SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarter ended June 30, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______ to _______.
Commission File Number 1-10492
ORASURE TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4370966
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
150 Webster Street, Bethlehem, Pennsylvania 18015
(Address of Principal Executive Offices) (Zip code)
(610) 882-1820
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, par value $.000001 per share, outstanding as
of August 7, 2001: 37,077,378
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)............................. 3
Balance Sheets at June 30, 2001 and December 31, 2000............. 3
Statements of Operations for the six months
ended June 30, 2001 and 2000................................... 4
Statements of Stockholders' Equity for the six months
ended June 30, 2001............................................ 5
Statements of Cash Flows for the six months
ended June 30, 2001 and 2000................................... 6
Notes to Financial Statements..................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 20
2
ITEM 1. FINANCIAL STATEMENTS
ORASURE TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,773,907 $ 5,095,639
Short-term investments 13,458,045 14,956,779
Accounts receivable, net of allowance for doubtful
accounts of $107,138 and $114,685 6,757,760 5,276,772
Notes receivable from officer 75,000 175,649
Inventories 2,169,422 1,495,604
Prepaid expenses and other 1,044,856 1,189,210
------------- -------------
Total current assets 27,278,990 28,189,653
------------- -------------
PROPERTY AND EQUIPMENT, net 7,349,043 6,738,034
PATENTS AND PRODUCT RIGHTS, net 2,222,459 2,402,386
OTHER ASSETS 360,133 406,099
------------- -------------
$ 37,210,625 $ 37,736,172
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,146,921 $ 1,125,138
Accounts payable 2,459,158 1,522,295
Accrued expenses 2,995,664 4,047,231
------------- -------------
Total current liabilities 6,601,743 6,694,664
------------- -------------
LONG-TERM DEBT 4,068,927 4,644,098
------------- -------------
OTHER LIABILITIES 173,798 225,334
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.000001, 25,000,000 shares authorized,
none issued -- --
Common stock, par value $.000001, 120,000,000 shares authorized,
36,928,466 and 36,434,004 shares issued and outstanding 37 36
Additional paid-in capital 150,602,078 148,767,789
Accumulated other comprehensive loss (430,520) (231,247)
Accumulated deficit (123,805,438) (122,364,502)
------------- -------------
Total stockholders' equity 26,366,157 26,172,076
------------- -------------
$ 37,210,625 $ 37,736,172
============= =============
The accompanying notes are an integral part of these statements.
3
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Product $ 8,080,266 $ 7,042,463 $ 14,970,993 $ 13,529,962
Licensing and product development 427,530 118,085 940,827 249,959
------------ ------------ ------------ ------------
8,507,796 7,160,548 15,911,820 13,779,921
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 3,013,355 2,604,839 5,706,998 5,113,816
Research and development 2,423,422 2,115,028 4,590,080 3,832,333
Sales and marketing 2,066,253 1,807,218 3,926,615 3,204,041
General and administrative 1,601,626 1,785,063 3,067,137 3,674,250
Restructuring-related -- -- 450,000 --
------------ ------------ ------------ ------------
9,104,656 8,312,148 17,740,830 15,824,440
------------ ------------ ------------ ------------
Operating loss (596,860) (1,151,600) (1,829,010) (2,044,519)
INTEREST EXPENSE (103,159) (124,643) (208,724) (252,808)
INTEREST INCOME 207,383 319,321 501,012 547,183
FOREIGN CURRENCY GAIN (LOSS) 54,435 (24,092) 117,730 (8,668)
GAIN ON SALE OF SECURITIES -- 600,000 -- 600,000
------------ ------------ ------------ ------------
Loss before income taxes (438,201) (381,014) (1,418,992) (1,158,812)
INCOME TAXES 5,976 (44,260) 21,944 11,690
------------ ------------ ------------ ------------
NET LOSS $ (444,177) $ (336,754) $ (1,440,936) $ (1,170,502)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.01) $ (0.01) $ (0.04) $ (0.03)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 36,701,511 34,817,884 36,579,738 34,129,825
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
4
22
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
------------ PAID-IN INCOME ACCUMULATED
SHARES AMOUNT CAPITAL (LOSS) DEFICIT TOTAL
------ ------ ------- ------ ------- -----
BALANCE AT DECEMBER 31, 2000 36,434,004 $36 $148,767,789 $(231,247) $(122,364,502) $ 26,172,076
Common stock issued upon exercise of options 76,729 -- 219,196 -- -- 219,196
Compensation expense for stock option grants -- -- 70,580 -- -- 70,580
------------
Comprehensive loss:
Net loss -- -- -- -- (996,759) (996,759)
Currency translation adjustment -- -- -- (108,213) -- (108,213)
Unrealized loss on marketable securities -- -- -- (50,275) -- (50,275)
------------
Total comprehensive loss (1,155,247)
----------- --- ------------ --------- ------------- ------------
BALANCE AT MARCH 31, 2001 36,510,733 36 149,057,565 (389,735) (123,361,261) 25,306,605
Common stock issued upon exercise of options 417,733 1 1,544,513 -- -- 1,544,514
------------
Comprehensive loss:
Net loss -- -- -- -- (444,177) (444,177)
Currency translation adjustment -- -- -- (70,409) -- (70,409)
Unrealized gain on marketable securities -- -- -- 29,624 -- 29,624
------------
Total comprehensive loss (484,962)
----------- --- ------------ --------- ------------- ------------
BALANCE AT JUNE 30, 2001 36,928,466 $37 $150,602,078 $(430,520) (123,805,438) $ 26,366,157
=========== === ============ ========= ============= ============
The accompanying notes are an integral part of these statements.
5
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net loss $ (1,440,936) $ (1,170,502)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation expense 70,580 87,824
Amortization of deferred revenue (71,667) (71,666)
Depreciation and amortization 1,001,046 860,803
Loss on disposition of property and equipment 11,353 140
Gain on sale of investment in affiliated company (16,853) -
Changes in assets and liabilities:
Accounts receivable (1,380,339) (473,120)
Inventories (673,818) 184,909
Prepaid expenses and other assets 151,071 (618,681)
Accounts payable and accrued expenses (94,573) 68,260
------------ ------------
Net cash used in operating activities (2,444,136) (1,132,033)
------------ ------------
INVESTING ACTIVITIES:
Purchases of short-term investments (17,165,067) (13,754,591)
Proceeds from the sale of short-term investments 18,593,150 11,222,134
Purchases of property and equipment (1,471,445) (1,796,356)
Proceeds from the sale of property and equipment 27,964 -
Purchase of patents and product rights - (8,413)
Investment in affiliated company - (19,392)
Proceeds from sale of investment in affiliated company 106,102 -
------------ ------------
Net cash provided by (used in) investing activities 90,704 (4,356,618)
------------ ------------
FINANCING ACTIVITIES:
Net borrowings under line of credit arrangement - 144,000
Repayments of term debt (553,387) (518,246)
Proceeds from issuance of common stock 1,763,709 12,563,581
------------ ------------
Net cash provided by financing activities 1,210,322 12,189,335
------------ ------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (178,622) (59,731)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,321,732) 6,640,953
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,095,639 2,049,644
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,773,907 $ 8,690,597
============ ============
The accompanying notes are an integral part of these statements.
