-----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, Tn5KoUqTrAyMNV5+fb99EfbBe4umVPgYbcpRG9RaMnBlFs5j9wB8gn2YWm3Q0Boo QHxJAXWPUltHcsW3BK7CHA== 0000912057-99-005141.txt : 19991115 0000912057-99-005141.hdr.sgml : 19991115 ACCESSION NUMBER: 0000912057-99-005141 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL MICROWAVE CORP /DE/ CENTRAL INDEX KEY: 0000812703 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 770016028 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15895 FILM NUMBER: 99748390 BUSINESS ADDRESS: STREET 1: 170 ROSE ORCHARD WAY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089430777 MAIL ADDRESS: STREET 1: 170 ROSE ORCHARD WAY CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended Commission file number: 0-15895 September 30, 1999 - ------------------ DIGITAL MICROWAVE CORPORATION ----------------------------- (Exact name of registrant specified in its charter) DELAWARE 77-0016028 - ---------------------------------------- --------------------- (State or other jurisdiction (IRS employer of incorporation or organization) identification number) 170 Rose Orchard Way SAN JOSE, CA 95134 - ---------------------------------------- --------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (408) 943-0777 ---------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- The number of outstanding shares of the Registrant's common stock, par value $.01 per share, was 64,543,343 on November 9, 1999. INDEX
PAGE COVER PAGE 1 INDEX 2 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 21 Item 5 - Other Information 21 Item 6 - Exhibits and Reports on Form 8-K 21 SIGNATURE 23
Page 2 of 23 PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS DIGITAL MICROWAVE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, 1999 March 31, 1999 ------------------ -------------- (Unaudited) ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 17,212 $ 21,518 Short-term investments 13,795 5,745 Accounts receivable, net 69,137 60,253 Inventories 45,097 50,610 Deferred tax asset 2,848 3,009 Other current assets 8,682 12,827 ------------------ -------------- TOTAL CURRENT ASSETS 156,771 153,962 PROPERTY AND EQUIPMENT, NET 41,306 43,025 OTHER ASSETS 4,472 5,177 ------------------ -------------- TOTAL ASSETS $ 202,549 $ 202,164 ------------------ -------------- ------------------ -------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt $ 1,058 $ 725 Current maturities of capital lease obligations 477 862 Accounts payable 30,987 25,116 Income taxes payable 1,251 1,399 Accrued liabilities 30,262 40,613 ------------------ -------------- TOTAL CURRENT LIABILITIES 64,035 68,715 LONG-TERM LIABILITIES: Long-term debt, net of current portion 1,571 1,896 Capital lease obligations, net of current maturities 309 340 ------------------ -------------- TOTAL LIABILITIES 65,915 70,951 ------------------ -------------- STOCKHOLDERS' EQUITY: Common stock and paid-in capital 256,427 251,135 Accumulated deficit (114,001) (115,424) Accumulated other comprehensive loss (5,792) (4,498) ------------------ -------------- TOTAL STOCKHOLDERS' EQUITY 136,634 131,213 ------------------ -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 202,549 $ 202,164 ------------------ -------------- ------------------ --------------
See accompanying Notes to Condensed Consolidated Financial Statements. Page 3 of 23 DIGITAL MICROWAVE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended September 30, September 30, ----------------------------------- ------------------------------------ 1999 1998 1999 1998 -------------- --------------- --------------- ---------------- NET SALES $ 68,527 $ 55,285 $ 134,480 $ 118,496 Cost of sales 47,911 45,476 95,747 94,978 -------------- --------------- --------------- ---------------- GROSS PROFIT 20,616 9,809 38,733 23,518 -------------- --------------- --------------- ---------------- OPERATING EXPENSES Research and development 6,336 6,303 12,104 12,886 Selling, general and administrative 12,233 14,998 23,746 31,270 Merger and restructuring charges - - - 7,213 -------------- --------------- --------------- ---------------- TOTAL OPERATING EXPENSES 18,569 21,301 35,850 51,369 -------------- --------------- --------------- ---------------- OPERATING INCOME (LOSS) 2,047 (11,492) 2,883 (27,851) OTHER INCOME (EXPENSE): Interest expense (220) (5) (465) (36) Other income (expense), net (248) 453 (639) 1,389 -------------- --------------- --------------- ---------------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 1,579 (11,044) 1,779 (26,498) Provision for income taxes 316 69 356 97 -------------- --------------- --------------- ---------------- NET INCOME (LOSS) $ 1,263 $ (11,113) $ 1,423 $ (26,595) -------------- --------------- --------------- ---------------- -------------- --------------- --------------- ---------------- BASIC EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.18) $ 0.02 $ (0.43) -------------- --------------- --------------- ---------------- -------------- --------------- --------------- ---------------- DILUTED EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.18) $ 0.02 $ (0.43) -------------- --------------- --------------- ---------------- -------------- --------------- --------------- ---------------- BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 63,924 61,492 63,424 61,421 Impact of diluted stock options and warrants 4,650 - 4,891 - -------------- --------------- --------------- ---------------- DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 68,574 61,492 68,315 61,421 -------------- --------------- --------------- ---------------- -------------- --------------- --------------- ----------------
See accompanying Notes to Condensed Consolidated Financial Statements. Page 4 of 23 DIGITAL MICROWAVE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended September 30, --------------------------------------- 1999 1998 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,423 $ (26,595) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Adjustment to conform year-end of pooled company - 1,804 Depreciation and amortization 8,889 8,997 Provision for uncollectable accounts 433 3,847 Provision for inventory reserves 1,128 3,932 Provision for warranty reserves 3,585 3,967 Changes in assets and liabilities Decrease (increase) in accounts receivable (9,798) 24,109 Decrease (increase) in inventories 4,020 (14,536) Decrease in other assets 4,841 3,171 Increase (decrease) in accounts payable 6,029 (11,237) Decrease in income tax payable (148) (562) Decrease in other accrued liabilities (13,878) (12,595) ------------- ------------ NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 6,524 (15,698) ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of available-for-sale securities (9,895) (8,658) Proceeds from available-for-sale securities 1,845 36,397 Proceeds from the sale of fixed assets and other assets - 1,767 Purchase of property and equipment (7,043) (17,681) ------------- ------------ NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (15,093) 11,825 ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payment of capital lease obligations (415) (895) Proceeds from sales of Common Stock 5,239 1,007 ------------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 4,824 112 ------------- ------------ Effect of exchange rate changes in cash (561) (264) ------------- ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (4,306) (4,025) Cash and cash equivalents at beginning of period 21,518 27,585 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,212 $ 23,560 ------------- ------------ ------------- ------------ SUPPLEMENTAL DATA Interest paid $ 412 $ 285 Income taxes paid $ 137 $ 428
