0000912057-95-006379.txt : 19950815 0000912057-95-006379.hdr.sgml : 19950815 ACCESSION NUMBER: 0000912057-95-006379 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALZA CORP CENTRAL INDEX KEY: 0000004310 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 770142070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06247 FILM NUMBER: 95562167 BUSINESS ADDRESS: STREET 1: 950 PAGE MILL RD STREET 2: PO BOX 10950 CITY: PALO ALTO STATE: CA ZIP: 94303-0802 BUSINESS PHONE: 4154945000 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 For the quarterly period ended JUNE 30, 1995 ------------- or Transition Report Pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 For the transition period from to ---------- ---------- Commission File Number 1-6247 ------ ALZA CORPORATION ---------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 77-0142070 ------------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 950 PAGE MILL ROAD, P.O. BOX 10950, PALO ALTO, CALIFORNIA 94303-0802 --------------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 494-5000 -------------- 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 ----- ----- Number of shares outstanding of each of the registrant's classes of common stock as of July 31, 1995: Common Stock, $.01 par value - 82,349,514 shares -1- PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ALZA CORPORATION Condensed Consolidated Statement of Income (unaudited) (In thousands, except per share amounts)
Quarter Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 ---------- ---------- ----------- ---------- REVENUES: Royalties and fees $ 34,230 $ 27,959 $ 68,192 $ 60,808 Research and development 23,485 17,401 45,185 31,584 Net sales 19,180 19,743 38,006 37,636 Interest and other 6,110 4,046 11,862 7,286 -------- -------- -------- -------- Total revenues 83,005 69,149 163,245 137,314 COSTS AND EXPENSES: Research and development 24,144 19,426 46,386 36,325 Costs of products shipped 16,738 14,176 33,160 28,018 General, administrative and marketing 8,398 7,847 16,900 15,957 Interest and other 5,580 4,088 11,175 7,800 -------- -------- -------- -------- Total costs and expenses 54,860 45,537 107,621 88,100 -------- -------- -------- -------- Income before income taxes 28,145 23,612 55,624 49,214 Provision for income taxes 10,695 8,864 21,137 18,849 -------- -------- -------- -------- Net income $ 17,450 $ 14,748 $ 34,487 $ 30,365 -------- -------- -------- -------- -------- -------- -------- -------- Net income per common and common equivalent share $ .21 $ .18 $ .42 $ .37 -------- -------- -------- -------- -------- -------- -------- -------- Weighted average common and common equivalent shares 82,413 82,313 82,401 82,309 -------- -------- -------- -------- -------- -------- -------- --------
See accompanying notes. -2- ALZA CORPORATION Condensed Consolidated Balance Sheet (unaudited) (In thousands)
June 30, December 31, ASSETS 1995 1994 ------ ------------- ---------------- Current assets: Cash and cash equivalents $ 77,489 $ 88,844 Short-term investments 305,280 256,084 Receivables, net 94,936 84,879 Inventories, at cost: Raw materials 19,980 18,264 Work in process 10,307 10,175 Finished goods 4,936 4,976 --------- --------- Total inventories 35,223 33,415 Prepaid expenses and other current assets 26,455 29,211 --------- --------- Total current assets 539,383 492,433 Property, plant and equipment 332,082 315,688 Less accumulated depreciation and amortization (75,933) (70,238) --------- --------- Net property, plant and equipment 256,149 245,450 Other assets 66,737 68,369 --------- --------- Total assets $ 862,269 $ 806,252 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 12,331 $ 20,006 Accrued income taxes 2,224 1,418 Accrued compensation 9,490 10,099 Other current liabilities 27,656 24,465 --------- --------- Total current liabilities 51,701 55,988 5 1/4% zero coupon convertible subordinated debentures 353,303 344,593 Deferred income taxes 22,436 18,513 Other long-term liabilities 23,732 22,679 Stockholders' equity: Common stock and additional paid-in capital 308,174 302,967 Unrealized losses on available-for-sale securities, net of tax effect (547) (7,471) Retained earnings 103,470 68,983 --------- --------- Total stockholders' equity 411,097 364,479 --------- --------- Total liabilities and stockholders' equity $ 862,269 $ 806,252 --------- --------- --------- ---------
See accompanying notes. -3- ALZA CORPORATION Condensed Consolidated Statement of Cash Flows (unaudited) (In thousands)
Six Months Ended June 30, 1995 1994 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 34,487 $ 30,365 Non-cash adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,217 6,124 Interest on 5 1/4% zero coupon convertible subordinated debentures 8,710 - Deferred income taxes 3,923 3,086 Increase in assets: Receivables (10,057) (8,461) Inventories (1,808) (6,510) Prepaid expenses and other current assets (2,064) (1,678) Increase (decrease) in liabilities: Accounts payable (7,675) 2,680 Accrued income taxes 806 3,903 Accrued compensation (609) 352 Accrued and other liabilities 4,244 3,564 ---------- --------- Total adjustments 2,687 3,060 ---------- --------- Net cash provided by operating activities 37,174 33,425 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (17,675) (12,867) Purchases of available-for-sale securities (111,188) (130,356) Sales of available-for-sale securities 72,356 50,613 Maturities of available-for-sale securities 1,380 59,974 Decrease (increase) in cash surrender value-life insurance and prepaid premiums 310 (6,434) Decrease in other assets 1,081 3,184 ---------- --------- Net cash used in investing activities (53,736) (35,886) CASH FLOWS FROM FINANCING ACTIVITIES: Maturities of commercial paper, net - (105) Principal payments on long-term debt - (858) Issuances of common stock 5,207 5,041 ---------- --------- Net cash provided by financing activities 5,207 4,078 ---------- --------- Net increase (decrease) in cash and cash equivalents (11,355) 1,617 Cash and cash equivalents at beginning of period 88,844 53,683 ---------- --------- Cash and cash equivalents at end of period $ 77,489 $ 55,300 ---------- --------- ---------- ---------
See accompanying notes. -4- ALZA CORPORATION June 30, 1995 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The information at June 30, 1995 and for the quarter and six months ended June 30, 1995 and 1994 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) which the management of ALZA Corporation ("ALZA") believes necessary for fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for the full year. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1994 included in ALZA's 1994 Annual Report to Stockholders. 2. SHORT-TERM INVESTMENTS ALZA has classified its entire investment portfolio, including cash equivalents of $79.3 million at June 30, 1995, as available-for-sale. Although ALZA may not dispose of all of the securities in its investment portfolio within one year, ALZA's investment portfolio is available for current operations and, therefore, has been classified as a current asset. Investments in the available-for-sale category are carried at fair value with unrealized gains and losses recorded as a separate component of stockholders' equity. At June 30, 1995, unrealized losses on available-for-sale securities were $0.5 million, net of a $0.4 million tax effect. -5- ALZA CORPORATION June 30, 1995 The following is a summary of ALZA's investment portfolio at June 30, 1995.
ESTIMATED UNREALIZED UNREALIZED FAIR (In thousands) COST GAINS LOSSES VALUE --------- ------------ ------------ -------------- U.S. Treasury securities and obligations of U.S. government agencies $175,398 $ 2,238 $(2,826) $174,810 Collateralized mortgage obligations and asset backed securities 42,839 136 (465) 42,510 Corporate securities 167,308 526 (538) 167,296 -------- ------- ------- -------- $385,545 $ 2,900 $(3,829) $384,616 -------- ------- ------- -------- -------- ------- ------- --------
The amortized cost and estimated fair value of debt and marketable equity securities at June 30, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay certain of the obligations without prepayment penalties.