6
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY
OraSure Technologies, Inc. (the "Company") develops, manufactures and markets
oral specimen collection devices using its proprietary oral fluid technologies,
oral fluid assays, proprietary diagnostic products including in vitro diagnostic
tests, and other medical devices. These products are sold to public and
private-sector clients, clinical laboratories, physician offices, hospitals, and
for workplace testing in the United States and certain foreign countries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying financial statements are unaudited and,
in the opinion of management, include all adjustments (consisting only of normal
and recurring adjustments) necessary for a fair presentation of the results for
these interim periods. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 and Quarterly Report on
Form 10-Q for the three months ended March 31, 2001. Results of operations for
the period ended June 30, 2001 are not necessarily indicative of the results of
operations expected for the full year. Certain reclassifications have been made
to the prior year financial statements to conform to the current year
presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES. Inventories are stated at the lower of cost or market determined on
a first-in, first-out basis and are comprised of the following:
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
Raw materials $ 686,936 $ 473,575
Work-in-process 505,973 348,819
Finished goods 976,513 673,210
---------- ----------
$2,169,422 $1,495,604
========== ==========
REVENUE RECOGNITION. The Company recognizes product revenues when products are
shipped. The Company does not grant price protection or product return rights to
its customers. Up-front licensing fees are deferred and recognized ratably over
the related license period. Product development revenues are recognized over the
period the related product development efforts are performed. Amounts received
prior to the performance of product development efforts are recorded as deferred
revenues.
In December 1999, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 draws on existing accounting rules and provides specific guidance
on revenue recognition of up-front, non-refundable license and development fees.
The Company has applied the provisions of SAB 101 in the accompanying financial
statements.
SIGNIFICANT CUSTOMER CONCENTRATION. For the three and six-month periods ended
June 30, 2001, one customer accounted for 23.4 and 22.3 percent of total
revenues, respectively, as compared to 24.8 and 23.4 percent for the same
periods in 2000.
7
RESEARCH AND DEVELOPMENT. Research and development costs are charged to expense
as incurred.
FOREIGN CURRENCY TRANSLATION. Pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation," the assets and
liabilities of the Company's foreign operations are translated into U.S. dollars
at current exchange rates as of the balance sheet date, and revenues and
expenses are translated at average exchange rates for the period. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity.
NET LOSS PER COMMON SHARE. The Company has presented basic and diluted net loss
per common share pursuant to SFAS No. 128, "Earnings per Share" ("SFAS 128"),
and the Securities and Exchange Commission Staff Accounting Bulletin No. 98. In
accordance with SFAS 128, basic and diluted net loss per common share have been
computed using the weighted-average number of shares of common stock outstanding
during the period. Diluted loss per common share is generally computed assuming
the conversion or exercise of all dilutive securities such as common stock
options and warrants; however, outstanding common stock options and warrants to
purchase 4,225,751 and 4,867,657 shares were excluded from the computation of
diluted net loss per common share for the three month and six month periods
ended June 30, 2001 and 2000, respectively, because they were anti-dilutive due
to the Company's losses.
OTHER COMPREHENSIVE INCOME (LOSS). The Company follows SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the classification of items of
other comprehensive income (loss) by their nature, and disclosure of the
accumulated balance of other comprehensive income (loss) separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet.
RESTRUCTURING-RELATED EXPENSES. In February, 2001, the Company announced plans
to realign certain of its manufacturing operations. Accordingly, during the
three months ended March 31, 2001, the Company incurred $450,000 in
non-recurring restructuring costs, primarily comprised of expenses for employee
severance, travel and transport resulting from relocating and consolidating
manufacturing operations. All restructuring related expenses were paid by
June 30, 2001.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS. Commencing in May 2001, the Company
entered into foreign currency forward exchange contracts to offset certain
operational and balance sheet exposures from changes in foreign currency
exchange rates. Such exposures result from the portion of the Company's
operations, assets and liabilities located in the Netherlands and denominated in
guilders. The Company accounts for these foreign currency forward exchange
contracts in accordance with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The contract amounts of foreign currency
forward exchange contracts outstanding at June 30, 2001 and December 31, 2000
were $485,000 and $0, respectively. During the three-month and six-month periods
ended June 30, 2001, gains or losses associated with these contracts were not
material.
3. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Under the disclosure requirements of SFAS No. 131, "Segment Disclosures and
Related Information," the Company operates within one segment, medical devices
and products. The Company's products are sold principally in the United States
and Europe. Operating income and identifiable assets for geographic regions
outside of the United States are not included herein since all of the Company's
revenues outside the United States are export sales.
8
The following table represents total revenues by geographic area (amounts in
thousands):
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
United States $7,333 $5,611 $13,295 $11,547
Europe 822 788 1,772 1,211
Other regions 353 762 845 1,022
------ ------ ------- -------
$8,508 $7,161 $15,912 $13,780
====== ====== ======= =======
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements below regarding future events or performance are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These include statements about expected revenues, earnings, expenses,
cash flow, capital expenditures or other financial performance, and regulatory
filings. Forward-looking statements are not guarantees of future performance or
results. Factors that could cause actual performance or results to be materially
different from those expressed or implied in these statements include: ability
to market products; impact of competitors, competing products and technology
changes; ability to develop, commercialize and market new products; market
acceptance of oral fluid testing products and up-converting phosphor technology
products; ability to fund research and development and other projects and
operations; ability to obtain and timing of obtaining necessary regulatory
approvals; ability to develop product distribution channels; uncertainty
relating to patent protection and potential patent infringement claims; ability
to enter into international manufacturing agreements; obstacles to international
marketing and manufacturing of products; loss or impairment of sources of
capital; exposure to product liability and other types of litigation; changes in
international, federal or state laws and regulations; changes in relationships
with strategic partners and reliance on strategic partners for the performance
of critical activities under collaborative arrangements; changes in accounting
practices and interpretation of accounting requirements; equipment failures and
ability to obtain needed raw materials and components; and general business and
economic conditions. These and other factors that could cause the
forward-looking statements to be materially different are described in greater
detail in the Sections entitled, "Forward-Looking Statements" and "Risk
Factors," in Item 1 and elsewhere in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000. Although forward-looking statements help
to provide information about future prospects, they may not be reliable. The
forward-looking statements are made as of the date of this Report and the
Company undertakes no duty to update these statements.