See accompanying Notes to Condensed Consolidated Financial Statements. Page 5 of 23 DIGITAL MICROWAVE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of Digital Microwave Corporation and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated. Prior-year reported results have been restated to reflect the October 1998 merger with Innova Corporation ("Innova"). While the financial information furnished is unaudited, the financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in connection with the Digital Microwave Corporation financial statements included in the Company's annual report and Form 10-K for the fiscal year ended March 31, 1999. CASH AND CASH EQUIVALENTS For purposes of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market where cost includes material, labor and manufacturing overhead. Inventories consist of (in thousands):
September 30, 1999 March 31, 1999 ------------------------- -------------------- (Unaudited) Raw materials $ 22,563 $ 25,616 Work in process 11,474 9,537 Finished goods 11,060 15,457 ------------------------- -------------------- $ 45,097 $ 50,610 ------------------------- -------------------- ------------------------- --------------------
OTHER ASSETS Included in other assets are goodwill and other intangibles which are being amortized on a straight line basis over their useful lives ranging from 5 to 10 years, as well as minority investments accounted for using the cost method of accounting. Page 6 of 23 RESTRUCTURING COSTS Merger and restructuring charges of $29.9 million were recorded in Fiscal 1999, of which $7.2 million was recorded in the first quarter of Fiscal 1999 and consisted of $5.8 million related to the discontinuance of several internal information technology systems projects and $1.4 million for severance and related costs associated with a reduction in the Company's workforce. Total Fiscal 1999 charges consisted of $2.7 million for investment banker, legal, and accounting fees related to the Innova merger consummated in October 1998, $4.2 million for severance costs, $4.1 million for facility termination costs, a write-off of $5.8 million related to the discontinuance of several projects related to the implementation of software purchased for internal use, and a write-off of goodwill and certain assets related to the Company's subsidiary, Granger, Inc., totaling $13.1 million. The assets of Granger, Inc. were sold in March 1999. Approximately $12.2 million of the $29.9 million in merger and restructuring charges will be a cash outflow, of which $9.8 million has been paid as of September 30, 1999. The remaining amounts are expected to be paid before the end of Fiscal 2001, and consist of $0.5 million for severance costs, $1.5 million for facility termination costs, and $0.4 million for purchased commitments of software. CURRENCY TRANSLATION The functional currency of the Company's subsidiaries located in the United Kingdom and Latin America is the U.S. dollar. Accordingly, all of the monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars at the current exchange rate as of the applicable balance sheet date, and all non-monetary assets and liabilities are remeasured at historical rates. Sales and expenses are remeasured at the average exchange rate prevailing during the period. Gains and losses resulting from the remeasurement of the subsidiaries' financial statements are included in the Consolidated Statements of Operations. The Company's other international subsidiaries use their local currency as their functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at the balance sheet date, and income and expense accounts are translated at the average exchange rates during the year. The resulting translation adjustments are recorded directly to a separate component of stockholders' equity. FINANCIAL INSTRUMENTS The Company enters into forward foreign exchange contracts to hedge some of its firm committed backlog and certain assets and liabilities denominated in foreign currencies. At September 30, 1999, the Company had forward foreign exchange contracts to exchange various foreign currencies for U.S. dollars in the gross amount of $35.5 million. Market value gains and losses on forward foreign exchange contracts are recognized as offsets to the exchange gains or losses on the hedged transactions. Page 7 of 23 NET INCOME (LOSS) PER SHARE The Financial Accounting Standards Board (the "FASB") issued Statement on Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." Under SFAS 128, basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Net loss per share is computed using only the weighted average number of common shares outstanding during the period, as the inclusion of potentially dilutive securities would be anti-dilutive. MERGERS AND ACQUISITIONS In October 1998, stockholders approved the issuance of Common Stock of the Company pursuant to an agreement to merge with Innova Corporation ("Innova"), a Washington corporation, which designs, manufactures, markets, and supports digital microwave radio links for the worldwide telecommunications market. Under the terms of the agreement, the Company exchanged 1.05 shares of its Common Stock for each outstanding share of Innova stock, stock options, and warrants. The Company issued approximately 14.7 million shares to Innova shareholders upon consummation of the merger. The combination qualified as a tax-free reorganization accounted for as a pooling-of-interests transaction. Accordingly, the historical financial statements of the Company have been restated to reflect the results of Innova for all periods presented. The following table shows the reconciliation of the historical results of the Company to the results presented in the accompanying Statements of Operations (in thousands) for:
Three Months Ended Six Months Ended September 30, 1998 September 30, 1998 ------------------ ------------------ Revenue: Digital Microwave $ 49,611 $102,614 Innova 5,674 15,882 ------------------ ------------------ Total $ 55,285 $118,496 ------------------ ------------------ ------------------ ------------------ Net loss: Digital Microwave $ (7,085) $(21,047) Innova (4,028) (5,548) ------------------ ------------------ Total $(11,113) $(26,595) ------------------ ------------------ ------------------ ------------------
LITIGATION AND CONTINGENCIES The Company is subject to legal proceedings and claims that arise in the normal course of its business. In the opinion of management, these proceedings will not have a material adverse effect on the financial position and results of operations of the Company. Page 8 of 23 CONCENTRATION OF CREDIT RISK Trade receivables concentrated with certain customers primarily in the telecommunications industry and in certain geographic locations potentially subject the Company to concentration of credit risk. In addition to sales in Western Europe and North America, the Company actively markets and sells products in Asia, Eastern Europe, South America, the Middle East and Africa. The Company performs on-going credit evaluations of its customers' financial conditions and generally requires no collateral, although sales to Asia, Eastern Europe, South America, the Middle East and Africa are primarily paid through letters of credit. During Fiscal 1999, the Company wrote off two customer accounts which totaled $4.3 million. No significant customer accounts have been written off in Fiscal 2000. COMPREHENSIVE INCOME In June 1997, the FASB issued Statement on Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general-purpose financial statements. The following table reconciles comprehensive income under the provisions of SFAS 130 (in thousands) for:
Three Months Ended Six Months Ended September 30, September 30, --------------------- ------------------------ 1999 1998 1999 1998 ------- --------- --------- ----------- Net income (loss) $1,263 $(11,113) $ 1,423 $(26,595) Other comprehensive income (loss) net of tax: Unrealized currency loss (765) (1,117) (1,022) (3,293) Unrealized holding gain (loss) on short-term investments (263) 28 (272) 28 ------- --------- --------- ----------- Comprehensive income (loss) $ 235 $(12,202) $ 129 $ (29,860) ------- --------- --------- ----------- ------- --------- --------- -----------
NEW ACCOUNTING PRONOUNCEMENTS In February 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which is effective for fiscal years beginning after December 15, 1998. This SOP requires capitalization of certain costs incurred in the development of internal-use software, including external direct material and service costs, employee payroll and payroll-related costs, and interest. The Company has adopted SOP 98-1 for the fiscal year ending March 31, 2000. The adoption did not have a material effect on the Company's financial statements. In June 1998, the FASB issued Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which establishes standards for the reporting and display of comprehensive income and its components in general purpose financial statements. SFAS 133 is effective for companies with fiscal Page 9 of 23 years beginning after June 15, 2000. SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company believes that the adoption of this new pronouncement will not have a material effect on the Company's financial statements. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION The Company is organized into two operating segments: Products and Services. The Chief Executive Officer has been identified as the Chief Operating Decision-Maker as defined by SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." Resources are allocated to each of these groups using information on their revenues and operating profits before interest and taxes. The products operating segment includes the SPECTRUM II, XP4, DXR, Altium and other digital microwave systems for digital transmission markets and designs, develops, and manufactures these products in Seattle, Washington; San Jose, California; and, Wellington, New Zealand. The Services operating segment includes, but is not limited to, installation, repair, network design, path surveys, integration, and other services. The following table sets forth revenues and operating profit (loss) by operating segments (in thousands) for:
Three Months Ended Six Months Ended September 30, September 30, --------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Products: Revenues $ 65,524 $ 48,609 $ 128,164 $ 105,803 Operating income (loss) 2,684 (11,555) 3,480 (27,070) Services: Revenues 3,003 6,676 6,316 12,693 Operating income (loss) (637) 63 (597) (781) Total: Revenues $ 68,527 $ 55,285 $ 134,480 $ 118,496 Operating income (loss) 2,047 (11,492) 2,883 (27,851)
Page 10 of 23 The following table sets forth revenues from unaffiliated customers by product (in thousands) for:
Three Months Ended Six Months Ended September 30, September 30, ------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- SPECTRUM II $ 30,783 $ 25,563 $ 60,302 $ 56,352 XP4 12,074 5,673 25,148 15,881 DXR 7,408 9,430 18,416 14,935 Altium 11,019 440 16,261 960 Other Products 4,240 7,503 8,037 17,675 ----------- ----------- ------------ ------------ Total Products 65,524 48,609 128,164 105,803 Total Services 3,003 6,676 6,316 12,693 ----------- ----------- ------------ ------------ Total Revenue $ 68,527 $ 55,285 $ 134,480 $ 118,496 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
The following table sets forth revenues from unaffiliated customers by geographic region (in thousands) for:
Three Months Ended Six Months Ended September 30, September 30, ------------------------- ------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- United States $ 14,566 $ 7,459 $ 26,420 $ 17,000 Mexico 7,176 4,119 10,470 5,613 Other Americas 6,063 12,979 10,336 23,083 Europe 16,201 20,506 34,940 47,251 Africa 4,069 3,848 11,332 5,403 China 10,248 2,374 21,683 4,947 Other Asia/Pacific 10,204 4,000 19,299 15,199 ----------- ---------- ----------- ----------- Total Revenue $ 68,527 $ 55,285 $ 134,480 $ 118,496 ----------- ---------- ----------- ----------- ----------- ---------- ----------- -----------
Long-lived assets by country and consisting of net property and equipment was as follows (in thousands):
September 30, 1999 March 31, 1999 ------------------ -------------- United States $ 27,717 $ 28,043 United Kingdom 9,828 11,621 Other foreign countries 3,761 3,361 ------------------ -------------- Total property and equipment, net $ 41,306 $ 43,025 ------------------ -------------- ------------------ --------------
Page 11 of 23 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the percentage relationships of certain items from the Company's Condensed Consolidated Statements of Operations as percentages of net sales:
Three Months Ended Six Months Ended September 30, September 30, --------------------- ------------------ 1999 1998 1999 1998 -------- ---------- ------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 69.9 82.3 71.2 80.2 -------- ---------- ------- -------- Gross profit 30.1 17.7 28.8 19.8 Research & development 9.2 11.4 9.0 10.9 Selling, general & administrative 17.9 27.1 17.7 26.3 Restructuring costs - - - 6.1 -------- ---------- ------- -------- Operating income (loss) 3.0 (20.8) 2.1 (23.5) Other income (expense), net (0.7) 0.8 (0.8) 1.1 -------- ---------- ------- -------- Income (loss) before provision for income taxes 2.3 (20.0) 1.3 (22.4) Provision for income taxes 0.5 0.1 0.2 - -------- ---------- ------- -------- Net income (loss) 1.8% (20.1)% 1.1% (22.4)% -------- ---------- ------- -------- -------- ---------- ------- --------
NET SALES Net sales for the second quarter of Fiscal 2000 were $68.5 million, compared to $55.3 million reported in the same quarter of Fiscal 1999. The increase in net sales was primarily due to increased sales of the Spectrum II, XP4 and the recently introduced Altium-TM- product lines. Sales in the Asia/Pacific region increased to $20.5 million in the second quarter of Fiscal 2000 compared to $6.4 million in the same quarter of Fiscal 1999. Sales to China, included in the Asia/Pacific region, were $10.2 million in the second quarter of Fiscal 2000 and $2.4 million in the comparable quarter of the prior year. Sales increased in the Americas to $27.8 million in the second quarter of Fiscal 2000 compared to $24.6 million in the second quarter of Fiscal 1999. Sales to U.S. customers, included in the Americas region, were $14.6 million in the second quarter of Fiscal 2000 compared to $7.5 million in the second quarter of Fiscal 1999. However, the Company experienced sales declines in Europe, as sales there were $16.2 million in the second quarter of Fiscal 2000 compared to $20.5 million in the second quarter of Fiscal 1999. Net sales for the first half of Fiscal 2000 were $134.5 million, compared to $118.5 million reported in the first half of Fiscal 1999. The increase in net sales was primarily due to increased sales of the Spectrum II, XP4, DXR and the recently introduced Altium-TM- product lines. Sales in the Asia/Pacific region increased over 100% to $41.0 million in the first half of Fiscal 2000 compared to $20.1 million in the same period of Fiscal 1999. Sales to China, included in the Page 12 of 23 Asia/Pacific region, were $21.7 million in the first half of Fiscal 2000 and $4.9 million in the first half of the prior year. The Company also saw a substantial increase in sales in Africa to $11.3 million in the first half of Fiscal 2000 compared to $5.4 million in the first half of Fiscal 1999. Sales increased in the Americas to $47.2 million in the first half of Fiscal 2000 compared to $45.7 million in the first half of Fiscal 1999. Sales to U.S. customers, included in the Americas region, were $26.4 million in the first