ESTIMATED FAIR (In thousands) COST VALUE --------- --------- Due in one year or less $ 160,785 $ 160,492 Due after one year through four years 123,465 122,470 Due after four years through eight years 101,295 101,654 --------- --------- $ 385,545 $ 384,616 --------- --------- --------- ---------
3. LITIGATION See Part II, Item 1 of this Quarterly Report on Form 10-Q. -6- ALZA CORPORATION June 30, 1995 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ALZA Corporation ("ALZA" or the "Company") develops, primarily under joint development and commercialization agreements with client companies, a broad range of pharmaceutical products based on ALZA's proprietary therapeutic systems technologies. ALZA's therapeutic systems can often improve the medical value as well as the cost-effectiveness of drug compounds by increasing efficacy, minimizing unpleasant or harmful side effects and/or providing greater patient compliance. ALZA is also developing products under an arrangement with Therapeutic Discovery Corporation ("TDC"). TDC, which commenced operations in 1993, was formed by ALZA for the purpose of selecting and developing new human pharmaceutical products combining ALZA's proprietary drug delivery technologies with various drug compounds, and commercializing such products, most likely through licensing to ALZA. ALZA and TDC currently have more than 20 products in the development pipeline, including several in early clinical evaluation. Additional product candidates are under consideration. ALZA markets certain products it has developed and promotes two products under co-promotion arrangements with client companies. ALZA manufactures all or a portion of certain clients' requirements for products developed by ALZA, and also manufactures products marketed by ALZA. RESULTS OF OPERATIONS ALZA's net income was $17.5 million or $0.21 per common share for the quarter ended June 30, 1995 and $34.5 million or $0.42 per common share for the six months ended June 30, 1995, compared to net income of $14.7 million or $0.18 per common -7- ALZA CORPORATION June 30, 1995 share for the quarter ended June 30, 1994 and $30.4 million or $0.37 per common share for the six months ended June 30, 1994. ALZA's net income currently results primarily from royalties and fees from client companies. Royalties and fees are derived from sales by client companies of products developed jointly with ALZA, and will vary from quarter to quarter as a result of changing levels of product sales by client companies and, occasionally, the receipt by ALZA of certain one-time fees. Because ALZA's clients generally take responsibility for obtaining necessary regulatory approvals and make all marketing and commercialization decisions regarding such products, most of the variables that affect ALZA's royalties and fees are not directly within ALZA's control. In addition, with increasing pressures for cost containment in the U.S. health care system, it can be expected that pharmaceutical product prices, including those of ALZA's royalty-bearing products, will not increase as quickly as they have in the past, and could decrease. Within the next several years, ALZA intends to become less dependent on royalties and fees as ALZA markets more products (including products developed with TDC); however, there can be no assurance that these expanded activities will be successful, due to factors such as the current health care cost containment environment. Royalties and fees for the quarter and six months ended June 30, 1995 increased to $34.2 million and $68.2 million, respectively, compared to $28.0 million and $60.8 million for the same periods in 1994, primarily due to royalties on sales by Bayer AG of Adalat CR-Registered Trademark- (which is marketed by Pfizer Inc in the United States as Procardia XL-Registered Trademark-). ALZA began receiving royalties on sales of Adalat CR-Registered Trademark- during the third quarter of 1994. Royalties and fees for the six months ended June 30, 1995 were reduced by approximately $5 million to reflect additions to a reserve for a potential adjustment in -8- ALZA CORPORATION June 30, 1995 royalty revenue on U.S. sales of Procardia XL-Registered Trademark- due to a U.S. patent issued to Bayer AG. Until a further determination is made regarding this matter, ALZA intends to maintain a reserve sufficient to cover the maximum potential reduction in Procardia XL-Registered Trademark- royalties as a result of this patent. Royalties from Procardia XL-Registered Trademark- accounted for approximately 40% and 45% of ALZA's royalties for the quarter and six months ended June 30, 1995, respectively, after the reserve discussed above. ALZA expects that, in the near term, net income will continue to result primarily from royalty revenue on sales of currently marketed products and additional products recently approved or now awaiting approval by the U.S. Food and Drug Administration and regulatory agencies in other countries. Research and development revenue of $23.5 million for the quarter and $45.2 million for the six months ended June 30, 1995 increased 35% and 43%, respectively, from the same periods in 1994 due to increased product development activities undertaken on behalf of TDC. Research and development revenue from TDC was $14.5 million and $28.6 million for the quarter and six months ended June 30, 1995, respectively, and $7.6 million and $12.9 million for the corresponding periods in 1994. ALZA and TDC are parties to a development agreement pursuant to which ALZA conducts product development activities on behalf of TDC. ALZA has granted to TDC a royalty-free, perpetual license to use ALZA's proprietary drug delivery technologies to develop and commercialize specified TDC products. Because products in early stages of development generally require lower levels of expenditures, ALZA's research and development revenue from TDC for any product can be expected to be lower during the early stages of development. Research and development expenses for the quarter and six months ended June 30, 1995 increased approximately 24% and 28%, respectively, from the same -9- ALZA CORPORATION June 30, 1995 periods in 1994, primarily due to increased product development activities on behalf of TDC. As additional products are accepted by TDC into its development pipeline and as products enter later stages of development, ALZA expects both its total research and development revenues and expenses for TDC products to increase. Net sales of $19.2 million for the quarter ended June 30, 1995 were slightly lower compared to the corresponding period in 1994, due largely to shipments of launch quantities of Glucotrol XL-Registered Trademark- to Pfizer Inc in the second quarter of 1994. Net sales for the six months ended June 30, 1995 were relatively flat compared to the same period in 1994. Costs of products shipped increased 18% for the quarter and six months ended June 30, 1995 over the corresponding periods in 1994 partially due to increased costs associated with ALZA's program to assure compliance with U.S. Food and Drug Administration regulations for Good Manufacturing Practices. Also contributing to the higher costs of products shipped for the six months ended June 30, 1995 were proportionately higher shipments of lower margin products. ALZA's Vacaville manufacturing facility provides substantial manufacturing capacity for ALZA-developed products. Because of the nature of the substantially fixed costs at this facility, costs of products shipped as a percent of net sales may vary significantly from period to period due to the utilization of the facility and the mix of products manufactured. ALZA expects costs of products shipped, as a percent of net sales, to decline over the longer term through increased utilization of capacity, greater operating efficiencies and increased production of ALZA-marketed products. -10- ALZA CORPORATION June 30, 1995 General, administrative and marketing expenses of $8.4 million for the quarter and $16.9 million for the six months ended June 30, 1995 increased 7% and 6%, respectively, compared to the same periods in 1994, due primarily to sales and marketing activities. Interest and other revenue, which consists primarily of interest income, increased 51% and 63%, respectively, for the quarter and six months ended June 30, 1995 compared to the same periods in 1994, due to higher invested cash balances and higher interest rates. Interest expense for the quarter and six months ended June 30, 1995 increased 36% and 43%, respectively, compared to the same periods in 1994, due to a higher amount of outstanding debt and a higher interest rate on such debt. During the first quarter of 1994, interest expense consisted primarily of interest expense on ALZA's $250 million commercial paper. In mid-1994 ALZA retired its commercial paper program with proceeds from an offering of 5 1/4% zero coupon convertible subordinated debentures. ALZA's effective combined federal and state tax rate for the year ended 1994 and the quarter and six months ended June 30, 1995 was 38%. LIQUIDITY AND CAPITAL RESOURCES ALZA invested $17.7 million during the first six months of 1995 in additions to property, plant and equipment to support its research and development and manufacturing activities. While ALZA believes its current facilities and equipment are sufficient to meet its current operating requirements, ALZA will continue to expand its facilities and equipment to support its long-term requirements. -11- ALZA CORPORATION