10
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000
Comparative results of operations (in thousands, except %) are summarized as
follows:
Three Months Ended June 30,
-----------------------------------------------------------------------------
Dollars Percentage of
Total Revenue (%)
---------------------------- -----------------------------
Percent
Change (%)
2001 2000 Inc. (Dec.) 2001 2000
------------- ------------- --------------- ------------- -------------
Revenues
Product $8,080 $ 7,043 15 95 98
License and product development 428 118 263 5 2
------------- ------------- ------------- -------------
8,508 7,161 19 100 100
------------- ------------- ------------- -------------
Cost and expenses
Cost of products sold 3,013 2,605 16 35 36
Research and development 2,424 2,115 15 29 30
Sales and marketing 2,066 1,807 14 24 25
General and administrative 1,602 1,786 (10) 19 25
------------- ------------- ------------- -------------
9,105 8,313 10 107 116
------------- ------------- ------------- -------------
Operating loss (597) (1,152) (48) (7) (16)
Interest expense (103) (125) (18) (1) (2)
Interest income 207 320 (35) 2 4
Foreign currency gain (loss) 55 (24) N/A 1 -
Gain on sale of securities - 600 N/A - 8
------------- ------------- --------------- ------------- -------------
Loss before income taxes (438) (381) 15 (5) (6)
Income taxes 6 (44) N/A - (1)
------------- ------------- ------------- -------------
Net loss $ (444) $ (337) 32 (5) (5)
============= ============= ============= =============
Total revenues increased 19% to approximately $8.5 million in the second quarter
of 2001 from approximately $7.2 million in 2000, primarily as a result of
increased sales of oral fluid collection devices and related immunoassay tests,
and increased license and product development revenues. Excluding revenues in
the prior period from the discontinued Serum Western Blot product line, total
revenues would have increased approximately 24%.
11
The table below shows the amount of the Company's total revenues (in thousands,
except for %) generated by each of its principal products and by license and
product development activities.
Three Months Ended June 30,
----------------------------------------------------------------------------
Dollars Percentage of
Total Revenue (%)
---------------------------- -----------------------------
Percent
Change (%)
2001 2000 Inc. (Dec.) 2001 2000
------------- ------------- -------------- ------------- -------------
Product revenues
Oral specimen collection devices $ 3,464 $2,887 20 41 40
OraQuick 6 - N/A - -
Histofreezer cryosurgical systems 1,559 1,580 (1) 18 22
Immunoassay tests 2,138 1,752 22 25 24
Western Blot HIV confirmatory tests 104 470 (78) 1 7
Other product revenue 809 354 128 10 5
------------- ------------- ------------- -------------
8,080 7,043 15 95 98
License and product development 428 118 263 5 2
------------- ------------- ------------- -------------
Total revenues $ 8,508 $ 7,161 19 100 100
============= ============= ============= =============
Product revenues increased 15% to approximately $8.1 million for the second
quarter of 2001 from approximately $7.0 million in 2000. Sales of oral specimen
collection devices and immunoassay tests increased 20% and 22% to approximately
$3.5 million and $2.1 million, respectively, as a result of increased sales to
the public health and substance abuse testing markets. Histofreezer revenues
remained flat at approximately $1.6 million. OraQuick generated approximately
$6,000 of revenue for the second quarter reflecting customer-driven delays in
product shipments to the Centers for Disease Control and Prevention and to the
Company's distributor in sub-Saharan Africa. Sales of the Western Blot
confirmatory tests declined 78% to approximately $104,000 for the second quarter
as a result of the discontinuation of the Serum Western Blot product in January
2001. Other product revenues, which consisted primarily of sales of the Q.E.D.
saliva alcohol test and certain Intercept-related equipment sales to criminal
justice and drug rehabilitation clients, increased 128% to approximately
$809,000 from approximately $354,000 in 2000. Total Intercept sales, including
devices, immunoassay tests, and related equipment, totaled approximately $1.2
million for the quarter, as compared to approximately $203,000 in 2000. As a
percentage of product revenue, international product sales decreased to
approximately 14% in the second quarter of 2001 from 22% in 2000.
12
The table below shows the amount of the Company's total revenue (in thousands,
except %) generated in each of its principal markets and by license and product
development activities.
Three Months Ended June 30,
-----------------------------------------------------------------------------
Percentage of
Dollars Total Revenue (%)
---------------------------- -----------------------------
Percent
Change (%)
2001 2000 Inc. (Dec.) 2001 2000
------------- ------------- --------------- ------------- -------------
Market sales
Insurance testing $2,958 $3,166 (7) 35 44
Public health 1,392 990 41 16 14
Physician offices 1,559 1,580 (1) 18 22
Substance abuse testing 2,014 770 162 24 11
Other markets 157 537 (71) 2 7
------------- ------------- ------------- -------------
8,080 7,043 15 95 98
License and product development 428 118 263 5 2
------------- ------------- ------------- -------------
Total revenues $8,508 $7,161 19 100 100
============= ============= ============= =============
Sales to the insurance testing market declined by 7% to approximately $3.0
million in the second quarter of 2001 principally as a result of decreased
activity resulting from regulatory changes in life insurance policy reserve
levels. Sales to the public health market increased 41% to approximately $1.4
million in the second quarter as a result of continued penetration by the
Company's public health HIV test. Sales to physician offices, which consisted
solely of the Histofreezer cryosurgical system, remained flat at approximately
$1.6 million. Sales to the substance abuse testing market increased 162% to
approximately $2.0 million in the second quarter of 2001 as a result of the
continued market penetration of Intercept and increased forensic toxicology
sales. Other markets declined 71% to approximately $157,000 due primarily to the
discontinuation of the Serum Western Blot product.
License and product development revenue increased 263% to approximately $428,000
in the second quarter of 2001 from approximately $118,000 in 2000. This increase
was attributable principally to additional revenue resulting from the
recognition of milestone payments under existing development arrangements.
The Company's gross margin increased to approximately 65% in the second quarter
of 2001 from 64% in 2000. This increase was primarily the result of negotiated
contract savings and higher license and product development revenues, partially
offset by less favorable product mix. Gross margin, based upon product revenues,
was 63% in both the second quarter of 2001 and 2000. Gross margins are
anticipated to continue to improve during the remainder of the year.
Research and development expenses increased 15% to approximately $2.4 million in
the second quarter of 2001 from approximately $2.1 million in 2000, as a result
of continued development of the UPlink reader, test cassette and collector, DNA
feasibility studies, clinical trial expenses for the OraQuick HIV rapid test and
other development projects. Research and development expenses, as a percentage
of second quarter revenues, declined to approximately 29% from 30% in 2000.
Research and development expenses are expected to increase during the remainder
of 2001 as clinical trials for OraQuick and UPlink research activities continue.
During the second quarter of 2001, the Company filed a 510(k) application with
the FDA for the UPlink reader and cassette containing assays for six oral fluid
drugs of abuse. In addition, the Company filed with the FDA for pre-market
approval of the OraQuick HIV test for serum and whole blood applications. A
similar OraQuick filing for oral specimens is expected to be made in the fourth
quarter of 2001.
13
Sales and marketing expenses increased 14% to approximately $2.1 million in the
second quarter of 2001 from approximately $1.8 million in 2000. This increase
was primarily the result of costs associated with the development of foreign
markets for OraQuick, the continued marketing of the Intercept drugs-of-abuse
service, and preparation for the market launch of UPlink scheduled for the third
quarter of 2001. Sales and marketing expenses, as a percentage of second quarter
revenues, declined to approximately 24% from 25% in 2000.
General and administrative expenses decreased 10% to approximately $1.6 million
in the second quarter of 2001 from approximately $1.8 million in 2000. This
decrease reflects cost savings from the elimination of duplicative overhead
structures as a result of the merger of STC Technologies, Inc. and Epitope, Inc.
into the Company on September 29, 2000. General and administrative expenses, as
a percentage of second quarter revenues, declined to approximately 19% from 25%
in 2000.
Operating loss improved approximately $555,000 to approximately $597,000 in the
second quarter of 2001 from approximately $1.2 million in 2000 as a result of
increasing revenues and improving gross margins, partially offset by increased
operating expenses.
