation or removal of any Director, or if the Shareholders shall increase the authorized number of Director but shall fail at the meeting at which such increase is authorized, or at an adjournment thereof, to elect the additional Director so provided for, or in case the Shareholders fail at any time to elect the full number of authorized Directors. If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, the Board, or the Shareholders, shall have power to elect a successor to take office when the resignation shall become effective. No reduction of the number of Directors shall have the effect of removing any Director prior to the expiration of his term of office. Section 5. Removal of Directors. --------------------- The entire Board of Directors or any individual Director may be removed from office as provided by Secs. 302, 303 and 304 of the Corporations Code of the State of California. In such, case, the remaining Board members may elect a successor Director to fill such vacancy for the remaining unexpired term of the Director so removed. Section 6. Notice, Place and Manner of Meetings. ------------------------------------- Meetings of the Board of Directors may be a called by the Chairman of the Board, or the President, or any Vice President, or the Secretary, or any two (2) Directors and shall be held at the principle executive office of the corporation in the State of California, unless some other place is designated in the notice of the meeting. No notice need be given of organization meetings or regular meetings held at the corporate offices at the time and date set forth herein. Notice shall be given of other meetings as herein provided. Members of the Board may participate in a meeting through use of a conference telephone or similar communications equipment so long as all members participating in such a meeting can hear one another. Accurate minutes of any meeting of the Board, or any committee thereof, shall be maintained as required by Sec. 1500 of the Code by the Secretary or other Officer designated for that purpose. Section 7. Organization Meetings - regular Meetings. ----------------------------------------- The organization meetings of the newly elected Board of Directors shall be held immediately following the adjournment of the annual meetings of the Shareholders. Other Regular Meetings. ---------------------- Regular meetings of the Board of Directors shall be held at the corporate offices, or such other place as may be designated by the Board of Directors, as follows: Time of Regular Meeting: 7:30 p.m. Date of Regular Meeting: third Thursday of August If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. Section 8. Special Meetings - Notices. --------------------------- Special meetings of the Board may be called at any time by the President or, if he is absent or unable or refuses to act, by any Vice President or the Secretary or by any two Directors, or by one Director if only one is provided. At least forty-eight (48) hours notice of the time and place of special meetings shall be delivered personally to the Directors or personally communicated to them by a corporate Officer by telephone or telegraph. If the notice is sent to a Director by letter, it shall be addressed to him at his address as it is shown upon the records of the corporation, (or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held). In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principle executive office of the corporation is located at least four (4) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such Director. Section 9. Waivers. -------- When (i) all of the Directors are present at any organizational, regular or special meeting, however called or noticed, and sign a written consent thereto on the records of such meeting, or, (ii) if a majority of the Directors are present and if these not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the corporate records or made a part of the minutes of the meeting or (iii) if a Director attends a meeting without notice but without protesting, prior thereto or at its commencement, the hick of notice to him, then the transactions thereof are as valued as if had at a meeting regularly called and noticed. Section 10. Sole Director Provided by Articles of Incorporation. ---------------------------------------------------- In the event only one Director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the Directors shall be deemed to refer to such notice, waiver, etc., by such sole Director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Director. Section 11. Directors Acting by Unanimous Written Consent. ---------------------------------------------- Any action required or permitted to be taken by the Board of Directors may be taken without a meeting and with the same force and effect as if taken by a unanimous vote of Directors if authorized by a writing signed individually or collectively by all members of the Board. Such consent shall be filed with the regular minutes of the Board. Section 12. Quorum. ------- A majority of the number of Directors as fixed by the Articles of Incorporation or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the Directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. 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 a majority of the required quorum for such a meeting. Section 13. Notice of Adjournment. ---------------------- Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all Directors not present at the time of the adjournment. Section 14. Compensation of Directors. -------------------------- Director, as such, shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the company in any other capacity and receiving compensation therefor. Section 15. Committees. ----------- Committees of the Board may be appointed by resolution passed by a majority of the whole Board. Committees shall be composed of two or more members of the Board, and shall have such powers of the Board as may be expressly delegated to it by resolution by the Board of Directors, except those powers expressly Made non-delegable by Sec. 311. Section 16. Advisory Directors. ------------------- The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board. Section 17. Resignations. ------------- Any Director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Article II ---------- OFFICERS -------- Section 1. Officers. --------- The Officers of the corporation shall be a Chairman of the Board or a President or both, 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 and such other Officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. Election. --------- The Officers of the corporation, except such Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. Subordinate Officers, Etc. -------------------------- The Board of Directors may appoint such other Officers as the business of the corporation may require, each of whom shall hold office for such a period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. Removal and Resignation. ------------------------ Any Officer may be removed, either with or without cause, by a majority of the Directors at the time in office, at any regular or special meeting of the Board, or, except in case of art 