June 30, 1995 ALZA believes that its existing cash balances and investments are adequate to fund its current cash needs. In addition, should the need arise, ALZA believes it would be able to borrow additional funds or raise additional capital in the marketplace. ALZA may consider using its capital to make strategic investments or to acquire or license technology or products. ALZA may also enter into strategic alliances with third parties which could provide additional funding for research and development and support for marketing and sales. -12- ALZA CORPORATION June 30, 1995 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In December 1991, a patent infringement suit was filed by Ciba-Geigy ("Ciba") against Marion Merrell Dow Inc., now Hoechst Marion Roussel Inc. ("HMR"), and ALZA in connection with the commercialization of Nicoderm- Registered Trademark-. In October 1994, the Court granted a motion for summary judgment brought by ALZA and HMR, ruling the patent invalid. That ruling cleared ALZA and HMR of liability for infringement of the patent. In November 1994, an appeal was filed by Ciba. During January 1995, ALZA and HMR filed a suit against Ciba and LTS Lohmann Therapy Systems Corporation for infringement of two U.S. patents issued to ALZA in 1994 relating to the transdermal administration of nicotine. During January 1994, a suit was filed against ALZA by Cygnus Therapeutic Systems ("Cygnus") seeking a declaration of unenforceability and invalidity of an ALZA patent relating to the transdermal administration of fentanyl and alleging violation of antitrust laws. In April 1995, the Court granted ALZA's motion to dismiss the lawsuit. Cygnus has appealed that ruling. Pharmaceutical companies are subject to product liability claims from time to time. During the last two years, six product liability suits have been filed against Janssen Pharmaceutica, Inc. ("Janssen") and ALZA relating to the Duragesic-Registered Trademark- product. Janssen is managing the defense of the Duragesic-Registered Trademark- suits in consultation with ALZA under an agreement between the parties. Historically, the cost of resolution of ALZA's liability (including product liability) claims has not been significant, and ALZA is not aware of any asserted or unasserted claims pending against it, including the suits mentioned above, the -13- ALZA CORPORATION June 30, 1995 resolution of which would have a material adverse impact on the operations or financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of stockholders of ALZA was held on May 11, 1995. (c) 69,469,148 shares were represented at the annual meeting. Stockholders approved the following proposals: (i) Election of Class II Directors: VOTES VOTES FOR WITHHELD ---------- -------- Dr. Robert J. Glaser 68,608,542 860,606 Dean O. Morton 68,691,752 777,396 (ii) An amendment and restatement of ALZA's 1992 Stock Option Plan to (i) increase by 3,000,000 the number of shares of common stock reserved for issuance under the plan; (ii) to limit the number of shares as to which options may be granted to any participant under the plan in any one year period and in connection with an offer of employment; (iii) to provide for grants of restricted stock under the plan; and (iv) to rename the plan the ALZA Corporation Amended and Restated Stock Plan. There were 54,959,655 votes in favor of the amendment, 11,383,995 votes against, 1,758,172 abstentions and 1,367,326 broker non-votes. -14- ALZA CORPORATION June 30, 1995 (iii) An amendment and restatement of ALZA's 1984 Employee Stock Purchase Plan (i) to increase by 500,000 the number of shares of common stock reserved for issuance under the plan; (ii) to provide for semi-annual (in lieu of annual) purchases and enrollments; and (iii) to rename the plan the ALZA Corporation Amended and Restated Employee Stock Purchase Plan. There were 64,315,853 votes in favor of the amendment, 1,654,361 votes against, 1,753,563 abstentions and 1,745,371 broker non-votes. (iv) The ratification of the appointment of Ernst & Young LLP as ALZA's independent auditors for the fiscal year ended December 31, 1995. There were 68,068,969 votes in favor, 948,982 votes against, 451,197 abstentions and no broker non-votes. Stockholders rejected a stockholder proposal to recommend that ALZA's Board of Directors take the necessary steps to adopt and implement a policy of cumulative voting for all elections of directors. There were 16,005,051 votes in favor of the amendment, 39,014,464 votes against, 2,288,981 abstentions and 12,160,652 broker non-votes. -15- ALZA CORPORATION June 30, 1995 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.2 Composite By-laws of ALZA Corporation as restated on February 10, 1994 and amended on August 11, 1994 and February 16, 1995 10.2 ALZA Corporation Amended and Restated Stock Plan 11 Statement regarding weighted average common and common equivalent shares used in computation of per share earnings 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter -16- ALZA CORPORATION June 30, 1995 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALZA CORPORATION Date: August 11, 1995 By: /s/ Dr. Ernest Mario ------------------------------ Dr. Ernest Mario Co-Chairman and Chief Executive Officer Date: August 11, 1995 By: /s/ Bruce C. Cozadd ------------------------------ Bruce C. Cozadd Vice President and Chief Financial Officer -17- ALZA CORPORATION June 30, 1995 EXHIBIT INDEX EXHIBIT ------- 3.2 Composite By-laws of ALZA Corporation as restated on February 10, 1994 and amended on August 11, 1994 and February 16, 1995 10.2 ALZA Corporation Amended and Restated Stock Plan 11 Statement regarding weighted average common and common equivalent shares used in computation of per share earnings 27 Financial Data Schedule -18- EX-3.2 2 EXHIBIT 3.2 Exhibit 3.2 COMPOSITE BYLAWS OF ALZA CORPORATION REGISTERED OFFICE AND REGISTERED AGENT 1. REGISTERED OFFICE. The registered office of the corporation shall be in the City of Wilmington County of New Castle, State of Delaware. 2. OTHER OFFICES. The corporation may also have offices at such other places, both within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. MEETINGS OF STOCKHOLDERS 3. TIME AND PLACE OF MEETINGS. All meetings of the stockholders shall be held at such time and place, either within or without the State of Delaware, as shall be fixed by the Board of Directors and stated in the notice or waiver of notice of the meeting. 4. ANNUAL MEETING. An annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time and place as the Board of Directors shall each year designate. 5. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of meeting, may be called only by the Board of Directors, the Chairman of the Board or the President of the corporation. 1 6. NO ACTION WITHOUT MEETING. At any time when the corporation has more than one stockholder of any class of capital stock, no action required to be taken or which may be taken at any annual or special meeting of the stockholders of such class of capital stock of the corporation may be taken without a meeting, and the power of stockholders to consent in writing without a meeting, to the taking of any action is specifically denied. 7. NOTICE. (a) Written notice of the place, date, and time of all meetings of the stockholders shall be given not less than ten nor more than 60 days before the date on which the meeting is to be held to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the corporation). (b) When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken and the adjournment is for not more than thirty days; provided, however, that if the date of any adjourned meeting is more than thirty days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original 2 meeting. 8. NOMINATIONS AND PROPOSALS. (a) The Board of Directors of the corporation may nominate candidates for election as directors of the corporation and may propose such other matters for approval of the stockholders as the board deems necessary or appropriate. (b) Any stockholder entitled to vote for directors may nominate candidates for election as directors of the corporation; provided, however, that so long as the corporation has more than one stockholder, no nominations for director of the corporation by any person other than the Board of Directors shall be presented to any meeting of stockholders unless the person making the nomination is a record stockholder and shall have delivered a written notice to the Secretary of the corporation no later than the close of business 60 days in advance of the stockholder meeting or ten days after the date on which notice of the meeting is first given to the stockholders, whichever is later. Such notice shall (i) set forth the name and address of the person advancing such nomination and the nominee, together with such information concerning the person making the nomination and the nominee 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 election of such nominee, and (ii) shall include the duly executed written consent of such nominee to serve as director if elected. (c) No proposal by any person other than the Board of Directors shall be submitted for the approval of the stockholders at any regular or special meeting of the stockholders of the 3 corporation unless the person advancing such proposal shall have delivered a written notice to the Secretary of the corporation no later than the close of business 60 days in advance of the stockholder meeting or ten days after the date on which notice of the meeting is first given to the stockholders, whichever is later. Such notice shall set forth the name and address of the person advancing the proposal, any material interest of such person in the proposal, and such other information concerning the person 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. 