Interest expense decreased by 17% to approximately $103,000 in the second
quarter of 2001 from approximately $125,000 in 2000 as a result of principal
loan repayments.
Interest income decreased to approximately $207,000 in the second quarter of
2001 from approximately $320,000 in 2000 as a result of lower cash and cash
equivalents available for investment and lower interest rates.
Foreign currency gain was approximately $54,000 in the second quarter of 2001
compared to a loss of approximately $24,000 in 2001 primarily due to changes in
the exchange rate between the U.S. dollar and the Netherlands guilder.
In the second quarter of 2000, the Company recorded a gain on the sale of
securities of $600,000, as a result of the sale of Andrew & Williamson Sales
Company, Inc. ("A&W") preferred stock the Company had received as part of a
settlement with A&W in 1997.
Net loss was approximately $444,000 in the second quarter of 2001 compared to
approximately $337,000 in 2000, which included a one-time $600,000 gain on the
sale of securities in 2000. Excluding the one-time $600,000 gain on sale of
securities, net loss would have improved approximately $493,000, as compared to
the second quarter of 2000.
14
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000
Comparative results of operations (in thousands, except %) are summarized as
follows:
Six Months Ended June 30,
-----------------------------------------------------------------------------
Percentage of
Dollars Total Revenue (%)
---------------------------- -----------------------------
Percent
Change (%)
2001 2000 Inc. (Dec.) 2001 2000
------------- ------------- --------------- ------------- -------------
Revenues
Product $14,971 $13,530 11 94 98
License and product development 941 250 276 6 2
------------- ------------- ------------- -------------
15,912 13,780 15 100 100
------------- ------------- ------------- -------------
Cost and expenses
Cost of products sold 5,707 5,114 12 36 37
Research and development 4,590 3,832 20 29 28
Sales and marketing 3,927 3,204 23 25 23
General and administrative 3,067 3,674 (16) 19 27
Restructuring-related 450 - N/A 3 -
------------- ------------- ------------- -------------
17,741 15,824 12 112 115
------------- ------------- ------------- -------------
Operating loss (1,829) (2,044) (10) (12) (15)
Interest expense (209) (253) (17) (1) (1)
Interest income 501 547 (8) 3 4
Foreign currency gain (loss) 118 (9) N/A 1 -
Gain on sale of securities - 600 N/A - 4
------------- ------------- ------------- -------------
Loss before income taxes (1,419) (1,159) 22 (9) (8)
Income taxes 22 12 83 0 0
------------- ------------- ------------- -------------
Net loss $ (1,441) $(1,171) 23 (9) (8)
============= ============= ============= =============
Total revenues increased 15% to approximately $15.9 million in the first six
months of 2001 from approximately $13.8 million in the comparable period in
2000, primarily as a result of increased sales of oral fluid collection devices
and related immunoassay tests, and increased license and product development
revenues.
15
The table below shows the amount of the Company's total revenues (in thousands,
except for %) generated by each of its principal products and by license and
product development activities.
Six Months Ended June 30,
-----------------------------------------------------------------------------
Dollars Percentage of
Total Revenue (%)
---------------------------- -----------------------------
Percent
Change (%)
2001 2000 Inc. (Dec.) 2001 2000
------------- ------------- --------------- ------------- -------------
Product revenues
Oral specimen collection devices $ 6,717 $ 5,415 24 42 39
OraQuick 240 - N/A 2 -
Histofreezer cryosurgical systems 2,779 2,944 (6) 17 21
Immunoassay tests 3,808 3,514 8 24 26
Western Blot HIV confirmatory
tests 328 886 (63) 2 6
Other product revenue 1,099 771 43 7 6
------------- ------------- ------------- -------------
14,971 13,530 11 94 98
License and product development 941 250 276 6 2
------------- ------------- ------------- -------------
Total revenues $ 15,912 $ 13,780 15 100 100
============= ============= ============= =============
Product revenues increased 11% to approximately $15.0 million for the first six
months of 2001 from approximately $13.5 million in the first six months of 2000.
Sales of oral specimen collection devices and immunoassay tests increased 24%
and 8% to approximately $6.7 million and $3.8 million, respectively, as a result
of increased sales to the public health and substance abuse testing markets.
Histofreezer revenues declined 6% to approximately $2.8 million. OraQuick
generated approximately $240,000 of revenue during the six months ended June 30,
2001. Sales of the Western Blot confirmatory tests declined 63% to approximately
$328,000 as a result of the discontinuation of the Serum Western Blot product in
January 2001. Other product revenues, which consisted primarily of sales of the
Q.E.D. saliva alcohol test and certain Intercept-related equipment sales to
criminal justice and drug rehabilitation clients, increased 43% to approximately
$1.1 million from approximately $771,000 in 2000. Total Intercept sales for the
first six months of 2001, including devices, immunoassay tests, and related
equipment, totaled approximately $1.7 million as compared to approximately
$328,000 in 2000. As a percentage of product revenues, international product
sales remained flat at approximately 16% in the first six months of 2001.
16
The table below shows the amount of the Company's total revenue (in thousands,
except %) generated in each of its principal markets and by license and product
development activities.
Six Months Ended June 30,
-----------------------------------------------------------------------------
Percentage of
Dollars Total Revenue (%)
---------------------------- -----------------------------
Percent
Change (%)
------------- -------------
2001 2000 Inc. (Dec.) 2001 2000
------------- ------------- --------------- ------------- -------------
Market sales
Insurance testing $5,891 $6,239 (6) 37 45
Public health 2,839 1,723 65 18 13
Physician offices 2,779 2,944 (6) 17 21
Substance abuse testing 3,198 1,592 101 20 12
Other markets 264 1,032 (74) 2 7
------------- ------------- ------------- -------------
14,971 13,530 11 94 98
License and product development 941 250 276 6 2
------------- ------------- ------------- -------------
Total revenues $15,912 $13,780 15 100 100
============= ============= ============= =============
Sales to the insurance testing market declined by 6% to approximately $5.9
million in the first six months of 2001 principally as a result of decreased
activity resulting from regulatory changes in life insurance reserve levels.
Sales to the public health market increased 65% to approximately $2.8 million in
the first six months of 2001. Sales to physician offices, which consisted solely
of the Histofreezer cryosurgical system, decreased to approximately $2.8 million
in the first six months of 2001. Sales to the substance abuse testing market
increased 101% to approximately $3.2 million in the first six months of 2001 as
a result of the continued market penetration of Intercept and increased forensic
toxicology sales. Other markets declined 74% to approximately $264,000 due
primarily to the discontinuation of the Serum Western Blot product.
License and product development revenue increased 276% to approximately $941,000
in the first six months of 2001 from approximately $250,000 in 2000. This
increase was attributable principally to additional revenue resulting from the
recognition of milestone payments under existing development arrangements.
The Company's gross margin increased to approximately 64% in the first six
months of 2001 from 63% in 2000. This increase was primarily the result of
negotiated contract savings and higher license and product development revenues,
partially offset by less favorable product mix and incremental costs associated
with the ramp up of OraQuick manufacturing. Gross margin, based upon product
revenues, was 62% in the first six months of 2001 and 2000.