half of Fiscal 2000 compared to $17.0 million in the first half of Fiscal 1999. However, the Company experienced sales declines in Europe as sales there were $34.9 million in the first half of Fiscal 2000 compared to $47.3 million in the first half of Fiscal 1999 as a few large customer contracts were completed last year. During the second quarter of Fiscal 2000, the Company received $71.2 million in new orders shippable over the next twelve months, compared to $57.7 million in the second quarter of Fiscal 1999, an increase of 23%. During the first half of Fiscal 2000, the Company received $139.0 million in new orders shippable over the next twelve months, compared to $112.0 million in the first half of Fiscal 1999, an increase of 24%. The backlog at September 30, 1999 was $68.4 million, compared to $63.9 million at March 31, 1999. The Company includes in its backlog purchase orders with respect to which a delivery schedule has been specified for product shipment within one year. Orders in the Company's current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. Accordingly, although useful for scheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period. GROSS PROFIT Gross profit as a percentage of net sales for the second quarter of Fiscal 2000 was 30.1% compared to 17.7% in the same quarter of Fiscal 1999. The increase in gross profit was primarily the result of improved manufacturing capacity utilization and cost reductions resulting from reductions in facilities and personnel in the second half of Fiscal 1999. See page 7, "Notes to Condensed Consolidated Financial Statements - Restructuring Costs." Gross profit as a percentage of net sales for the first half of Fiscal 2000 was 28.8% compared to 19.8% in the first half of Fiscal 1999. The increase in gross profit was primarily the result of improved manufacturing capacity utilization and cost reductions resulting from reductions in facilities and personnel in the second half of Fiscal 1999. See page 7, "Notes to Condensed Consolidated Financial Statements - Restructuring Costs." RESEARCH AND DEVELOPMENT In both the second quarter of Fiscal 2000 and in the same period in Fiscal 1999, research and development expenses were $6.3 million. As a percentage of net sales, research and development expenses decreased to 9.2% in the second quarter of Fiscal 2000 compared to 11.4% in the second quarter of Fiscal 1999 due to an increase in net sales. Page 13 of 23 In the first half of Fiscal 2000, research and development expenses decreased by $0.8 million to $12.1 million from $12.9 million in the same period in Fiscal 1999. As a percentage of net sales, research and development expenses were 9.0% in the first half of Fiscal 2000 compared to 10.9% in the first half of Fiscal 1999. This decrease was due primarily to workforce reductions in the first and third quarters of Fiscal 1999. See page 7, "Notes to Condensed Consolidated Financial Statements - Restructuring Costs." Research and development expenses in the first half of Fiscal 2000 were primarily for further development of the Altium product line. The Company intends to continue its new product rollouts in order to maintain and enhance its competitive position. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES In the second quarter of Fiscal 2000, selling, general and administrative expenses decreased to $12.2 million from $15.0 million in the second quarter of Fiscal 1999. As a percentage of net sales, selling, general and administrative expenses were 17.9% in the second quarter of Fiscal 2000 compared to 27.1% in the comparable quarter of Fiscal 1999. In the first half of Fiscal 2000, selling, general and administrative expenses decreased to $23.7 million from $31.3 million in the first half of Fiscal 1999. As a percentage of net sales, selling, general and administrative expenses were 17.7% in the first half of Fiscal 2000 compared to 26.3% in the comparable period of Fiscal 1999. The decrease in selling, general and administrative expenses in absolute dollars was attributable to workforce reductions and other cost initiatives taken in the first and third quarters of Fiscal 1999. See page 7, " Notes to Condensed Consolidated Financial Statements - Restructuring Costs." MERGER AND RESTRUCTURING EXPENSES The restructuring costs of $7.2 million in the first half of Fiscal 1999 consisted of a write off of $5.8 million related to the discontinuance of several internal information technology ("IT") systems projects and $1.4 million for severance and related costs associated with a reduction in the Company's workforce. See page 7, " Notes to Condensed Consolidated Financial Statements - Restructuring Costs." OTHER INCOME (EXPENSE) The increase in interest expense in the second quarter of Fiscal 2000 of $0.2 million was primarily attributable to higher debt balances as compared to the same quarter of the prior year. Other income (expense), net changed to $0.2 million expense in the second quarter of Fiscal 2000 from $0.5 million income in the second quarter of Fiscal 1999 primarily due to the cost of foreign exchange contracts as well as foreign exchange gains and losses. The increase in interest expense in the first half of Fiscal 2000 of $0.5 million was primarily attributable to higher debt balances as compared to the same period of the prior year. Other income (expense), net changed to $0.6 million expense in the first half of Fiscal 2000 from $1.4 million income in the first half of Fiscal 1999 primarily due to the cost of foreign exchange contracts as well as foreign exchange gains and losses. Page 14 of 23 PROVISION FOR INCOME TAXES In the first half of Fiscal 2000, the Company recorded a provision for income taxes at less than the statutory rate primarily due to the anticipated utilization of net operating loss carry forwards in Fiscal 2000. The Company did not record a tax benefit in the first half of Fiscal 1999, as it could not be certain of profitability in Fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities in the first half of Fiscal 2000 was $6.5 million, compared to net cash used for operating activities of $15.7 million in the first half of Fiscal 1999. The improvement in cash provided by operations was primarily the result of a substantial net loss for the first half of Fiscal 1999 compared to net income for the first half of Fiscal 2000. In addition, inventories decreased $4.0 million in the first half of Fiscal 2000 compared to an increase of $14.5 million in the same period of Fiscal 1999 as a result of a decrease in purchases and improved sales volume. Accounts receivable increased $9.8 million in the first half of Fiscal 2000 due to an increase in sales volume and the timing of shipments as 60% of the Company's Fiscal 2000 second quarter shipments occurred in the last month of the period compared to 42% last month shipments in Fiscal 1999 second quarter. Purchases of property and equipment decreased to $7.0 million in the first half of Fiscal 2000 from $17.7 million in the first half of Fiscal 1999. The Fiscal 1999 activity was mostly attributable to test equipment purchases by the Company's Seattle manufacturing location and payments on the Company's new service and repair facility in the United Kingdom which occurred in the first half of Fiscal 1999. Additionally, the Company received $5.2 million from the exercise of employee stock options and warrants in the first half of Fiscal 2000 compared to $1.0 million in the first half of Fiscal 1999. At September 30, 1999, the Company's principal sources of liquidity consisted of $31.0 million in cash and cash equivalents and short-term investments and a $40.0 million asset-based borrowing facility with a U.S. lender. As of September 30, 1999, the Company had borrowed $2.6 million under the agreement and had