9. QUORUM AND REQUIRED VOTE. (a) At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote on the subject matter at the meeting, present in person or by proxy shall constitute a quorum, unless or except to the extent that the presence of a larger number may be required by law. Except as provided in Section 42 of these bylaws or as may be required by law, the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. (b) If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time. (c) If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote 4 thereat, stating that it will be held with those present constituting a quorum, then, except as provided in Section 42 of these bylaws or as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. 10. VOTE REQUIRED FOR BUSINESS COMBINATION. (a) In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as expressly provided in Subparagraph (b) of this Section 10, any Business Combination (as hereinafter defined) with a Related Person (as hereinafter defined) shall require the affirmative vote of the holders of at least eighty percent of the voting power of all of the then outstanding shares of all classes of stock of the corporation entitled to vote for the election of directors (the "Voting Stock"), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement. (b) The provisions of this Section 10 shall not apply to any Business Combination if: (i) A majority of the Continuing Directors (as hereinafter defined) of the corporation then in office has by resolution approved the Business Combination either in advance of or subsequent to such Related Person's having become a Related Person; (ii) The Business Combination is solely between the 5 corporation and another corporation, one hundred percent of the Voting Stock of which is owned directly or indirectly by the corporation; or (iii) The Business Combination is a merger or consolidation and the cash or fair market value (as determined by a majority of the Continuing Directors) of the property, securities or other consideration to be received per share by holders of stock of the corporation in the Business Combination is not less than the Highest Per Share Price or the Highest Equivalent Price (as these terms are hereinafter defined) paid by the Related Person in acquiring any of the corporation's stock. (c) For the purpose of this Section 10: (i) The term "Business Combination" shall mean (A) any merger or consolidation of the corporation with or into a Related Person, (B) any sale, lease, exchange, transfer or other disposition, including, without limitation, a mortgage or any other security device, of assets of the corporation or any subsidiary of the corporation, to a Related Person if such assets constitute a Substantial Part (as hereinafter defined), (C) any merger or consolidation of a Related Person with or into the corporation or a subsidiary of the corporation, (D) the issuance of any securities of the corporation or a subsidiary of the corporation to a Related Person, (E) any recapitalization that would have the effect of increasing the voting power in the corporation of a Related Person, and (F) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. 6 (ii) The term "Related Person" shall mean any individual, corporation or other entity which, alone or together with (A) its "Affiliates" and "Associates" (as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect at the date of the adoption of this Section 10 by the stockholders of the corporation (collectively, and as so in effect, the "Exchange Act")) or (B) members of a "group" (as defined with reference to Section 13(d)(3) of the Exchange Act) of which such individual, corporation or other entity is a member, "beneficially owns" (as defined in Rule 13d-3 of the Exchange Act) shares of the outstanding common stock of the corporation which, in the aggregate, have (or, in the case of convertible securities, would have, if such convertible securities were, at the time the determination is being made, convertible and had been converted) 20 percent or more of the total combined power to elect directors of the corporation. (iii) For the purposes of subparagraph (b)(iii) of this Section 10, the term "other consideration to be received" shall include, without limitation, common stock of the corporation retained by its existing stockholders in the event of a Business Combination in which the corporation is the surviving corporation. (iv) The term "Continuing Director" shall mean a director who is unaffiliated with the Related Person and who was a member of the Board of Directors of the corporation immediately prior to the time that the Related Person involved in a Business Combination became a Related Person. 7 (v) The term "Substantial Part" shall mean assets having a book value in excess of 30 percent of the book value of the total consolidated assets of the corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is made. (vi) The terms "Highest Per Share Price" and "Highest Equivalent Price" shall mean the following: If there is only one class of capital stock of the corporation issued and outstanding, the Highest Per Share Price shall mean the highest price that can be determined by a majority of the Continuing Directors then in office to have been paid at any time by the Related Person for any share or shares of that class of capital stock. If there is more than one class of capital stock of the corporation issued and outstanding, the Highest Equivalent Price shall mean, with respect to each class of capital stock of the corporation, the amount determined by a majority of the Continuing Directors then in office, on whatever basis they believe is appropriate, to be the highest per share price equivalent to the highest per share price that can be determined to have been paid at any time by the Related Person for any share or shares of any class of capital stock of the corporation. In determining the Highest Per Share Price and Highest Equivalent Price, all purchases by the Related Person shall be taken into account regardless of whether the shares were purchased before or after the Related Person became a Related Person. Also, the Highest Per Share Price and the Highest Equivalent Price shall include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by the Related Person with respect to the shares of capital stock of the 8 corporation acquired by the Related Person. (d) A majority of the Continuing Directors of the corporation then in office (including directors purporting, in good faith, to be Continuing Directors) shall have the power and duty to determine, for the purposes of this Section 10, on the basis of information then known to them, whether any individual, corporation or other entity is a Related Person. Any such determination made in good faith shall be conclusive and binding for all purposes of this Section 10. (e) The provisions set forth in this Section 10 may not be repealed or amended in any respect without: (i) The affirmative vote of not less than 80 percent of the Board of Directors and of a majority of the Continuing Directors then in office, and (ii) The affirmative vote of the holders of 80 percent or more of the Voting Stock, voting together as a single class; PROVIDED, HOWEVER, that the provisions of this paragraph (e) shall not apply to any amendment or repeal of any provision of this Section 10 that is recommended to the stockholders by a resolution adopted by (A) a majority of the Board of Directors, and (B) not less than 80 percent of the Continuing Directors then in office, in which case any such amendment or repeal shall require only the affirmative vote of a majority of the Voting Stock. 11. ORGANIZATIONS. The Chairman of the Board or, in his or her absence, the President of the corporation or, in the absence 9 of both, such person as may be designated by the Board of Directors or, if there is no such designation, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. 12. CONDUCT OF BUSINESS. The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. 13. PROXIES AND VOTING. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedures established for the meeting. 14. STOCK LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each such stockholder and the number of shares of each class registered in his or her name, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any stockholder present. 10 BOARD OF DIRECTORS 15. POWERS. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors. 16. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The number of directors of the corporation who shall constitute the whole board shall be nine but may be increased or decreased from time to time either by a resolution or bylaw duly adopted by the Board of Directors. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1988; each initial director in Class II shall hold office until the annual meeting of stockholders in 1989; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1990. Notwithstanding the foregoing, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. [Section 16 amended by the Board of Directors on February 16, 1995, effective May 11, 1995] 17. REMOVAL. Any director may be removed from office, only with cause, by the holders of a majority of the shares entitled to vote in an election of directors. 