Research and development expenses increased 20% to approximately $4.6 million in
the first six months of 2001 from approximately $3.8 million in 2000, as a
result of continued development of the UPlink reader, test cassette and
collector, DNA feasibility studies, and clinical trial expenses for the OraQuick
HIV rapid test.
Sales and marketing expenses increased 23% to approximately $3.9 million in the
first six months of 2001 from approximately $3.2 million in 2000. This increase
was primarily the result of costs associated with the development of foreign
markets for OraQuick, the continued marketing of the Intercept drugs-of-abuse
service, and preparation for the market launch of UPlink scheduled for the third
quarter of 2001.
General and administrative expenses decreased 16% to approximately $3.1 million
in the first six months of 2001 from approximately $3.7 million in 2000. This
decrease reflects cost savings from the elimination of duplicative overhead
structures as a result of the merger of STC Technologies, Inc. and Epitope, Inc.
into the Company on September 29, 2000. General and administrative expenses, as
a percentage of revenues, declined to approximately 19% from 27% in 2000.
17
Restructuring related expenses were approximately $450,000 as a result of the
first quarter manufacturing restructuring. These non-recurring costs primarily
included expenses for employee severance, travel and transport resulting from
relocating and consolidating manufacturing operations.
Operating loss improved to approximately $1.8 million in the six months ended
June 30, 2001, from approximately $2.0 million in 2000 as a result of increasing
revenues and improving gross margins, partially offset by increased sales and
marketing and research and development expenses. Excluding the $450,000
non-recurring manufacturing restructuring expenses, the operating loss would
have been approximately $1.4 million for the first six months of 2001, an
improvement of approximately $665,000.
Interest expense decreased by 17% to approximately $209,000 in the first six
months of 2001 from approximately $253,000 in 2000 as a result of principal loan
repayments.
Interest income decreased to approximately $501,000 in the first six months of
2001 from approximately $547,000 in 2000 as a result of lower cash and cash
equivalents available for investment and lower interest rates.
Foreign currency gain was approximately $118,000 in the first six months of 2001
compared to a loss of approximately $9,000 in 2000, primarily due to changes in
the exchange rate between the U.S. dollar and the Netherlands guilder.
In the second quarter of 2000, the Company recorded a gain on the sale of
securities of $600,000, as a result of the sale of A&W preferred stock the
Company had received as part of a settlement with A&W in 1997.
Net loss was approximately $1.4 million in the first six months of 2001 compared
to approximately $1.2 million in 2000, which included a one-time $600,000 gain
on the sale of securities in 2000. Excluding the $450,000 non-recurring
manufacturing restructuring expenses in 2001 and the one-time $600,000 gain on
sale of securities in 2000, the net loss would have improved approximately
$780,000.
LIQUIDITY AND CAPITAL RESOURCES
June 30, December 31,
2001 2000
---------- -------------
(In thousands)
Cash and cash equivalents $ 3,774 $ 5,096
Short-term investments 13,458 14,957
Working capital 20,677 21,495
The Company's cash, cash equivalents and short-term investments position
decreased approximately $2.8 million from December 31, 2000 to approximately
$17.2 million at June 30, 2001, primarily as a result of the net loss and
increased working capital, partially offset by proceeds from the exercise of
stock options. At June 30, 2001, the Company's working capital was approximately
$20.7 million.
The combination of the Company's current cash position, available borrowings
under the Company's credit facilities, and the Company's cash flow from
operations is expected to be sufficient to fund the Company's foreseeable
operating and capital needs. However, the Company's cash requirements may vary
materially from those now planned due to many factors, including, but not
limited to, the progress of the Company's research and development programs, the
scope and results of clinical testing, changes in existing and potential
relationships with strategic partners, the time and cost in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents, proprietary
rights and any necessary licenses, the ability of the Company to establish
development and commercialization capacities or relationships, the costs of
manufacturing, market acceptance of new products, the need for increased capital
expenditures, and other factors.
Net cash used in operating activities was approximately $2.4 million for the
first six months of 2001, as a direct result of the Company's net loss and
increased working capital levels.
18
Net cash provided by investing activities during the first six months of 2001
was approximately $91,000 as a result of the sale of securities to fund
short-term cash needs. In addition, the Company also incurred approximately $1.5
million in capital expenditures, primarily reflecting the Company's investment
required to manufacture its OraQuick product in Bethlehem, Pennsylvania. Capital
expenditures are anticipated to increase during the remainder of 2001 as a
result of additional commitments the Company has made for the purchase and
installation of fully automated lateral flow manufacturing equipment for UPlink,
additional space for research and development activities, and expanded
manufacturing capacity.
Net cash provided by financing activities was approximately $1.2 million during
the first six months of 2001, reflecting principally proceeds from the exercise
of stock options.
At June 30, 2001, the Company had a $1.0 million working capital line of credit
in place that accrues interest at LIBOR plus 235 basis points and a $1.0 million
equipment line of credit in place that accrues interest at a rate fixed at prime
at the time of draw down. There were no borrowings under these lines of credit
at June 30, 2001. These lending facilities have been extended through April 30,
2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not hold any material derivative financial instruments or
derivative commodity instruments, and does not hold material amounts of other
financial instruments. Accordingly, the Company has no material market risk to
report under this Item.
The Company's holdings of financial instruments are comprised of U.S. corporate
debt, certificates of deposit, government securities and commercial paper. All
such instruments are classified as securities available for sale. The Company's
debt security portfolio represents funds held temporarily pending use in its
business and operations. The Company seeks reasonable assuredness of the safety
of principal and market liquidity by investing in rated fixed income securities
while at the same time seeking to achieve a favorable rate of return. Market
risk exposure consists principally of exposure to changes in interest rates. If
changes in interest rates would affect the investments adversely, the Company
continues to hold the security to maturity. The Company's holdings are also
exposed to the risks of changes in the credit quality of issuers. The Company
typically invests in the shorter end of the maturity spectrum.
The Company has entered into approximately $485,000 of foreign currency forward
exchange contracts to offset certain operational and balance sheet exposures
from changes in foreign currency exchange rates. Such exposures result from the
portion of the Company's operations, assets and liabilities located in the
Netherlands and denominated in guilders. Based upon the fixed-exchange-rate
nature of these contracts, the Company is exposed to potential risk of loss
based upon fluctuations in the exchange rate of the guilder and U.S. dollar
during the term of the contract. Furthermore, as currency rates change,
translation of income statements for these operations from guilders to U.S.
dollars affects year-to-year comparability of operating results. The Company's
operations in the Netherlands represented approximately $0.5 million (6.2% of
total revenues) and $1.0 million (6.1% of total revenues) for the three months
and six months ended June 30, 2001, respectively. Management does not expect the
risk of foreign currency fluctuations to be material.
19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2001 Annual Meeting of Stockholders of the Company held on June 14, 2001,
the following individuals were elected by the votes indicated as Class I
directors of the Company for terms expiring at the 2004 Annual Meeting of
Stockholders:
VOTES VOTES
NOMINEE FOR WITHHELD
------- --- --------
Michael G. Bolton 30,756,501 99,197
Frank G. Hausmann 30,783,682 72,016
The other directors whose terms of office continued after the Annual Meeting
are: Robert D. Thompson, Michael J. Gausling, William W. Crouse, Gregory B.