available $20.0 million for future borrowings. This credit facility does not require the maintenance of financial covenants. The credit facility is scheduled to expire on November 30, 1999. The Company has received an extension to December 31, 1999 in order to review the terms and conditions of the renewal. On October 1, 1999 the Securities and Exchange Commission declared the Company's Registration Statement on Form S-3 effective. Under the Registration Statement, the Company may sell up to $100 million in debt securities, common stock, debt warrants and common stock warrants. However, there can be no assurance that the Company will be able to sell these securities on commercially reasonable terms or at all. The Company believes that it has the financial resources needed to meet its business requirements for the foreseeable future. Page 15 of 23 YEAR 2000 READINESS The Company is aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. The "Year 2000" problem is concerned with whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Year 2000 problem is pervasive and complex, as virtually every company's computer operation will be affected in some way. Many of the Company's computer programs, which process its operational and financial transactions, were designed and developed without considering the impact of the upcoming change in century. If not corrected, the Company's computer programs and products could fail or create erroneous results by or at the year 2000. The Company has taken steps to ensure that its products and computer programs will continue to operate on and after January 1, 2000. The Company formed a project team consisting of staff from Manufacturing, Customer Service, Finance, Human Resources, Sales, Marketing, Legal, Engineering, and Information Technology (IT) departments, led by a project manager. A five-phase solution process has been established consisting of (1) awareness, (2) assessment, (3) renovation, (4) validation, and (5) implementation. The Company has completed this five-phase process with respect to most of its Year 2000 issues. The Company's Year 2000 project team identified its manufacturing IT system as its highest priority and has implemented Year 2000 upgrades to its manufacturing systems. The Company's network operating systems also are Year 2000-ready. The Company's personal computers have been evaluated and upgrades were installed to correct noncompliance. Some older personal computers were replaced or taken out of service. The Company has completed an assessment of all of its products. Most of its hardware products are not affected by the Year 2000 issue because no internal clock exists in these products. Year 2000 readiness testing has been completed for newer products, including the Altium product line and network software products. Some older network software products are not Year 2000-ready and the Company has developed an upgrade plan for customers who are using this software. There can be no assurance that customers will properly upgrade their software and we cannot predict the resulting impact on customers' networks if they are not upgraded. The Company mailed letters to its primary suppliers and subcontractors to determine whether they are developing plans to address processing transactions in the Year 2000 and to monitor their progress toward Year 2000 capability. All critical vendors contacted have responded, and the Year 2000 team has visited the critical vendors to ensure that processes are actually in place as represented. The Company has spent approximately $0.8 million investigating and remedying issues related to Year 2000 readiness involving internal operations, including purchases of software test tools, software upgrades, and upgrading a security system related to Year 2000 readiness. In addition, the Company estimates that $0.4 million of internal personnel costs have been incurred to date supporting the Company's Year 2000 readiness plan. The Company has developed a contingency plan to operate in the event that any critical systems are noncompliant on January 1, 2000. This contingency plan includes, but is not limited to: 1) Page 16 of 23 transitioning to alternate suppliers, 2) responding to customers faced with Year 2000 issues, 3) operating in a manual mode, i.e., without computer systems, 3) using generators to maintain communications, and 4) identifying alternative data processing service providers. Based on the steps being taken to address this issue and the progress to date, the Company's management believes that the Year 2000 readiness expenses will not have a material adverse effect on the Company's earnings. However, there can be no assurance that Year 2000 problems will not occur with respect to the Company's computer or other systems. Furthermore, the Year 2000 problem may impact other entities with which the Company transacts business, and the Company cannot predict the effect of the Year 2000 problem on such entities or the resulting effect on the Company. As a result, if preventative and/or corrective actions by the Company or those the Company does business with are not made in a timely manner, the Year 2000 issue could have a material adverse effect on the Company's business, financial condition, and results of operations. EUROPEAN MONETARY UNION In January 1999, a new currency called the "euro" was introduced in certain Economic and Monetary Union ("EMU") countries. During 2002, all EMU countries are expected to be operating with the euro as their single currency. Uncertainty exists as to the effect the euro currency will have on the marketplace. Additionally, all of the rules and regulations have not yet been defined and finalized by the European Commission with regard to the euro currency. However, the Company has assessed the effect the euro formation will have on its internal systems and the sale of its products. The Company's European sales and operating transactions are based primarily in U.S. dollars or U.K. pounds sterling, neither of which are subject to the euro conversion. While the Company does have some sales denominated in the European Currency Unit, this currency is successfully being converted in the market to the new European Monetary Unit at parity. In addition, the Company upgraded its internal computer systems to convert the European currency to the euro. The cost of upgrading the Company's systems in connection with the euro conversion was not material and no material adverse effect on the Company's business, financial condition, and results of operations is expected due to the upgrade. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK It is the Company's policy not to enter into derivative financial instruments except for hedging of foreign currency exposures. The Company hedges certain portions of its exposure to foreign currency fluctuations through the use of forward foreign exchange contracts. The Company enters into forward foreign exchange contracts for purposes other than trading; however, the Company does not engage in any foreign currency speculation. Forward foreign exchange contracts represent agreements to buy or sell a specified amount of foreign currency at a specified price in the future. These contracts generally have maturities that do not exceed one month. At September 30, 1999, the Company had forward foreign exchange contracts to exchange various foreign currencies for U.S. dollars in the aggregate amount of $35.5 million, primarily in New Zealand dollars, British pounds, and European Monetary Units. Gains and losses associated with currency rate changes on forward foreign exchange contracts are recorded currently in income as they offset corresponding gains and losses on the foreign currency-denominated assets and liabilities being hedged. Therefore, the carrying