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 Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Vacancies. ---------- A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. Chairman of the Board. ---------------------- The Chairman of the Board, if there shall be such an Officer, shall, present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. Section 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 there be such an Officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the Control of the Board of Directors, have general supervision, direction and control of the lousiness and Officers of the corporation. He shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the board of Directors or the By-laws. Section 8. Vice President. --------------- In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the 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 or the By-Laws. Section 9. Secretary. ---------- The Secretary shall keep, or cause to be kept, a book of minutes at the principle office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principle once or at the office of the corporation's transfer agent, a share register, or duplicate sure register, showing the names of the Shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; 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 the meetings of the Shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and gall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. Section 10. Chief Financial Officer. ------------------------ This Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection try any Director. This 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 try the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors of the By-Laws. Article III ----------- SHAREHOLDERS' MEETINGS ---------------------- Section 1. Place of Meetings. ------------------ Meetings of the Shareholders shall be held at the principal executive office of the corporation, in the State of California, unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors. Section 2. Annual Meetings. ---------------- The annual meeting of the shareholders shall be held, each year, no later than one hundred fifty (150) days after the end of the company's fiscal year upon a date and at a time as selected by the Board of Directors, and notice thereof given in the manner prescribed in Section 4 of Article III of these By-Laws. At the annual meeting, the shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation, and transact such other business as may be properly brought before the meeting. Section 3. Special Meetings. ----------------- Special meetings of the Shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary, or by one or more Shareholders holding not less than one-tenth (1/10) of the voting power of the corporation. Except as next provided, notice shall be given as for the annual meeting. Upon receipt of a written request addressed to the Chairman, President, Vice President, or secretary, mailed or delivered personally to such Officer by any person (other than the Board) entitled to call a special meeting of Shareholders, such Officer shall cause notice to be given, to the Shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of such a request. If such notice is not given within twenty days after receipt of such request, the persons calling the meeting may give notice thereof in the manner provided by these By-Laws or apply to the Superior Court as provided in Sec. 305(c). Section 4. Notices of Shareholder Meetings; Shareholder -------------------------------------------- Proposals; Nomination of Directors. ---------------------------------- 4.1 Notice of Shareholder Meetings - Reports ---------------------------------------- a. Notice of meetings, annual or special, shall be given in writing not less than ten (10) nor more than sixty (60) days before the date of the meeting, to Shareholders entitled to vote thereat by the Secretary or the Assistant Secretary, or if there be no such Officer, or in the case of his neglect or refusal, by any Director or Shareholder. b. Such notices or any reports shall be given personally or by mail or other means of written communication as provided in section 601 of the Code and shall be sent to the Shareholder's address appearing on the books of the corporation, or supplied by him to the corporation for the purpose of notice, and in the absence thereof, as provided in section 601 of the Code. c. Notice of any meeting of Shareholders shall specify the place, the day and the hour of meeting, and (a) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (b) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the Shareholders. At any meetings where Directors are to be elected, notice shall include the names of the nominees, if any, intended at date of Notice to be presented by management for election. d. If a Shareholder supplies no address, notice shall be deemed to have been given to him if mailed to the place where the principal executive office of the company, in California, is situated, or published at least once in some newspaper of general circulation in the County of said principal office. e. Notice shall be deemed given at the time it is delivered personally or deposited in the mail or sent by other means of written communication. The Officer giving such notice or report shall prepare and file an affidavit or declaration thereof. f. When a meeting is adjourned for forty-five (45) days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to be given any notice of adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. 4.2 Business Brought Before Annual Shareholder Meetings --------------------------------------------------- a. To be properly brought before an annual Shareholder meeting, business must be either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors; (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (iii) otherwise properly brought before the meeting by a Shareholder of record. b. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a Shareholder, the Shareholder must have given timely notice thereof in writing to the Secretary of this corporation. To be timely, a Shareholder's notice must be delivered to or mailed and received at the principal executive offices of this corporation, addressed to the attention of the Secretary of this corporation, no less than one hundred twenty (120) calendar days before the one-year anniversary of the date that this corporation's proxy statement was released to Shareholders in connection with the previous year's annual meeting. c. A Shareholder notice to the Secretary shall set forth as to each matter the Shareholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting; (ii) the name and record address of the Shareholder proposing such business; (iii) the class and number of shares of this corporation which are beneficially owned by the Shareholder; (iv) any material interest of the Shareholder in such business; and (v) any such other information concerning the person(s) making such proposal and the proposal itself as would be required by the appropriate Rules and Regulations of the Securities and Exchange Commission to be included in a proxy statement soliciting proxies for the proposal. d. The chairman of the meeting of the Shareholders may refuse to acknowledge any Shareholder proposal not made in compliance with the procedure set forth in this Section 4.2. 