Lawless and Roger L. Pringle.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibits are listed on the attached exhibit index following the signature page
of this report.
(b) Reports on Form 8-K.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORASURE TECHNOLOGIES, INC.
/s/ Richard D. Hooper
------------------------------------
Date: August 14, 2001 Richard D. Hooper
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer)
/s/ Mark L. Kuna
------------------------------------
Date: August 14, 2001 Mark L. Kuna
Controller
(Principal Accounting Officer)
EXHIBIT INDEX
EXHIBIT
- -------
3 Amended and Restated Bylaws of OraSure Technologies, Inc., Effective as of
June 14, 2001.
4 Second Amendment to Stockholders' Agreement, dated as of June 29, 2001,
among OraSure Technologies, Inc. (as successor to STC Technologies, Inc.),
HealthCare Ventures V, L.P., Hudson Trust and Pennsylvania Early Stage
Partners, L.P.
22
AMENDED AND RESTATED BYLAWS
OF
ORASURE TECHNOLOGIES, INC.
EFFECTIVE AS OF JUNE 14, 2001
ARTICLE I
NAME AND LOCATION
SECTION 1. NAME.
The name of the Corporation shall be the name set forth in the Certificate of
Incorporation.
SECTION 2. PRINCIPAL OFFICE.
The principal office of the Corporation is located at 8505 S.W. Creekside Place,
Beaverton, Oregon 97008.
SECTION 3. ADDITIONAL OFFICES.
Other offices for the transaction of business of the Corporation may be located
at such place or places as the Board of Directors may from time to time
determine.
ARTICLE II
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES.
All certificates of stock shall be signed by the Chairman of the Board of
Directors, the Chief Executive Officer, the President or a Vice President and
the Secretary or an Assistant Secretary, and sealed with the corporate seal.
SECTION 2. STOCK TRANSFERS.
Transfers of stock shall be made on the books of the Corporation upon the
surrender of the old certificate properly endorsed, and said old certificate
shall be canceled before a new certificate is issued.
SECTION 3. LOST OR DESTROYED STOCK CERTIFICATES.
A new certificate of stock may be issued in the place of any certificate
theretofore issued, alleged to have been lost or destroyed, and the Corporation
may, in its discretion, require the owner of the lost or destroyed certificate,
or its legal representative, to give a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any certificate.
SECTION 4. PREEMPTIVE RIGHTS DENIED.
No holder of shares of any class of the Corporation, or holder of any securities
or obligations convertible into shares of any class of the Corporation, shall
have any preemptive right whatsoever to subscribe for, purchase or otherwise
acquire shares of the Corporation of any class, whether now or hereafter
authorized; provided, however, that nothing in this Section 4 shall prohibit the
Corporation from granting, contractually or otherwise, to any such holder, the
right to purchase additional securities of the Corporation.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 1. ANNUAL MEETING.
The annual meeting of the stockholders of the Corporation shall be held, either
within or without the State of Delaware, on such date and at such time as may
from time to time be determined by the Board of Directors. At such meeting the
stockholders shall elect directors in the manner provided in the Certificate of
Incorporation of the Corporation. The stockholders may transact such other
business at such annual meetings as may properly come before the meeting.
SECTION 2. SPECIAL MEETING.
A special meeting of the holders of any one or more classes of the capital stock
of the Corporation entitled to vote as a class or classes with respect to any
matter, as required by law or as provided by the Certificate of Incorporation,
may be called at any time and place, either within or without the state of
Delaware, only by the Chairman of the Board, the Chief Executive Officer, the
President or the Board of Directors.
SECTION 3. NOTICE.
Notice of the time and place of all annual meetings and of the time, place and
purpose of all special meetings shall be mailed by the Secretary to each
stockholder at his or her last known post office address as it appears on the
records of the Corporation at least ten (10) days before the date set for such
meeting.
SECTION 4. NOMINATION OF DIRECTORS.
Nomination of persons for election to the Board of Directors of the Corporation
at a meeting of the stockholders may be made by or at the direction of the Board
of Directors or may be made at a meeting of stockholders by any stockholder of
the Corporation entitled to vote for the election of Directors at the meeting in
compliance with the notice procedures set forth in this Section 4 of ARTICLE
III. Such nomination, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than fifty (50) days nor more than seventy-five (75) days prior to the
meeting; provided, however, that in the event that less than sixty-five (65)
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by
-2-
the stockholder to be timely must be so received no later than the close of
business on the fifteenth (15th) day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made, whichever
first occurs. Such stockholder's notice to the Secretary 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 the person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of capital stock of the Corporation
which are beneficially owned by the person, and (iv) any other information
relating to the person that is required to be disclosed in solicitations for
proxies for election of Directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (b) as to
the stockholder giving the notice; (i) the name and record address of the
stockholder; and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a Director of the Corporation. No person shall be eligible
for election as a Director of the Corporation at a meeting of the stockholders
unless such person has been nominated in accordance with the procedures set
forth herein. If the facts warrant, the Chairman of the meeting shall determine
and declare to the meeting that a nomination does not satisfy the requirements
set forth in the preceding sentence and the defective nomination shall be
disregarded. Nothing in this Section 42 shall be construed to affect the
requirements for proxy statements of the Corporation under Regulation 14A of the
Exchange Act.
SECTION 5. PRESENTATION OF BUSINESS AT STOCKHOLDERS' MEETINGS.
At any meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a 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 properly brought before a meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than fifty (50) days nor more than seventy-five (75) days
prior to the meeting; provided, however, that in the event that less than sixty-
five (65) 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 no later than the close of business on the fifteenth (15th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth: (a) as to each matter the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, and (b) as to the stockholder giving the notice, (i)
the name and record address of the stockholder, (ii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
stockholder and (iii) any material interest of the
-3-
stockholder in such business. No business shall be conducted at a meeting of the
stockholders unless proposed in accordance with the procedures set forth herein.
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 foregoing procedure and such business shall not be
transacted. To the extent this Section 5 shall be deemed by the Board of
Directors or the Securities and Exchange Commission, or finally adjudged by a
court of competent jurisdiction, to be inconsistent with the right of
stockholders to request inclusion of a proposal in the Corporation's proxy
statement pursuant to Rule 14a-8 promulgated under the Exchange Act, such rule
shall prevail.
SECTION 6. PRESIDING OFFICIALS.
The Chairman of the Board of Directors, or in his or her absence or inability to
act, the Chief Executive Officer, or in his or her absence or inability to act,
the President, or in his or her absence or inability to act, any Vice President,
shall preside at all stockholders' meetings.
SECTION 7. VOTING.
Except as otherwise provided in the Certificate of Incorporation of the
Corporation, at each meeting of the stockholders, each stockholder shall be
entitled to cast one vote for each share of voting stock standing of record on
the books of the Corporation, in his or her name, and may cast such vote either
in person or by proxy. All proxies shall be in writing and filed with the
Secretary of the meeting.
SECTION 8. QUORUM; ADJOURNMENT.