value of forward foreign Page 17 of 23 exchange contracts approximates their fair value. The Company believes that the credit risk with respect to its forward foreign exchange contracts is minimal because the Company enters into contracts with major financial institutions. Market risk with respect to forward foreign exchange contracts is offset by the corresponding exposure related to the underlying assets and liabilities. FOREIGN CURRENCY RATE RISK Although nearly all of the Company's sales and expenses are denominated in U.S. dollars, the Company has experienced some foreign exchange gains and losses to date, and expects to incur additional gains and losses in Fiscal 2000. The Company did engage in foreign currency hedging activities during the quarter ended September 30, 1999, as explained above, and intends to continue doing so as needed. FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS The statements in this Form 10-Q concerning the Company's future products, expenses, revenues, gross margins, liquidity and cash needs, as well as the Company's plans and strategies, contain forward-looking statements concerning the Company's future operations and financial results within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. Numerous factors, such as economic and competitive conditions, timing and volume of incoming orders, shipment volumes, product margins, and foreign exchange rates, could cause actual results to differ materially from those described in these statements, and prospective investors and stockholders should carefully consider the factors set forth in the Company's Registration Statement on Form S-3, effective October 1, 1999, and those set forth below in evaluating these forward-looking statements. Sales of the Company's products are concentrated in a small number of customers. For the first half of Fiscal 2000 ended September 30, 1999, the top three customers accounted for 28% of the net sales. As of September 30, 1999, three of the Company's customers accounted for 27% of the backlog. The worldwide telecommunications industry is dominated by a small number of large corporations, and the Company expects that a significant portion of its future product sales will continue to be concentrated in a limited number of customers. The loss of any existing customer, a significant reduction in the level of sales to any existing customer, or the failure of the Company to gain additional customers could harm the Company's business, financial condition and results of operations. In addition, a substantial portion of shipments may occur near the end of each quarter. Accordingly, the Company's results are difficult to predict and delays in product delivery or closing of a sale can cause revenues and net income to fluctuate significantly from anticipated levels and from quarter to quarter. Wireless infrastructure suppliers are experiencing, and will likely continue to experience, intense price pressure which has resulted, and is expected to continue to result, in downward pricing pressure on the Company's products. As a result, the Company has experienced, and expects to continue to experience, declining average sales prices for its products. The Company's ability to maintain its gross profit margins is dependent upon its ability to continue to introduce new products and product enhancements. Any inability of the Company to respond to increased price competition would harm the Company's business, financial condition and results of operations. Page 18 of 23 The markets for the Company's products are extremely competitive, and the Company expects that competition will increase. The Company considers its primary competitors to be L. M. Ericsson, Alcatel, Siemens AG, P-COM, Inc. and the Microwave Communications Division of Harris Corporation. In addition, other existing competitors presently include SIAE, Sagem, Lucent, NEC, Nokia, ATI, a subsidiary of World Access and Northern Telecom. Many of these companies have more extensive engineering, manufacturing, and marketing capabilities and significantly greater financial, technical, and personnel resources than the Company. The Company believes that its ability to compete successfully will depend on a number of factors, both within and outside its control, including price, quality, availability, customer service and support, breadth of product line, product performance and features, rapid time-to-market delivery capabilities, reliability, timing of new product introductions by the Company, its customers and its competitors, and the ability of its customers to obtain financing. The Company expects that international sales will continue to account for the majority of its net product sales for the foreseeable future. As a result, the Company is subject to the risks of doing business internationally, including unexpected changes in regulatory requirements, fluctuations in foreign currency exchange rates, imposition of tariffs and other barriers and restrictions, the burdens of complying with a variety of foreign laws, and general economic and geopolitical conditions, including inflation and trade relationships. In addition, recent worldwide economic events, particularly in Latin America and Asia, including depreciation of currencies, failures of financial institutions, stock market declines, and reduction in planned capital investment at key enterprises, may cause the Company's international revenues to decrease. There can be no assurance that currency fluctuations, changes in the rate of inflation or any of the factors mentioned above will not harm the Company's business, financial condition and results of operations. The Company's manufacturing operations are highly dependent upon the delivery of materials by outside suppliers in a timely manner. In addition, the Company depends in part upon subcontractors to assemble major components and subsystems used in its products in a timely and satisfactory manner. While the Company enters into long-term or volume purchase agreements with a few of its suppliers, no assurance can be given that materials, components, and subsystems will be available in the quantities required by the Company, if at all. The inability of the Company to develop alternative sources of supply quickly and on a cost-effective basis could materially impair the Company's ability to manufacture and deliver its products in a timely manner which could harm the Company's business, financial condition and results of operations. There can be no assurance that the Company will not experience material supply problems or component or subsystem delays in the future. The Company has pursued, and will continue to pursue, growth opportunities through internal development and acquisitions of complementary businesses and technologies. Acquisitions may involve difficulties in the retention of personnel, diversion of management's attention, unexpected legal liabilities, and tax and accounting issues. There can be no assurance that the Company will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into its operations, or expand into new markets. Once integrated, acquired businesses may not achieve comparable levels of revenues, profitability, or productivity as the existing business of the Company or otherwise perform as expected. The Company's failure to manage its growth effectively could harm the Company's business, financial condition and results of operations. Page 19 of 23 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a description of the Company's market risks, see page 17, "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures About Market Risk." Page 20 of 23 PART II - OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company held an Annual Meeting of Stockholders on August 10, 1999. (b) At the Annual Meeting of Stockholders, the following directors were elected:
Votes -------------------------- For Withheld ---------- -------- Charles D. Kissner 53,730,588 231,551 Richard C. Alberding 53,720,000 242,139 Paul S. Bachow 53,735,350 226,789 John W. Combs 53,738,594 223,545 James D. Meindl 53,720,994 241,145 V. Frank Mendicino 53,734,777 227,362 Howard Oringer 53,737,894 224,245
(c) At the Annual Meeting of Stockholders, the following additional matters were voted upon; 1. A proposal to ratify and approve the company's 1999 stock incentive plan. Affirmative votes: 47,017,819 Negative votes: 6,776,770 Abstain: 167,550 Non-votes: 0
2. A proposal to ratify the selection of Arthur Andersen LLP as independent public accountants for the fiscal year ending March 31, 2000. Affirmative votes: 53,754,560 Negative votes: 105,662 Abstain: 101,917 Non-votes: 0
ITEM 5 - OTHER INFORMATION None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits For a list of exhibits to this Form 10-Q, see the exhibit index located on page 20. (b) Reports on Form 8-K None Page 21 of 23 EXHIBIT INDEX
Exhibit Number Description - ----------------------------------------------------- 3.1 Amended and Restated Bylaws, dated as of August 10, 1999. 27.1 Financial Data Schedule for the quarter ended September 30, 1999. 27.2 Restated Financial Data Schedule for the quarter ended September 30, 1998.
Page 22 of 23 SIGNATURE 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. DIGITAL MICROWAVE CORPORATION Date: November 12, 1999 By /s/ Carl A. Thomsen ----------------- -------------------------------- Carl A. Thomsen Senior Vice President, Chief Financial Officer and Secretary Page 23 of 23 EX-3.1 2 EXHIBIT 3.1 AMENDED AND RESTATED BYLAWS OF DIGITAL MICROWAVE CORPORATION (Amended and Restated as of August 10, 1999) ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the City of San Jose, State of California, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held on the third Thursday in July, if not a legal holiday and, if a legal holiday, then on the next succeeding business day following, at the same hour and place, or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of stockholders shall be called by the president or secretary at the request in writing of a majority of the Board of Directors or upon written application of one or more stockholders who hold at least forty percent (40%) of the capital stock entitled to vote at such meeting. Such request of the Board of Directors or written application of the stockholders shall state the purpose or purposes of the proposed special meeting. The place, date and time of any special meeting shall be determined by the Board of Directors. Such determination shall include the record date for determining the stockholders having the right to notice of and to vote at such meeting. 2 Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Only such business shall be conducted at a special meeting as shall have been stated in the written notice of the meeting as the purpose or purposes for the meeting. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. In all matters other than the election of directors, the affirmative vote of a majority of shares present in person or represented by proxy at any meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express provision of any statute or of the 3 certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, and subject to the provisions of Article II, Section 12 of these Bylaws, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken, shall be signed by the holders of outstanding stock 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. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 12. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting pursuant to Article II, Section 11 of these Bylaws, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of 4 Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within such ten (10) day period, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the state of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of stockholders' meetings are recorded, to the attention of the secretary of the corporation. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Section 13. At any annual meeting of the stockholders, only such business shall be conducted as shall be properly before the meeting. To be properly before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be 5 properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal place of business of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.(1) A stockholder's written notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address as they appear on the corporation's books of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by such stockholder, and (d) any material interest of such stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting unless properly brought before such meeting in accordance with the procedures set forth in this Section 13. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 13 and if it shall be so determined, the chairman of the meeting shall so declare this to the - -------- (1) It shall be necessary for the corporation to determine the date of each annual meeting at least 70 days in advance thereof and make a public disclosure of such date and of the provisions of Article II, Section 13 of these Bylaws. 6 meeting and such business not properly brought before the meeting shall not be transacted. Section 14. Only persons who are nominated in accordance with the procedures set forth in this Section 14 shall be eligible for election as directors of the corporation by the stockholders. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 14. 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. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal place of business of the corporation not less than sixty (60) nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not less than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or is otherwise required in each case pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as 7 amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books of such stockholder, (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder, and (iii) any material relationship of the stockholder to the person the stockholder proposes to nominate. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the secretary that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 14. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the provisions of this Section 14 and if it shall be so determined, the chairman shall so declare this to the meeting and the defective nomination shall be disregarded. ARTICLE III DIRECTORS Section 1. The number of directors that shall constitute the whole board shall be seven (7). The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his or her successor is elected and qualified. Directors need not be stockholders, but shall not be older than 70 years of age on the date of their election or appointment to be eligible to serve as a director. 8 Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having a right to vote as a single class may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, unless sooner removed. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 4. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected 9 directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 7. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the president, any vice-president, the secretary or any two (2) directors on four (4) days' notice to each director by mail or two (2) days' notice to each director either personally or by telegram. Section 8. At all meetings of the Board of Directors, one-third (1/3) of the authorized number of directors, or two (2), whichever is greater, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the certificate of incorporation or by Article III, Section 9 of these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. 