4.3 Nomination of Directors ----------------------- a. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors at an annual meeting of the Shareholders. Nominations of persons for election to the Board of Directors at the annual meeting, by or at the direction of the Board of Directors, may be made by the nominating committee of the Board of Directors or any person appointed by the Board of Directors; nominations may also be made by any Shareholder of record of this corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 4.3. b. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of this corporation. To be timely, a Shareholder's notice shall be delivered to or mailed and received at the principal executive offices of this corporation addressed to the attention of the Secretary of this corporation no less than 120 calendar days before the one-year anniversary of the date that this corporation's proxy statement was released to Shareholders in connection with the previous year's annual meeting. c. Such Shareholder's notice to the Secretary shall set forth (i) as to each person whom the Shareholder proposes to nominate for election or re-election as a director, (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person over at least the last five years, (C) the class and number of shares of capital stock of this corporation which are beneficially owned by the person, (D) a statement as to the person's citizenship, (E) a description of all arrangements or understandings between the person and the nominating Shareholder pursuant to which such nomination is being made, (F) the consent of such person to serve as a director of this corporation if so elected, and (G) any such other information concerning the person as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (ii) as to the Shareholder giving the notice, (A) the name and record address of the Shareholder, and (B) the class, series and number of shares of capital stock of this corporation which are beneficially owned by the Shareholder. d. This corporation may require any Shareholder-proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of this corporation. Section 5. Validation of Shareholders' Meetings. ------------------------------------ The transactions of any meeting of Shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or proxy, and if, either before or after the meeting, each of the Shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice; or a consent to the holding of such a meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed corporate records or made a part of the minutes of the meeting. Attendance shall constitute a waiver of notice, unless objection shall be made as provided in Sec. 601(e). Section 6. Shareholders Acting Without a Meeting - Directors. ------------------------------------------------- Any action which may be taken at a meeting of the Shareholders may be taken without a meeting or notice of meeting if authorized by a writing signed by all of the Shareholders entitle to vote at a meeting for such purpose and filed with the Secretary of the corporation, provided further that while ordinarily Directors can only be elected by unanimous written Consent under Sec. 603(d), as to vacancy created by death, resignation or other causes, if the Directors fail to fill a vacancy, then a Director to fill that vacancy may be elected by the written consent of persons holding a majority of stares entitled to vote for the election of Directors. Section 7. Other Actions Without A Meeting. ------------------------------- Unless otherwise provided in the GCL or the Articles, any action which may be taken at any annual or special meeting of Shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all Shareholders entitled to vote have been solicited in writing, (1) Notice if any Shareholder approval pursuant to Secs. 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by such approval, and (2) Prompt notice shall be given of the taking of any corporate action approved by Shareholders without a meeting by less than unanimous written consent, to each of those Shareholders entitled to vote who have not consented in writing. Any Shareholder giving a written consent, or the Shareholder's proxyholders, or a transferee, of the shares of a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary. Section 8. Quorum. ------ The holders of a majority of the shares entitled to vote thereat, present in person, or represented by proxy, shall constitute a quorum at all meetings of the Shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the Shareholders, the Shareholders entitled to vote thereat, present in person, or by proxy, shall have the power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at a meeting as originally notified. If a quorum be initially present, the Shareholders may continue to transact business until adjournment, not withstanding the withdrawal of enough Shareholders to leave less thin a quorum; if any action taken is approved by a majority of the Shareholders required to initially constitute a quorum. Section 9. Voting Rights; Cumulative Voting: --------------------------------- The election of directors by the shareholders shall not be by cumulative voting. At each election of directors, each shareholder entitled to vote may vote all the shares held by that shareholder for each of the several nominees for the director up to the number of directors to be elected. The shareholder may not cast more votes for any single nominee than the number of shares held by that shareholder. This paragraph shall remain effective so long as the corporation is a "listed corporation" within the meaning of Section 301.5(d) of the California General Corporation Law. Section 10. Proxies. ------- Every Shareholder entitled to vote, or to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of Secs. 604 and 705 of the Code and filed with the Secretary of the corporation. Section 11. Organization. ------------ The Chairman of the Board, President, or in their absence, any Vice President, shall call the meeting of the Shareholders to order, and shall act as chairman of the meeting. In the absence of the President and all of the Vice Presidents, Shareholders shall appoint a chairman for such a meeting. The Secretary of the company shall act as Secretary of all meetings of the Shareholders, but in the absence of the Secretary at any meeting of the Shareholders, the presiding Officer may appoint any person to act as Secretary of the meeting. Section 12. Inspectors of Election. ---------------------- In advance of any meeting of Shareholders the Board of Directors may, if they so elect, appoint inspectors of election to act at such a meeting or any adjournments thereof. If inspectors of election be not so appointed, the chairman of any such meeting may, and on the request of any Shareholder or his proxy shall, make such appointment at the meeting in which case the number of inspectors shall be either one or, three as determined by a majority of the Shareholders represented at the meeting. Section 13. Shareholder' Agreements. ----------------------- Notwithstanding