At any meeting held for the purpose of electing directors, the presence in
person or by proxy of the holders of at least a majority of the then outstanding
voting shares of the Corporation shall be required and be sufficient to
constitute a quorum for the election of directors. At a meeting held for any
purpose other than the election of directors, shares representing a majority of
the votes entitled to be cast on such matter, present in person or represented
by proxy, shall constitute a quorum. In the absence of the required quorum at
any meeting of stockholders, a majority of such holders present in person or by
proxy shall have the power to adjourn the meeting, from time to time, without
notice (except as required by law) other than an announcement at the meeting,
until a quorum shall be present.
SECTION 9. ANNUAL STATEMENT OF BUSINESS.
At each of the annual stockholders' meetings, one of the executive officers of
the Corporation shall submit a statement of the business done during the
preceding year, together with a report of the general financial condition of the
Corporation.
-4-
ARTICLE IV
DIRECTORS
SECTION 1. POWERS OF THE BOARD.
The business and property of the Corporation shall be managed by a Board
consisting of such number of Directors as is determined from time to time in
accordance with the provisions of the Certificate of Incorporation of the
Corporation. The Board of Directors may elect one of their number to act as
Chairman of the Board.
SECTION 2. QUALIFICATION.
Each Director upon his or her election shall qualify by filing his or her
written acceptance with the Secretary or an Assistant Secretary and by
fulfilling any prerequisite to qualification that may be set forth in the
Certificate of Incorporation of the Corporation.
SECTION 3. ANNUAL MEETINGS.
The annual meeting of the Board of Directors shall be held immediately after the
adjournment of each annual meeting of the stockholders and in the event a quorum
is not present, said meeting shall be held within ten (10) days after
adjournment upon proper notice by the Chairman of the Board of Directors, the
Chief Executive Officer, the President or a Vice President.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called at any time or place by
the Chairman of the Board, the Chief Executive Officer, or by the President, and
in the absence or inability of all of them to act, by any Vice President, and
may also be called by any two members of the Board of Directors. By unanimous
consent of the Directors, special meetings of the Board may be held without
notice, at any time and place.
SECTION 5. NOTICE; TELEPHONIC ATTENDANCE; UNANIMOUS CONSENT.
Notice of all regular and special meetings of the Board of Directors or the
Executive Committee or any committee established pursuant to this ARTICLE IV (an
"Other Committee") shall be sent to each Director or member of such committee,
as the case may be, by the Secretary or any Assistant Secretary, by a means
reasonably calculated to be received at least seven (7) days prior to the time
fixed for such meeting, or notice of special meetings of the Board of Directors
or the Executive Committee or any Other Committee may be given by telephone,
telegraph, telefax or telex to each Director or member of such committee, as the
case may be, at least twenty-four (24) hours prior to the time fixed for such
meeting, or on such shorter notice as the person or persons calling the meeting
may reasonably deem necessary or appropriate in the circumstances. To the extent
provided in the notice of the meeting or as otherwise determined by the Chairman
of the Board or the Board of Directors, Directors may participate in any regular
or special meeting by means of conference telephone, videoconference or similar
communications equipment which allows all persons participating in such meeting
to hear each other, and participation in such meeting by means of such a device
shall constitute presence in person at such meeting. Attendance of a director at
any meeting shall constitute a waiver of notice of such meeting except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
-5-
If all the directors shall severally or collectively consent in writing to any
action to be taken by the directors, such consents shall have the same force and
effect as a unanimous vote of the directors at a meeting duly held. The
Secretary shall file such consents with the minutes of the meetings of the Board
of Directors.
SECTION 6. QUORUM; ADJOURNMENT.
Except as otherwise provided in the Certificate of Incorporation of the
Corporation, a quorum for the transaction of business at any meeting of the
directors shall consist of a majority of the members of the Board, but the
directors present, although less than a quorum, shall have the power to adjourn
the meeting from time to time or to some future date.
SECTION 7. ELECTION OF OFFICERS.
The directors shall elect the officers of the Corporation and fix their salaries
and other compensation. Such election shall be made at the Directors' meeting
following each annual stockholders' meeting.
SECTION 8. ADVISERS TO THE BOARD OF DIRECTORS.
The Board of Directors from time to time, as they may deem proper, shall have
authority to appoint a general manager, counsel or attorneys and other employees
for such length of time and upon such terms and conditions and at such salaries
and other compensation as they may deem necessary and/or advisable.
SECTION 9. COMPENSATION; REIMBURSEMENT OF EXPENSES.
The members of the Board of Directors shall receive compensation for their
services in such amount as may be reasonable and proper and consistent with the
time and service rendered. The members of the Board of Directors shall receive
the reasonable expenses necessarily incurred in the attendance of meetings and
in the transaction of business for the Corporation.
SECTION 10. INDEMNIFICATION; INSURANCE.
(a) Indemnification.
(1) Actions Other than Those by or in the Right of the
Corporation. To the extent permitted by Delaware law from time to time in effect
and subject to the provisions of paragraph (c) of this Section 10, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts
-6-
paid in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation (or such other corporation or organization), and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was unlawful.
(2) Action by or in the Right of the Corporation. To the extent
permitted by Delaware law from time to time in effect and subject to the
provisions of paragraph (c) of this Section 10, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation (or such other corporation or organization) and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation (or
such other corporation or organization) unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(3) Successful Defense of Action. Notwithstanding, and without
limitation of, any other provision of this Section 10, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in sub-paragraph (1) or (2) of this paragraph (a), or in defense of any claim,
issue or matter therein, such director, officer, employee or agent shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
(4) Determination Required. Any indemnification under
sub-paragraph (1) or (2) of this paragraph (a) (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such director, officer, employee or agent
has met the applicable standard of conduct set forth in said sub-paragraph. Such
determination shall be made: (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not
-7-
parties to the particular action, suit or proceeding, or (ii) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
(b) Insurance. The Corporation may, when authorized by the Board
of Directors, purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Section 10. The risks
insured under any insurance policies purchased and maintained on behalf of any
person as aforesaid or on behalf of the Corporation shall not be limited in any
way by the terms of this Section 10 and to the extent compatible with the
provisions of such policies, the risks insured shall extend to the fullest
extent permitted by law, common or statutory.
(c) Advancement of Expenses; Nonexclusivity; Duration. Expenses
(including attorneys' fees) incurred by an officer or director in defending any
civil, criminal, administrative or investigative action, suit or proceeding
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 officer or director to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Section 10. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid by the Corporation upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
The indemnifications, advancement of expenses and rights provided by, or granted
pursuant to, this Section 10 shall not be deemed exclusive of any other
indemnifications, advancement of expenses, rights or limitations of liability to
which any person seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise, either as to action in such person's official capacity
or as to action in another capacity while holding office, and they shall
continue although such person has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators. The authorization to purchase and maintain insurance set forth
in paragraph (b) shall likewise not be deemed exclusive.
SECTION 11. COMMITTEES.
(a) The Board of Directors may, by resolution or resolutions
adopted by a majority of the whole Board, designate two or more directors of the
Corporation to constitute one or more committees in addition to those committees
required by SECTIONS 12, 13 and 14 of this ARTICLE IV. Each such committee, to
the extent provided in such resolution or resolutions, shall have and may
exercise all of the authority of the Board in the management of the Corporation;
provided, however, that the designation of each such committee and the
delegation thereto of authority shall not
-8-
operate to relieve the Board, or any member thereof, of any responsibility
imposed upon it or such member by law.