10 Section 9. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee thereof, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee thereof. Section 10. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee thereof, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of 11 Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it, but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation, and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 13. 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 and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 14. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any director or the entire Board of Directors may be removed, with or 12 without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of statutes or of the certificate of incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a president, one or more vice-presidents, a secretary and a chief financial officer. The Board of Directors may elect from among its members a Vice Chairman of the Board and may also choose one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these Bylaws otherwise provide. 13 Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose the officers of the corporation. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. The officers of the corporation shall hold office until their successors are duly elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. Section 6. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the stockholders at which he shall be present and shall have and may exercise such powers as are, from time to time, assigned by the Board of Directors and as may be provided by law. Section 7. In the absence of the Chairman of the Board, the Vice Chairman, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which he shall be present. The Vice Chairman shall have and may exercise such powers as are, from time to time, assigned by the Board of Directors and as may be provided by law. Section 8. The president shall be the general manager and chief executive officer of the corporation, and in the absence of the Chairman and Vice Chairman of the 14 Board of Directors, shall preside at all meetings of the stockholders and the Board of Directors. The president shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 9. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. Section 10. In the absence of the president or in the event of his inability or refusal to act, the vice president, if any, (or in the event there be more than one vice president, the vice presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 11. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The secretary shall give or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. The secretary shall have custody of the corporate seal of the corporation, and the 15 secretary or an assistant secretary shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 12. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 13. The chief financial officer may also be designated by the alternate title of "treasurer." The chief financial officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. Section 14. The chief financial officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 15. If required by the Board of Directors, the chief financial officer shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for 16 the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 16. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the chief financial officer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman or Vice Chairman of the Board of Directors, or the president or a vice president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by the shareholder in the corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set 17 forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may 18 be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 19 ARTICLE VII GENERAL PROVISIONS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 4. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 5. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 20 Section 6. The corporation shall indemnify to the full extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director of the corporation or any predecessor of the corporation, or served any other enterprise as a director or officer at the request of the corporation or any predecessor of the corporation. Section 7. Expenses incurred by a director of the corporation in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a director of the corporation (or was serving at the corporation's request as a director or officer of another enterprise or corporation) shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized by relevant sections of the General Corporation Law of Delaware. Section 8. Article VII, Sections 6 and 7 shall be deemed to be a contract between the corporation and each director who serves in such capacity at any time while this Bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. Section 9. The Board of Directors in its discretion shall have power on behalf of the corporation to indemnify any person, other than a director, made a party to 21 any action, suit or proceeding by reason of the fact that he, his testator or intestate is or was an officer or employee of the corporation. Section 10. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any director or officer may be entitled apart from the provisions of Article VII, Sections 6, 7, 8, 9 and this Section 10. ARTICLE VIII AMENDMENTS Section 1. These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such special meeting. If the power to adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the certificate of incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal Bylaws. Section 2. Notwithstanding any other provision in these Bylaws, Sections 5, 12, 13, and 14 of Article II of these Bylaws and this Section 2 shall not be amended, modified or repealed, directly or indirectly except by (i) the affirmative vote of two-thirds (2/3) or more of the Continuing Directors ("Continuing Director" shall mean any person then serving as a director of this corporation (i) who was a member of the Board of Directors of this corporation on October 24, 1991, or (ii) who becomes a director after October 24, 1991 and whose election, or nomination for election by this corporation's stockholders, was approved by a majority of the directors who at that time 22 are Continuing Directors, either by a specific vote or by approval of the proxy statement issued by this corporation on behalf of the Board of Directors in which such person is named as nominee for director) and the approval of the stockholders otherwise required by applicable law or these Bylaws for such amendment; or (ii) the affirmative vote of the holders of a majority of the capital stock entitled to vote. 23 EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DIGITAL MICROWAVE CORPORATION FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-2000 APR-01-1999 SEP-30-1999 17,212 13,795 72,621 3,484 45,097 156,771 103,982 62,676 202,549 64,035 1,571 0 0 643 135,991 202,549 134,480 134,480 95,747 95,747 35,850 433 465 1,779 356 1,423 0 0 0 1,423 0.02 0.02
EX-27.2 4 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DIGITAL MICROWAVE CORPORATION FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-1999 APR-01-1998 SEP-30-1998 23,560 6,592 61,796 5,399 81,703 13,894 102,019 50,598 249,421 45,374 0 0 0 617 199,218 249,421 118,496 118,496 94,978 94,978 51,369 3,847 36 (26,498) 97 (26,595) 0 0 0 (26,595) (0.43) (0.43)
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