18. RESIGNATIONS. A director may resign at any time by giving written notice to the corporation. Such resignation shall be effective when given unless the director specifies a later time. The resignation shall be effective regardless of whether 11 it is accepted by the corporation. 19. NEWLY-CREATED DIRECTORSHIPS AND VACANCIES. In the event of any increase or decrease in the authorized number of directors, any newly-created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal in number as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Newly-created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office (and not by stockholders), even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. 20. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. 21. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or any two directors. 12 22. NOTICE OF MEETINGS. (a) Special meetings, and regular meetings not fixed as provided in these Bylaws, shall be held upon four days' notice by mail or two days' notice delivered personally or by telephone or telegraph to each director who does not waive such notice. The notice shall state the place, date and time of the meeting. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. (b) Notice of a reconvened meeting need not be given if the place, date and time of the reconvened meeting are announced at the meeting at which the adjournment is taken and the adjournment is not for more than 24 hours. If a meeting is adjourned for more than 24 hours, notice of the reconvened meeting shall be given prior to the time of that reconvened meeting to the directors who were not present at the time of the adjournment. 23. ACTION WITHOUT MEETING. Except as required by law, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or any committee thereof, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the Board of Directors or committee. 24. MEETING BY TELEPHONE. Except as required by law, members of the Board of Directors or any committee thereof may participate in the meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment if all persons who participate in the meeting can hear 13 each other. Such participation in a meeting shall constitute presence in person at such meeting. 25. QUORUM AND MANNER OF ACTING. At any meeting of the Board of Directors, a majority of the directors then in office shall constitute a quorum for all purposes. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time, without further notice or waiver thereof. Except as provided herein, the act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. 26. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend or to authorize the issuance of stock if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. The principles set forth in Sections 15 14 through 25 of these Bylaws shall apply to committees of the Board of Directors and to actions taken by such committees. All members of any Audit Committee of this Company designated by the Board of Directors shall be directors who are not also employees of the corporation. 27. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof, and may receive fixed fees and other compensation for their services as directors. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation for such service. OFFICERS 28. TITLES. The officers of the corporation shall be chosen by the Board of Directors and shall include a Chairman of the Board or a President or both, a Secretary and a Treasurer. The Board of Directors may also appoint one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers or other officers. Any number of offices may be held by the same person. All officers shall perform their duties and exercise their powers subject to the Board of Directors. 29. ELECTION, TERM OF OFFICE AND VACANCIES. The officers shall be elected annually by the Board of Directors at its regular meeting following the annual meeting of the stockholders, 15 and each officer shall hold office until the next annual election of officers and until the officer's successor is elected and qualified, or until the officer's death, resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. Any vacancy occurring in any office may be filled by the Board of Directors. 30. RESIGNATION. Any officer may resign at any time upon notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. The resignation of an officer shall be effective when given unless the officer specifies a later time. The resignation shall be effective regardless of whether it is accepted by the corporation. 31. CHIEF EXECUTIVE OFFICER. The Board of Directors shall designate either the Chairman of the Board or the President as the chief executive officer and may prescribe the duties and powers of the chief executive officer. In the absence of such a designation, the Chairman of the Board shall be the chief executive officer. If there is no Chairman of the Board, the President shall be the chief executive officer. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the chief executive officer shall have the responsibility for the general management and control of the business and affairs of the corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors. Either the Chairman of the Board or the 16 President and such other officers as may, from time to time, be expressly designated by the Board of Directors shall have power to sign all stock certificates, contracts and other instruments of the corporation which are authorized. 32. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. At the request of the Secretary, or in the Secretary's absence or disability, any Assistant Secretary shall perform any of the duties of the Secretary and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Secretary. 33. TREASURER AND ASSISTANT TREASURERS. Unless the Board of Directors designates another chief financial officer, the Treasurer shall be the chief financial officer of the corporation. Unless otherwise determined by the Board of Directors or the chief executive officer, the Treasurer shall have custody of the corporate funds and securities, shall keep adequate and correct accounts of the corporation's properties and business transactions, shall disburse such funds of the corporation as may be ordered by the Board or the chief executive officer (taking proper vouchers for such disbursements), and shall render to the chief executive officer and the Board, at regular meetings of the Board or whenever the Board may require, an account of all transactions and the financial condition of the 17 corporation. At the request of the Treasurer, or in the Treasurer's absence or disability, any Assistant Treasurer may perform any of the duties of the Treasurer and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. 34. OTHER OFFICERS. The other officers of the corporation, if any, shall exercise such powers and perform such duties as the Board of Directors or the chief executive officer shall prescribe. 35. COMPENSATION. The Board of Directors shall fix the compensation of the chief executive officer and may fix the compensation of other employees of the corporation, including the other officers. If the Board does not fix the compensation of the other officers, the chief executive officer shall fix such compensation. 36. ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, the Chairman of the Board, the President or any officer of the corporation authorized by the Chairman of the Board or the President, shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of stockholders of, or with respect to any action of stockholders of, any other corporation in which the corporation may hold securities and otherwise shall have power to exercise any and all rights and powers which the corporation may possess by reason of its ownership of securities in such other corporation. 18 STOCK AND DIVIDENDS 37. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a certificate signed by, or in the name of, the corporation by the Chairman, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificates may be facsimile. 38. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with the next sentence of this Section, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. 39. REGULATIONS. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. RECORD DATE 40. RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at 19 any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix in advance, a record date, which shall not be more than 60 nor less than ten days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed, the record date (1) for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the reconvened meeting. WAIVER OF NOTICE 41. WAIVER OF NOTICE. Whenever notice is required to be given by law or these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting 20 for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless so required by the Certificate of Incorporation or these Bylaws, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. AMENDMENTS 42. AMENDMENTS. These Bylaws may be amended or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors. Notwithstanding the foregoing, no provision of Section 10 may be amended or repealed except in accordance with Section 10(e) and no provision of Sections 16 or 19 may be amended or repealed except by a resolution adopted by the affirmative vote of not less than 75% of the members of the Board of Directors or by the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock entitled to vote in an election of directors. MISCELLANEOUS 43. FISCAL YEAR. The fiscal year of the corporation shall be as fixed by the Board of Directors. 