the above provisions in the event this corporation elects to become a close corporation, an agreement between two or more Shareholders thereof, if in writing and signed, by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Sec. 706, and may otherwise modify these provisions as to the Shareholders' meetings and actions. Article IV ---------- CERTIFICATES AND TRANSFERS OF SHARES ------------------------------------ Section 1. Certificates for Shares. ------------------------ Certificates for shares shall be of such form and device as the Board of Directors may designate and shall state the name of the record holder of the hares represented thereby; its number; date of issuance; the number of shares for which it is issued; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to the redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable or, if assessments are collectible by personal action, a plain statement of such facts. Every Certificate for shares must be signed by the President or a Vice-President and the Secretary or an Assistant Secretary or must be authenticated by facsimiles of the signatures of the President and Secretary or by a facsimile of the signature of its President and the written signature of its Secretary or an Assistant Secretary. Before it becomes effective every certificate for shares authenticated by a facsimile of a signature must be countersigned by a transfer agent or transfer clerk and must be registered by an incorporated bank or trust company, either domestic or foreign, as registrar of transfers. Section 2. Transfer on the Books. --------------------- Upon surrender to the Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. Lost or Destroyed Certificates. ------------------------------ Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and shall if the Directors so require give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate May be issued in the same tenor and for the same number of shares as the one alleged to be lost or destroyed. Section 4. Transfer Agents and Registrars. ------------------------------ The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate. Section 5. Closing Stock Transfer Books - Record Date. ------------------------------------------ In order that the corporation may determine the Shareholders entitled to notice of any meeting or to vote 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 other lawful action, the Board may fix, in advance, a record date, which shall not tie more than sixty nor less than ten days prior to the date of such meeting nor more than sixty days prior to any other action. If no record date is fixed: The record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given. The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. Section 6. Legend Condition. ---------------- In the event any shares of this corporation are issued pursuant to ay permit or exemption therefrom requiring the imposition of a legend condition the person or persons issuing or transferring said shares shall make sure said legend appears on the certificate and on the stub relating thereto in the stock record book and shall not be required to transfer any shares free of such legend unless an amendment to such permit or a new permit be first issued so authorizing such a deletion. Section 7. Close Corporation Certificates. ------------------------------ All certificates representing shares of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Sec. 418c. Article V --------- CORPORATE RECORDS AND REPORTS -- INSPECTION ------------------------------------------- Section 1. Records. ------- The corporation shall maintain, in accordance with generally accepted accounting principles, adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principle executive office in the State of California, as fixed by the Board of Directors from time to time. Section 2. Inspection of Books and Records. ------------------------------- All books and records provided for in Sec. 1500 shall be open to inspection of the Directors and Shareholders from time to time and in the manner provided in said Sec. 1600-1602. Section 3. Certification and Inspection of By-Laws. ---------------------------------------- The original or a copy of these By-Laws, as amended or otherwise altered to date, certified by the Secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the Shareholders of the company, at all reasonable times during office hours, as provided in Sec. 213 of the Corporation Code. Section 4. Checks. Drafts. Etc. -------------------- All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the corporation, shall be signed or, endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 5. Contracts. Etc. - How Executed. ------------------------------ The Board of Directors, except as in the By-Laws otherwise provided, may authorize any Officer or Officers, 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 by the Board of Directors, no Officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Sec. 313 of the Corporations Code. Article VI ---------- ANNUAL REPORTS -------------- Section 1. Due Date, Contents. ------------------- The Board of Directors shall cause an annual report or statement to be sent to the Shareholders of this corporation not later than 120 days after the close of the fiscal or calendar year in accordance with the provisions of Secs 1500 - 1501. Such report shall be sent to Shareholders at least fifteen days prior to the annual meeting of Shareholders. Such report shall contain a balance sheet as of the end of the fiscal year, an income statement and a statement of changes in financial position for such fiscal year, accompanied by any report thereon of an independent accountant, or if there is no such report, a certificate of the Chief Financial Officer or President that such statements were prepared without audit from the books and records of the corporation. Section 2. Waiver. ------ The foregoing requirement of an annual report may be waived by the Board so long, as this corporation shall have less than 100 Shareholders. Article VII ----------- AMENDMENTS TO BY-LAWS --------------------- Section 1. By Shareholders. --------------- New By-Laws may be adapted or these By-Laws may be repealed or amended at their annual meeting, or at any other meeting of the Shareholders called for that purpose, by a vote of Shareholders entitled to exercise a majority of the voting power of the corporation, or by written assent of such Shareholders. Section 2. Powers of Directors. ------------------- Subject to the right of the Shareholders to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article VII, and the limitations of Sec. 204 (a) (5) and Sec. 212, the Board of Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or amendment thereof changing the authorized number of directors. Section 3. Record of Amendments. -------------------- Whenever an amendment or new By-Law is adopted, it shall be copied in the book of By-Laws; with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. Article VIII ------------ MISCELLANEOUS ------------- Section 1. References to Code Sections. --------------------------- "Sec." references herein refer to the equivalent Sections of the general Corporation Law effective January 1, 1977 as amended. Section 2. Effect of Shareholders' Agreement. --------------------------------- Any Shareholders' Agreement authorized by Sec. 300 (b), shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Sec. 202 and shad terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Secs. 158, (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distribution, 111 (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. Section 3. Representation of Shares in Other Corporations. ---------------------------------------------- Except as provided in Sec. 703, shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President and the Secretary or an Assistant Secretary. Section 4. Subsidiary Corporations. ----------------------- Shares of this corporation owned by a subsidiary shall not be entitled to vote an any matter. A subsidiary for these purposes is defined in Sec. 189 (a) and (b). Section 5. Indemnity. --------- The corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Sec. 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. Article IX ---------- Indemnity of Officers, Directors, etc. -------------------------------------- a. Action, Etc. Other than by Right of the Corporation. --------------------------------------------------- The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that such person is or was an Agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. b. Action, Etc., By or in the Right of the Corporation. --------------------------------------------------- The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an Agent of the corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and its shareholders; except that no indemnification shall be made under this Article IX(b) for any of the following: (i) In respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation in the performance of such person's duty to the corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for the expenses which such court shall determine; (ii) Of amounts paid in settling or otherwise disposing of a pending action without court approval; or (iii) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. c. Determination of Right of Indemnification. Any ----------------------------------------- indemnification under Article IX(a) and Article IX(b) shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the Agent is proper in the circumstances because that Agent has met the applicable standard of conduct set forth above in Article IX(a) and Article IX(b) by any of the following: (i) A majority vote of a quorum consisting of directors who are not parties to such proceeding; (ii) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion; (iii) Approval of the shareholders by the affirmative vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of shareholders as provided in Article III, Section 7, with the shares owned by the person to be indemnified not being entitled to vote thereon; or (iv) The court in which such proceeding is or was pending upon application made by the corporation or its Agent or attorney or other person rendering services in connection with the defense, whether or not such application by the Agent, attorney or other person is opposed by the corporation. d. Advances of Expenses. Expenses (including attorneys' -------------------- fees), costs, and charges incurred by an Agent in defending any proceeding or action referred to in Article IX(a) or Article IX(b) shall be advanced by the corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the Agent to repay such amount if it shall be determined ultimately that the Agent is not entitled to be indemnified as authorized in this Article IX. e. Indemnification Against Expenses of Successful Party. ---------------------------------------------------- Notwithstanding the other provisions of this Article IX, to the extent that an Agent has been successful on the merits in defense of any proceeding or action referred to in Article IX(a) or Article IX(b), or in defense of any claim, issue or matter therein, such Agent shall be indemnified against all expenses actually and reasonably incurred by the Agent in connection therewith. f. Right of Agent to Indemnification Upon Application; -------------------------------------------------- Procedure Upon Application. Any indemnification provided for in Article IX(a), - -------------------------- (b), or (e) shall be made no later than ninety (90) days after the corporation is given notice of request by Agent, provided that such request is made after final adjudication, dismissal, or settlement unless an appeal is filed, in which case the request is made after the appeal is resolved (hereafter referred to as "Final Disposition"). Upon such notice, if a quorum of directors who were not parties to the action, suit, or proceeding giving rise to indemnification is obtainable, the corporation shall within two (2) weeks call a Board of Directors meeting to be held within four (4) weeks of such notice, to make a determination as to whether the Agent has met the applicable standard of conduct. Otherwise, if a quorum consisting of directors who were not parties in the relevant action, suit, or proceeding is not obtainable, the corporation shall retain (at the corporation's expense) independent legal counsel chosen either jointly by the corporation and Agent or else by corporation counsel within two (2) weeks to make such determination. If (1) at such directors meeting such a quorum is not obtained or, if obtained, refuses to make such determination or (2) if such legal counsel is not so retained or, if retained, does not make such determination within four (4) weeks, then the Board of Directors shall cause a shareholders meeting to be held within four (4) weeks to make such a determination. If notice of a request for payment of a claim under these bylaws, under any statute, under any provision of any agreement with the corporation, or under the corporation's articles of incorporation providing for indemnification or advance of expenses has been given to the corporation by Agent, and such claim is not paid in full by the corporation within ninety (90) days of the later to occur of the giving of such notice or Final Disposition in case of indemnification, and twenty (20) days of the giving of such notice in case of advance of expenses, Agent may, but need not, at any time thereafter bring an action against the corporation to receive the unpaid amount of the claim or the expense advance and, if successful, Agent shall also be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit, or proceeding in advance of its Final Disposition) that Agent has not met the standards of conduct which make it permissible under applicable law for the corporation to indemnify Agent for the amount claimed, and Agent shall be entitled to receive interim payment of expenses pursuant to Article IX(d) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Agent is proper in the circumstances because Agent has met the applicable standard of conduct required by applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that Agent has not met such applicable standard of conduct, shall create a presumption that the Agent has or has not met