44. TIME PERIODS. In applying any provision of these Bylaws which requires that an act be done or not done within a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, 21 calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. 45. FACSIMILE SIGNATURES. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors. 46. CORPORATE SEAL. The Board of Directors may provide a suitable seal, containing the name of the corporation, which seal shall be in the charge of the Secretary. Duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. 47. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant or by an appraiser. 48. INDEMNIFICATION OF EMPLOYEES. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("a proceeding"), because he or she is or was an employee of the corporation or is or was serving at the request of the corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans from the date of plan adoption), shall be indemnified and held harmless by the corporation against all expense, liability and loss (including attorneys' fees, judgments, penalties, fines, Employee Retirement Income Security Act of 1974 excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided in any event that such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation; and provided further that the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the corporation. Such indemnification shall continue as to a person who has ceased to be an employee and shall inure to the benefit of his or her heirs, executors or administrators. [Section 48 adopted by the Board of Directors on August 11, 1994] 22 EX-10.2 3 EXHIBIT 10.2 Exhibit 10.2 ALZA CORPORATION AMENDED AND RESTATED STOCK PLAN 1. PURPOSE. The purpose of this ALZA Corporation Amended and Restated Stock Plan (the "Plan") is to attract, retain and motivate key employees (including employees who are also directors), directors and consultants of ALZA Corporation (the "Company") and its subsidiaries by giving them the opportunity to acquire stock ownership in the Company. Grants under this Plan may consist of incentive stock options, intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as it may be amended from time to time (the "Code"), or nonstatutory stock options (in either case, where unspecified, "options"). This Plan also provides for the award of restricted stock. 2. EFFECTIVE DATE AND TERM OF PLAN. The effective date of this Plan is May 4, 1992, the date of the approval of the 1992 Stock Option Plan by the Company's stockholders. This Plan shall terminate automatically ten (10) years after its effective date unless terminated earlier by the Board of Directors (the "Board") under Section 13 hereof. No grant of options or restricted stock shall be made after termination of this Plan, but all grants made prior to termination shall remain in effect in accordance with their terms. 3. SHARES SUBJECT TO THE PLAN. (a) NUMBER AND SOURCE OF SHARES. Subject to the provisions of Section 9, the total number of shares of stock reserved for grants under this Plan is 6,000,000 shares of Common Stock, $. 01 par value, of the Company (the "Stock"). If any option terminates or expires without being exercised in full, or if any shares of Stock issued as restricted stock are forfeited prior to conferring on their holder benefits of ownership other than voting rights or accumulated dividends that are not realized, the shares issuable under such option or so forfeited shall become available again for grant under this Plan. The shares to be issued hereunder may consist of authorized and unissued shares or treasury shares. (b) INDIVIDUAL LIMITATION. The Company may not grant options covering in the aggregate more than 200,000 shares of Stock (subject to adjustments and substitutions as required under Section 9 below) to any one participant in any one-year period, except that, at the time of an offer of employment, the Company may grant options covering in the aggregate up to 750,000 shares of Stock (subject to adjustments and substitutions as required under Section 9 below). 4. ADMINISTRATION OF THE PLAN. This Plan shall be administered by the Board or by a committee that meets the requirements of Rule 16b-3 under the Securities Exchange Act of 1934 as in effect from time to time (in either case, the "Administrator"). The Administrator may delegate nondiscretionary administrative duties to such employees of the Company or a subsidiary as it deems proper. The Administrator may also make rules and regulations which it deems useful to administer this Plan. Any decision or action of the Administrator in connection with this Plan or any options or -2- restricted stock granted or shares of Stock purchased under this Plan shall be final and binding. No member of the Board shall be liable for any decision, action or omission respecting this Plan, or any options or restricted stock granted or shares of Stock issued under this Plan. 5. ELIGIBILITY. (a) Incentive stock options may be granted under this Plan only to employees of the Company or a subsidiary, including employees who may also be officers or directors of the Company or any subsidiary of the Company. Nonstatutory options and restricted stock may be granted to employees (including employees who are also directors), directors, consultants and potential employees (in contemplation of and subject to employment) of the Company or any subsidiary of the Company; provided, however, that grants to directors who are not also employees of the Company may be made only in accordance with Section 5(b) below. Participants in this Plan shall be recommended for grants hereunder by the Chief Executive Officer or Chief Operating Officer of the Company and approved by the Administrator. Determination by the Administrator as to eligibility shall be conclusive. (b) Notwithstanding any other provision of this Plan, directors who are not also employees of the Company may receive grants under this Plan only in accordance with this Section 5(b). Automatically and in connection with the offer of directorship to a person who is not an employee of the Company, and subject to that person becoming a director of the Company within the time period set forth in the offer, the person shall be granted a nonstatutory option to purchase 20,000 shares of Stock at the -3- fair market value of the Stock on the date of the offer. Such option shall vest in five equal annual increments of 4,000 shares for each increment, beginning on the first anniversary of the date on which the person first attends a meeting of the Board following his or her election as a director (the "Service Date"), and shall be exercisable until the date that is ten (10) years after the date of grant. Assuming that the director is a non-employee director on the fifth anniversary of his or her Service Date, such director automatically shall be granted on such fifth anniversary of his or her Service Date a further nonstatutory option to purchase 10,000 shares of Stock at the fair market value of the Stock on the date of the grant. Such additional option shall vest in five equal annual increments of 2,000 shares each, beginning one year after the date of grant, and shall be exercisable until the date that is ten (10) years after the date of grant. Thereafter, on each subsequent fifth anniversary of his or her Service Date, assuming the director is then a non- employee director, a further option to purchase an additional 10,000 shares of Stock automatically shall be granted to such director on the same basis as set forth in the preceding sentence. The Service Date for a director who is also an employee of the Company but who terminates employment with the Company while remaining a director shall, for purposes of this Section 5(b), be deemed to be the date on which such director first attends a meeting of the Board following the termination of his or her employment with the Company. If such director has not been granted options to purchase Stock within five years prior to his or her Service Date, he or she automatically shall be granted -4- a nonstatutory option to purchase 20,000 shares of Stock on the same basis as set forth above for a grant to a person becoming a director of the Company; and, thereafter, on each subsequent fifth anniversary of his or her Service Date, assuming the director is then a non-employee director, a further option to purchase an additional 10,000 shares of Stock automatically shall be granted to such director on the same basis as set forth above for further options. However, if such director has been granted options to purchase Stock within five years prior to his or her Service Date, he or she shall automatically be granted a nonstatutory option to purchase 10,000 shares of Stock on the same basis as set forth above for further options on the fifth anniversary of the date of the last grant of options by the Company to such person prior to the termination of his or her employment with the Company (the "Initial Grant Date"); and, thereafter, on each subsequent fifth anniversary of his or her Initial Grant Date, assuming the director is then a non-employee director, a further option to purchase an additional 10,000 shares of Stock automatically shall be granted to such director on the same basis as set forth above for further options. 6. OPTIONS. (a) GRANT. The Administrator may, in its discretion, grant options under this Plan at any time and from time to time before the expiration of this Plan. The Administrator shall specify the date of grant or, if it fails to, the date of grant shall be the date of the action taken by the Administrator to grant the option (in either case, the "Grant Date"). If an incentive stock option is approved in anticipation of employment, -5- the Grant Date shall in any event not be prior to the date the intended optionee is first treated as an employee of the Company or any subsidiary for payroll purposes. (b) OPTION AGREEMENTS. As soon as practicable after the Grant Date, the Company will provide the optionee a written stock option agreement (the "Option Agreement"), which designates the option as an incentive stock option or nonstatutory option and which identifies the Grant Date, the number of shares of Stock covered by the option, the option price and the terms and conditions for exercise of the option. (c) TERMS AND CONDITIONS OF OPTIONS. Options granted under this Plan shall be subject to the following additional terms and conditions and such other terms and conditions not inconsistent with this Plan as the Administrator may impose: (i) EXERCISE OF OPTION. In order to exercise all or any portion of an incentive stock option granted under this Plan (or any other option which, by its terms, so requires), an optionee must remain in the employ of the Company or a subsidiary of the Company until the date on which the option (or portion thereof) becomes exercisable (the "Vesting Date"). An option shall be partially exercisable on or after each Vesting Date with respect to the percentage of total shares of Stock covered by the option set out in the Option Agreement. If an option (or portion thereof) is not exercised on the earliest Vesting Date on which it becomes exercisable, it may be exercised thereafter at any time prior to its expiration date; provided, however, that in no event may an incentive stock option granted under this Plan be exercised more than ten (10) years -6- from the Grant Date. If the Company grants an incentive stock option to an optionee who owns, on the Grant Date, directly or by attribution, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the company or any subsidiary, the option shall not be exercisable more than five (5) years after the Grant Date. Notwithstanding any other provision of this Plan, to the extent required by Section 422(d) of the Code, the aggregate value of all shares first becoming exercisable by an optionee during any year, under all incentive stock options granted to such optionee covering stock of the Company (or any company which, at the time of grant, was a parent or subsidiary of the Company), shall not exceed $100,000 or such other amount as may be in effect from time to time. If by their terms such incentive stock options, when taken together, would first become exercisable at a faster rate then, except as otherwise specifically provided by the Administrator in its discretion, the portion thereof which exceeds such amount shall be nonstatutory options. For this purpose, value shall be the fair market value of the option stock when the options were granted and options shall be taken into account in the order in which they were granted. In no event may the operation of this Section 6(c)(i) cause an option to vest before its terms or, having vested, cease to be vested. Nonstatutory options granted to employees under this Plan shall be exercisable until ten (10) years after the Grant Date, unless the Administrator shall determine otherwise. -7- (ii) OPTION PRICE. The option price of incentive stock options shall be at least one-hundred percent (100%) of the fair market value of the shares covered by the option on the Grant Date, as determined in good faith by the Administrator and, in the case of nonstatutory options, shall be at least one- hundred percent (100%) of the fair market value of the shares covered by the option on the Grant Date unless the Administrator specifically determines otherwise, in which event the option price of such nonstatutory options shall not be less than eighty- five percent (85%) of the fair market value of the shares covered thereby on the Grant Date, determined in the same manner. If the Company grants an incentive stock option to an optionee owning on the Grant Date, directly or by attribution, shares possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any subsidiary, the option price shall be at least one-hundred ten percent (110%) of the fair market value of the shares covered by the option on the Grant Date determined in the same manner. (iii) METHOD OF EXERCISE. To the extent the right to purchase shares has accrued, an option (or portion thereof) may be exercised from time to time in accordance with its terms by written notice from the optionee to the Company stating the number of shares with respect to which the option is being exercised and accompanied by payment in full of the exercise price of the shares. Payment may be made in cash, by check, or by delivery of shares of Stock (duly endorsed in favor of the Company or accompanied by a duly endorsed stock power), by a combination of the above, or any other form of consideration -8- approved by the Administrator (including payment in accordance with a cashless exercise program as permitted under Regulation T promulgated by the Federal Reserve Board, as amended from time to time). Any shares delivered to the Company as payment upon exercise of an option shall be valued at their fair market value as of the date of exercise of the option determined in good faith by the Administrator. Options may not be exercised by any optionee by the delivery of shares of stock more frequently than once every six months. (iv) RESTRICTIONS ON OPTION SHARES. At the time it grants options under this Plan, the Company may retain for itself (or others) rights to purchase the shares acquired under the option or impose other restrictions on the shares. The terms and conditions of any such rights or other restrictions shall be set forth in the Option Agreement evidencing the option. (v) NONASSIGNABILITY OF OPTION RIGHTS. No option shall be transferable other than by will or by the laws of descent and distribution or a qualified domestic relations order and, otherwise during the lifetime of an optionee, only the optionee may exercise an option. (vi) EXERCISE AFTER TERMINATION OF SERVICE OR DEATH. If for any reason other than permanent and total disability or death, an optionee ceases to be employed by, or a consultant or director to (if such relationship forms the sole basis for the grant), the Company or a subsidiary, options held at the date of such termination (to the extent then exercisable) may be exercised at any time within three months after the date of such termination (but in no event after the expiration date of -9- the option as set forth in the Option Agreement). If an optionee becomes permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) or dies while employed by, or a consultant or director to, the Company or a subsidiary, (or, if the optionee dies within the period that the option remains exercisable after termination of employment, consultancy or directorship), options then held (to the extent then exercisable) may be exercised by the optionee, the optionee's personal representative, or by the person to whom the option is transferred by will or the laws of descent and distribution, at any time within one year after the disability or death or any lesser period specified in the Option Agreement (but in no event after the expiration date of the option as set forth in the Option Agreement). 7. RESTRICTED STOCK. (a) GRANT. The Administrator may grant restricted stock under this Plan at any time and from time to time before the expiration of this Plan. (b) RESTRICTED STOCK AGREEMENT. As soon as practicable after the grant of restricted stock, which in no event shall be later than thirty (30) days after the grant date of the restricted stock, the Company will provide the participant with a written restricted stock agreement setting forth the terms and conditions of the grant (the "Restricted Stock Agreement"). (c) PRICE. Participants awarded restricted stock, within fifteen (15) days of receipt of the Restricted Stock Agreement, shall pay to the Company an amount equal to the par value of the Stock subject to the grant. If such payment is not -10- made and received by the Company by such date, the grant of restricted stock shall lapse. (d) RESTRICTIONS. Subject to the provisions of the Plan and the Restricted Stock Agreement, during a period set by the Administrator, commencing with, and not exceeding ten (10) years from, the grant date of the restricted stock (the "Restriction Period"), the participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of restricted stock. Within these limits, the Administrator may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, performance or such other factors or criteria as the Administrator may determine. (e) DIVIDENDS. Unless otherwise determined by the Administrator, cash dividends with respect to shares of restricted stock shall be automatically reinvested in additional restricted stock, and dividends payable in Stock shall be paid in the form of restricted stock. (f) TERMINATION. Except to the extent otherwise provided in the Restricted Stock Agreement and pursuant to Section 7(d), upon termination of a participant's employment