the applicable standard of conduct. g. Other Rights and Remedies. The indemnification ------------------------- provided by this Article IX shall not be deemed exclusive of, and shall not affect, any other rights to which an Agent seeking indemnification may be entitled under any law, other provision of these bylaws, the corporation's articles of incorporation, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. h. Insurance. The corporation may purchase and maintain --------- insurance on behalf of any person who is or was an Agent against any liability asserted against such person 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 such person against such liability under the provisions of this Article IX. i. Optional Means of Assuring Payment. Upon request by ---------------------------------- an Agent certifying that the Agent has reasonable grounds to believe the Agent may be made a party to a proceeding for which the Agent may be entitled to be indemnified under this Article IX, the corporation may but is not required to create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. j. Savings Clause. If this Article IX or any portion -------------- thereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, proceeding, or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the full extent permitted by any applicable portion of this Article IX that shall not have been invalidated, or by any other applicable law. k. Definition of Agent. For the purposes of this ------------------- Article IX, "Agent" means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorneys' fees and any expenses of establishing a right to indemnification. l. Indemnification under Section 204(a)(11) of the ----------------------------------------------- California Corporations Code. Subject to the provisions of California - ---------------------------- Corporations Code Section 204(a)(11) and any other applicable law, notwithstanding any other provisions of these bylaws, the following shall apply to the indemnification of Agents under these bylaws: (i) The corporation shall indemnify a person pursuant to this Article IX(l) if the corporation would be required to indemnify such person pursuant to Article IX(a) or Article IX (b) if in Article IX(a) and Article IX(b) the phrase "in a manner such person reasonably believed to be in the best interests of the corporation" is replaced with the phrase "in a manner such person did not believe to be contrary to the best interests of the corporation". If pursuant to Article IX(c) and Article IX(f) the person making the Article IX(a) and/or Article IX(b) conduct standard determination determines that such standard has not been satisfied, such person shall also determine whether this Article IX(l) conduct standard has been satisfied; (ii) There shall be a presumption that the Agent met the applicable standard of conduct required to be met in either Article IX(a) or Article IX(b) for indemnification of the Agent, rebuttable by clear and convincing evidence to the contrary; (iii) The corporation shall have the burden of proving that the Agent did not meet the applicable standard of conduct in either Article IX(a) or Article IX(b); (iv) In addition to the methods provided for in Article IX(c), a determination that indemnification is proper in the circumstances because that Agent met the applicable standard of conduct may also be made by the arbitrator in any arbitration proceeding in which such matter is or was pending; (v) Unless otherwise agreed to in writing between an Agent and the corporation in any specific case, indemnification may be made under Article IX(b) for amounts paid and expenses incurred in settling or otherwise disposing of a pending action without court approval. EX-10.14 4 dex1014.txt FORM OF OFFICER AND DIRECTOR INDEMNIFICATION AGMT. Exhibit 10.14 INDEMNIFICATION AGREEMENT FOR OFFICERS AND DIRECTORS Preamble - -------- This Indemnification Agreement (this "Agreement") is made as of this ____ day of ___, ____, by and between California Micro Devices Corporation, a California corporation (the "Company"), and ___________________________________________ ("Indemnitee"). Recitals - -------- A. The Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance, and the general reductions in the coverage of such insurance. B. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited and is not currently available to the Company. C. Indemnitee does not regard the current protection avail able as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection. D. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law. Agreement - --------- Based upon the facts and premises contained in the above Recitals and in consideration of the mutual promises below, the Company and Indemnitee hereby agree as follows: 1. Bylaw Indemnification and Expense Advancement. The Company agrees to advance expenses to Indemnitee and indemnify Indemnitee to the fullest extent provided in the present bylaws of the Company, a copy of the relevant section of which is attached hereto as Exhibit A, and, to the extent specified in Section 2 below, any subsequent amendments to the Company's Bylaws. For purposes of this Agreement, subsequent references to indemnification shall include the advancement of expenses. This Agreement is expressly meant to cover "proceedings" in which Indemnitee is a party or is threatened to be made a party by means of the fact that Indemnitee is or was an "agent" of the Company not only by virtue of services as an "agent" after the date of this Agreement but also by virtue of services as an agent prior to the date of this Agreement (with "agent" and "proceeding" as defined in subsection (k) of the said bylaw). 2. Changes. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a -1- member of its board of directors or an officer, such changes shall be automatically, without further action of the parties, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not other wise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' right and obligations hereunder. In the event of an amendment to the Company's bylaws which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such change shall be automatically, without further action of the parties, within Indemnitee's rights and Company's obligations under this Agreement. In the event of any amendment to the Company's bylaws which narrows such right of a California corporation to indemnify a member of its board of directors or an officer, such change shall only apply to the indemnification of the Indemnitee for acts committed, or lack of action, by Indemnitee after such amendment. The Company agrees to give Indemnitee prompt notice of amendments to the Company's bylaws which concern indemnification. 3. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of share holders or disinterested Directors, the California Corporations Code, or otherwise, both as to action in Indemnitee's official capacity and as to action in any other capacity while holding such office (an "Indemnified Capacity"). The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an Indemnified Capacity even though he may have ceased to serve in an Indemnified Capacity at the time of any action, suit or other covered proceeding. 4. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgment, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 5. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit questions of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. Furthermore, the Indemnitee and Company acknowledge that the extent of indemnification permissible under Section 204(a)(11) of the California Corporations Code has not been judicially determined; therefore, the enforce ability of Indemnitee's rights under Subsection 5.8(l) of Article 5 of the Company's Bylaws is uncertain. -2- 6. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of the Agreement. If the application of any provision or provisions of the Agreement to any particular facts or circumstances shall be held to be invalid or unenforceable by any court of competent jurisdiction, then (i) the validity and enforceability of such provision or provisions as applied to any other particular facts or circumstances and the validity of other provisions of this Agreement shall not in any way be affected or impaired thereby and (ii) such provision(s) shall be reformed without further action by the parties to make such provision(s) valid and enforceable when applied to such facts and circumstances with a view toward requiring Company to indemnify Indemnitee to the fullest extent permissible by law. 7. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims (except counter-claims or cross claims) initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required by the California Corporations Code, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; or (b) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or (c) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or (d) Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 9. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, and legal representatives and permitted assigns. Indemnitee may not assign this Agreement without the prior written consent of the Company. -3- 10. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 11. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown under Authorized Signatures at the end of this Agreement, or as subsequently modified by written notice. 12. Paragraph Headings. The paragraph and subparagraph headings in this Agreement are solely for convenience and shall not be considered in its interpretation. 13. Waiver. A waiver by either party of any term or condition of the Agreement or any breach thereof, in any one instance, shall not be deemed or construed to be a waiver of such term or condition or of any subsequent breach thereof. 14. Entire Agreement; Amendment. This instrument contains the entire integrated Agreement between the parties hereto and supersedes all prior negotiations, representations or agreements, whether written or oral except for the Company's Articles of Incorporation and Bylaws. It may be amended only by a written instrument signed by a duly authorized officer of Company or by Indemnitee. 15. Choice of Law and Forum. Except for that body of law governing choice of law, this Agreement shall be governed by, and construed in accordance with, internal laws of the State of California which govern transactions between California residents. The parties agree that any suit or proceeding in connection with, arising out of or relating to this Agreement shall be instituted only in a court (whether federal or state) located in Santa Clara County in the State of California, and the parties, for the purpose of any such suit or proceeding, irrevocably agree and submit to the personal and subject matter jurisdiction and venue of any such court in any such suit or proceeding and agree that service of process may be effected in the same manner notice is given pursuant to Section 11 above. 16. Consideration. Part of the consideration the Company is receiving from Indemnitee to enter into this Agreement is Indemnitee's agreement to serve or to continue to serve, as applicable, for the present as a director and/or officer of the Company. Nothing in this Agreement shall preclude the Indemnitee from resigning as an officer and/or director of the -4- Company nor the Company, by action of its shareholders, board of directors, or officers, as the case may be, from terminating the Indemnitee's services as an officer, director, and/or employee, as the case may be, with or without cause. Authorized Signatures - --------------------- In order to bind the parties to this Indemnification Agreement, their duly authorized representations have signed their names below on the dates indicated. California Micro Devices Corporation By: --------------------------------------- Robert V. Dickinson President and Chief Executive Officer 430 N .McCarthy Blvd., Milpitas, CA 95035 ------------------------------------------ (address) Date Executed: ---------------------------- AGREED TO AND ACCEPTED: INDEMNITEE: - ------------------------------------ Signature - ------------------------------------ Printed Name - ------------------------------------ - ------------------------------------ (address) Date Executed: ---------------------- -5- Exhibit A Article IX ---------- Indemnity of Officers, Directors, etc. -------------------------------------- (a) Action, Etc. Other than by Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that such person is or was an Agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. (b) Action, Etc., By or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an Agent of the corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and its shareholders; except that no indemnification shall be made under this Article IX(b) for any of the following: (i) In respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation in the performance of such person's duty to the corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for the expenses which such court shall determine; (ii) Of amounts paid in settling or otherwise disposing of a pending action without court approval; or (iii) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. (c) Determination of Right of Indemnification. Any indemnification under Article IX(a) and Article IX(b) shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the Agent is proper in the circumstances because that Agent has met the applicable standard of conduct set forth above in Article IX(a) and Article IX(b) by any of the following: (i) A majority vote of a quorum consisting of directors who are not parties to such proceeding; (ii) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion; (iii) Approval of the shareholders by the affirmative vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of shareholders as provided in Article III, Section 7, with the shares owned by the person to be indemnified not being entitled to vote thereon; or (iv) The court in which such proceeding is or was pending upon application made by the corporation or its Agent or attorney or other person rendering services in connection with the defense, whether or not such application by the Agent, attorney or other person is opposed by the corporation. (d) Advances of Expenses. Expenses (including attorneys' fees), costs, and charges incurred by an Agent in defending any proceeding or action referred to in