for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant. 8. PAYMENT OF TAXES. (a) The exercise of an option (regardless of the form of payment for exercise of the option) or the transfer or other disposition of restricted stock shall be conditioned upon payment in cash, or provision satisfactory to the Administrator for -11- payment to the Company, of any federal and state withholding taxes which, in the Administrator's judgement, are payable in connection therewith. (b) If and to the extent consented to by the Administrator in its sole discretion at any time after an election pursuant to this Section 8(b) is made, a participant may elect in writing to have Stock to be obtained upon exercise of an option or lapse of restrictions applicable to restricted stock withheld by the Company on behalf of the optionee to pay the amount of tax required by law (as determined by the Company) to be withheld. Any such election by a participant subject (in the view of the Company) to the "short swing" profit rules of the Securities and Exchange Commission shall be subject to the following limitations: (i) such election must be made at least six months before the date that the amount of tax to be withheld in connection with such exercise or lapse of restrictions is determined (the "Tax Date") and shall be irrevocable; or (ii) such election (A) must be made in (or made earlier to take effect in) any ten-day period beginning on the third business day following the date of release for publication of the Company's quarterly or annual summary statements of earnings and (B) the option or restricted stock must be held at least six months prior to the Tax Date. Any shares or other securities so withheld will be valued by the Company as of the Tax Date. The right to so withhold shares shall relate separately to each option or any increment thereof. (c) If and to the extent consented to by the Administrator in the manner described in Section 8(b), an -12- optionee may elect at any time to deliver previously owned shares of Stock to satisfy the tax obligations in connection with such options or restricted stock. 9. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of outstanding options shall not affect the Company's right to effect adjustments, recapitalization, reorganizations, or other changes in its or any other corporation's capital structure or business, any merger or consolidation, any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock, the dissolution or liquidation of the Company's, or any other corporation's, assets or business, or any other corporate act whether similar to the events described above or otherwise. Subject to Section 10, if the number of outstanding shares of Stock is increased or decreased in number or changed into or exchanged for a different number or kind of securities of the Company or any other corporation by reason of a recapitalization, reclassification, stock split, combination of shares, stock dividend or other event, the number and kind of securities with respect to which options or restricted stock may be granted under this Plan, the individual limitations under Section 3(b) above, the number and kind of securities as to which outstanding options may be exercised, the option price at which outstanding options may be exercised hereunder shall be proportionately adjusted. 10. DISSOLUTION, LIQUIDATION, MERGER. In the event of a dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving corporation, a reverse merger in which the Company is the -13- surviving corporation but in which more than fifty percent (50%) of the shares of its Stock outstanding before the merger are held, after the merger, by holders different from those immediately prior to the merger, or a sale of more than eighty percent (80%) of the assets of the Company, (a) the time at which each outstanding option may be exercised (subject, in the case of incentive stock options, to the limitations on exercisability set forth in Section 6(c)(i) of this Plan) shall be accelerated at a time such that the optionee (upon exercise of the option) would be eligible to receive the consideration payable to holders of Stock in connection with such liquidation, dissolution, merger, consolidation, reverse merger or sale, and (b) the restrictions applicable to any restricted stock shall lapse. 11. RIGHTS AS STOCKHOLDER. Unless the Plan or the Administrator expressly specify otherwise, a participant shall have no rights as a stockholder with respect to any shares of Stock covered by a grant hereunder until the date of issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of a certificate representing the shares of Stock. Subject to Sections 9 and 10, no adjustment shall be made for dividends or other rights for which the record date is prior to the date the certificate is issued. 12. DISQUALIFYING DISPOSITIONS. If shares of Stock acquired upon exercise of an incentive stock option are disposed of in a "disqualifying disposition" (within the meaning of Section 422 of the Code), the holder of the shares shall notify the Company in writing, within five days after the disposition, of the date and the terms of such disposition. In the event of -14- any such disposition, the holder will comply with any other requirements imposed by the Company in order to enable the Company to secure the related income tax deduction to which it is entitled. 13. TERMINATION OR AMENDMENT. (a) The Board may amend, alter or discontinue this Plan, but no amendment, alteration or discontinuance shall be made which would impair the rights of a participant under an outstanding grant without the participant's consent. In addition, the Board may not amend or alter the Plan without the approval of stockholders of the Company entitled to vote at a duly held stockholders' meeting or by an action by written consent and, if at a meeting, a quorum of the voting power of the Company is represented in person or by proxy, where such amendment or alteration would, except as expressly provided in the Plan, increase the total number of shares reserved for issuance pursuant to grants under the Plan or in such other circumstances as the Board deems appropriate to comply with Rule 16b-3 or with Section 422 of the Code or otherwise. (b) Notwithstanding Section 13(a), except as may be necessary to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder, the Plan shall not be amended more than once every six months if any such amendment would have the effect of amending in any way the provisions set forth in Section 5(b) of the Plan relating to automatic stock option grants to directors. 14. PARENT AND SUBSIDIARY. As used in this Plan, "parent" and "subsidiary" mean any corporation in an unbroken chain of -15- corporations which includes the Company if, at the relevant time, each of the corporations other than the last corporation in the chain owns stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock of one of the other corporations in the chain. 15. GOVERNING LAW. This Plan and the rights of all persons under this Plan shall be construed in accordance with and under applicable provisions of the Code and the laws of the State of California. * * * * * * * * * The Board adopted the ALZA Corporation 1992 Stock Option Plan on January 30, 1992 and the stockholders approved it on May 4, 1992. The Board amended the ALZA Corporation 1992 Stock Option Plan on February 16, 1995, renaming it the ALZA Corporation Amended and Restated Stock Plan and the stockholders approved the amendments on May 11, 1995. -16- EX-11 4 EXHIBIT 11 ALZA CORPORATION June 30, 1995 EXHIBIT 11 Statement Regarding Weighted Average Common and Common Equivalent Shares Used in Computation of Per Share Earnings (In thousands)
PRIMARY ------------------------------------------------------- QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1995 1994 1995 1994 ------- ------- ------- -------- Common stock 82,163 81,750 82,118 81,701 $25 warrants - - - - $65 warrants - - - - 5 1/4% zero coupon convertible subordinated debentures - - - - Stock options 250 563 283 608 ------ ------ ------ ------ Average shares 82,413 82,313 82,401 82,309 ------ ------ ------ ------ ------ ------ ------ ------
FULLY DILUTED ------------------------------------------------------- QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1995 1994 1995 1994 ------- ------- ------- -------- Common stock 82,163 81,750 82,118 81,701 $25 warrants - - - - $65 warrants - - - - 5 1/4% zero coupon convertible subordinated debentures - - - - Stock options 451 564 384 608 ------ ------ ------ ------ Average shares 82,614 82,314 82,502 82,309 ------ ------ ------ ------ ------ ------ ------ ------
ALZA CORPORATION June 30, 1995 Primary and fully diluted earnings per share are based on weighted average common and dilutive common equivalent shares, including ALZA common stock, warrants and options, for the period each was outstanding. The 5 1/4% zero coupon convertible subordinated debentures (issued in July 1994) are considered common stock equivalents; they were antidilutive for the quarter and six months ended June 30, 1995. Fully diluted earnings per share are not presented on the face of the condensed consolidated statement of income (unaudited) since dilution is less than 3% for each period presented. EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF FORM 10-Q DATED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1995 JUN-30-1995 77 305 95 0 35 539 332 76 862 52 353 308 0 0 103 862 38 163 33 108 0 0 11 56 21 34 0 0 0 34 .42 .42