Article IX(a) or Article IX(b) shall be advanced by the corporation prior to the final disposition of such proceeding or action upon receipt of an undertaking by or on behalf of the Agent to repay such amount if it shall be determined ultimately that the Agent is not entitled to be indemnified as authorized in this Article IX. (e) Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Article IX, to the extent that an Agent has been successful on the merits in defense of any proceeding or action referred to in Article IX(a) or Article IX(b), or in defense of any claim, issue or matter therein, such Agent shall be indemnified against all expenses actually and reasonably incurred by the Agent in connection therewith. (f) Right of Agent to Indemnification Upon Application; Procedure Upon Application. Any indemnification provided for in Article IX(a), (b), or (e) shall be made no later than ninety (90) days after the corporation is given notice of request by Agent, provided that such request is made after final adjudication, dismissal, or settlement unless an appeal is filed, in which case the request is made after the appeal is resolved (hereafter referred to as "Final Disposition"). Upon such notice, if a quorum of directors who were not parties to the action, suit, or proceeding giving rise to indemnification is obtainable, the corporation shall within two (2) weeks call a Board of Directors meeting to be held within four (4) weeks of such notice, to make a determination as to whether the Agent has met the applicable standard of conduct. Otherwise, if a quorum consisting of directors who were not parties in the relevant action, suit, or proceeding is not obtainable, the corporation shall retain (at the corporation's expense) independent legal counsel chosen either jointly by the corporation and Agent or else by corporation counsel within two (2) weeks to make such determination. If (1) at such directors meeting such a quorum is not obtained or, if obtained, refuses to make such determination or (2) if such legal counsel is not so retained or, if retained, does not make such determination within four (4) weeks, then the Board of Directors shall cause a shareholders meeting to be held within four (4) weeks to make such a determination. (g) If notice of a request for payment of a claim under these bylaws, under any statute, under any provision of any agreement with the corporation, or under the corporation's articles of incorporation providing for indemnification or advance of expenses has been given to the corporation by Agent, and such claim is not paid in full by the corporation within ninety (90) days of the later to occur of the giving of such notice or Final Disposition in case of indemnification, and twenty (20) days of the giving of such notice in case of advance of expenses, Agent may, but need not, at any time thereafter bring an action against the corporation to receive the unpaid amount of the claim or the expense advance and, if successful, Agent shall also be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit, or proceeding in advance of its Final Disposition) that Agent has not met the standards of conduct which make it permissible under applicable law for the corporation to indemnify Agent for the amount claimed, and Agent shall be entitled to receive interim payment of expenses pursuant to Article IX(d) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Agent is proper in the circumstances because Agent has met the applicable standard of conduct required by applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that Agent has not met such applicable standard of conduct, shall create a presumption that the Agent has or has not met the applicable standard of conduct. (h) Other Rights and Remedies. The indemnification provided by this Article IX shall not be deemed exclusive of, and shall not affect, any other rights to which an Agent seeking indemnification may be entitled under any law, other provision of these bylaws, the corporation's articles of incorporation, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (i) Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was an Agent against any liability asserted against such person 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 such person against such liability under the provisions of this Article IX. (j) Optional Means of Assuring Payment. Upon request by an Agent certifying that the Agent has reasonable grounds to believe the Agent may be made a party to a proceeding for which the Agent may be entitled to be indemnified under this Article IX, the corporation may but is not required to create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. (k) Savings Clause. If this Article IX or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, proceeding, or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the full extent permitted by any applicable portion of this Article IX that shall not have been invalidated, or by any other applicable law. (l) Definition of Agent. For the purposes of this Article IX, "Agent" means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorneys' fees and any expenses of establishing a right to indemnification. (m) Indemnification under Section 204(a)(11) of the California Corporations Code. Subject to the provisions of California Corporations Code Section 204(a)(11) and any other applicable law, notwithstanding any other provisions of these bylaws, the following shall apply to the indemnification of Agents under these bylaws: (i) The corporation shall indemnify a person pursuant to this Article IX(l) if the corporation would be required to indemnify such person pursuant to Article IX(a) or Article IX(b) if in Article IX(a) and Article IX(b) the phrase "in a manner such person reasonably believed to be in the best interests of the corporation" is replaced with the phrase "in a manner such person did not believe to be contrary to the best interests of the corporation". If pursuant to Article IX(c) and Article IX(f) the person making the Article IX(a) and/or Article IX(b) conduct standard determination determines that such standard has not been satisfied, such person shall also determine whether this Article IX(l) conduct standard has been satisfied; (ii) There shall be a presumption that the Agent met the applicable standard of conduct required to be met in either Article IX(a) or Article IX(b) for indemnification of the Agent, rebuttable by clear and convincing evidence to the contrary; (iii) The corporation shall have the burden of proving that the Agent did not meet the applicable standard of conduct in either Article IX(a) or Article IX(b); (iv) In addition to the methods provided for in Article IX(c), a determination that indemnification is proper in the circumstances because that Agent met the applicable standard of conduct may also be made by the arbitrator in any arbitration proceeding in which such matter is or was pending; (v) Unless otherwise agreed to in writing between an Agent and the corporation in any specific case, indemnification may be made under Article IX(b) for amounts paid and expenses incurred in settling or otherwise disposing of a pending action without court approval. -----END PRIVACY-ENHANCED MESSAGE-----