(b) Notwithstanding any other provision of these Bylaws, no
committee of the Board of Directors shall have the power or authority of the
Board with respect to (i) amending the Certificate of Incorporation, (ii)
approving or recommending to stockholders any type or form of "business
combination" (as defined in Section 203 of the General Corporation Law of
Delaware as in effect on January 1, 1996), (iii) approving or recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution, (iv) amending these Bylaws, (v) declaring a dividend or making any
other distribution to the stockholders, (vi) authorizing the issuance of stock
otherwise than pursuant to the grant or exercise of a stock option under
employee stock options of the Corporation or in connection with a public
offering of securities registered under the Securities Act of 1933, as amended,
or (vii) appointing any member of any committee of the Board.
(c) Each such committee shall keep regular minutes of its
proceedings, which minutes shall be recorded in the minute book of the
Corporation. The Secretary or an Assistant Secretary of the Corporation may act
as Secretary for each such committee if the committee so requests.
SECTION 12. EXECUTIVE COMMITTEE.
The Board of Directors may, at the annual or any regular or special meeting, by
resolutions adopted by a majority of the whole Board, designate two or more
directors to constitute an Executive Committee and appoint one of the directors
so delegated as the Chairman of the Executive Committee. The Executive Committee
between regular meetings of the Board of Directors shall manage the business and
property of the Corporation and shall have the same power and authority as the
Board of Directors; provided, however, the Executive Committee shall not act
(other than to make a recommendation) in those cases where it is provided by law
or by the Certificate of Incorporation of the Corporation that any vote or
action in order to bind the Corporation shall be taken by the Directors. Members
of the Executive Committee may participate in any meeting of the Executive
Committee by means of conference telephone or videoconference or similar
communications equipment which allows all persons participating in the meeting
to hear each other, and participation in a meeting by means of such a device
shall constitute presence in person at such meeting.
The Executive Committee shall keep a record of its proceedings and may hold
meetings upon one (1) day's written notice or upon waiver of notice signed by
the members either before or after said Executive Committee meeting. A majority
of the Executive Committee shall constitute a quorum for the transaction of
business at any meeting for which notice has been given to all members in
accordance with ARTICLE IV, Section 5 hereof or for which notice has been waived
by all members.
The Executive Committee or any Other Committee may act by unanimous written
consent as provided in ARTICLE IV, SECTION 5.
-9-
SECTION 13. AUDIT COMMITTEE.
The Board of Directors at the annual or any regular or special meeting of the
directors shall, by resolution adopted by a majority of the whole Board,
designate two or more directors to constitute an Audit Committee and appoint one
of the directors so designated as the chairman of the Audit Committee.
Membership on the Audit Committee shall be restricted to those directors who are
independent of the management of the Corporation and are free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of independent judgment as a member of the committee. Vacancies in the
committee may be filled by the Board at any meeting thereof. Each member of the
committee shall hold office until such committee member's successor has been
duly elected and qualified, or until such committee member's resignation or
removal from the Audit Committee by the Board, or until such committee member
otherwise ceases to be a director. Any member of the Audit Committee may be
removed from the committee by resolution adopted by a majority of the whole
Board. The compensation, if any, of members of the committee shall be
established by resolution of the Board.
The Audit Committee shall be responsible for: recommending to the Board the
appointment or discharge of independent auditors; reviewing with the management
and the independent auditors the terms of engagement of independent auditors,
including the fees, scope and timing of the audit and any other services
rendered by the independent auditors; reviewing with the independent auditors
and management the Corporation's policies and procedures with respect to
internal auditing, accounting and financial controls; reviewing with the
management the independent statements, audit results and reports and the
recommendations made by any of the auditors with respect to changes in
accounting procedures and internal controls; reviewing the results of studies of
the Corporation's system of internal accounting controls; and performing any
other duties or functions deemed appropriate by the Board. The Audit Committee
shall have the powers and rights necessary or desirable to fulfill these
responsibilities, including the power and right to consult with legal counsel
and to rely upon the opinion of legal counsel. The Audit Committee is authorized
to communicate directly with the Corporation's financial officers and employees,
internal auditors and independent auditors as it deems desirable and to have the
internal auditors or independent auditors perform any additional procedures as
it deems appropriate.
All actions of the Audit Committee shall be reported to the Board at the next
meeting of the Board. The minute books of the Audit Committee shall at all times
be open to the inspection of any director.
The Audit Committee shall meet at the call of its chairman or of any two members
of the Audit Committee (or if there shall be only one other member, then at the
call of that member). A majority of the Audit Committee shall constitute a
quorum for the transaction of business (or if there shall only be two members,
then both must be present), and the act of a majority of those present at any
meeting at which a quorum is present (or if there shall be only two members,
then they must act unanimously) shall constitute the act of the Audit Committee.
-10-
SECTION 14. COMPENSATION COMMITTEE.
The Board of Directors at the annual or any regular or special meeting shall, by
resolution adopted by a majority of the whole Board, designate two or more
directors to constitute a Compensation Committee. Membership on the Compensation
Committee shall be restricted to disinterested persons which for this purpose
shall mean any director who, during the time such director is a member of the
Compensation Committee is not eligible, and has not at any time within one year
prior thereto been eligible, for selection to participate (other than in a
manner as to which the Compensation Committee has no discretion) in any of the
compensation plans administered by the Compensation Committee. Vacancies in the
committee may be filled by the Board at any meeting. Each member of the
committee shall hold office until such committee member's successor has been
duly elected and qualified, or until such committee member's resignation or
removal from the Compensation Committee by the Board, or until such committee
member otherwise ceases to be a director or a disinterested person. Any member
of the Compensation Committee may be removed by resolution adopted by a majority
of the whole Board. The compensation, if any, of the members of the Compensation
Committee shall be established by resolution of the Board.
The Compensation Committee shall, from time to time, recommend to the Board the
compensation and benefits of the executive officers of the Corporation. The
Compensation Committee shall have the power and authority vested in the Board by
any benefit plan of the Corporation. The Compensation Committee shall also make
recommendations to the Board with regard to the compensation of the Board and
its committees, with the exception of the Compensation Committee.
All actions of the Compensation Committee shall be reported to the Board at the
next meeting of the Board. The minute books of the Compensation Committee shall
at all times be open to the inspection of any director.
The Compensation Committee shall meet at the call of the chairman of the
Compensation Committee or of any two members of the Compensation Committee (or
if there shall be only one other member, then at the call of that member). A
majority of the Compensation Committee shall constitute a quorum for the
transaction of business (or if there shall be only two members, then both must
be present), and the act of a majority of those present at any meeting at which
a quorum is present (or if there shall be only two members, then they must act
unanimously) shall be the act of the Compensation Committee.
SECTION 15. ALTERNATE COMMITTEE MEMBERS.
The Board of Directors, by resolution adopted by a majority of the whole Board,
may designate one or more additional directors as alternate members of any
committee to replace any absent or disqualified member at any meeting of that
committee, and at any time may change the membership of any committee or amend
or rescind the resolution designating the committee. In the absence or
disqualification of a member or alternate member of a committee, the member or
members thereof present at any meeting and not
-11-
disqualified from voting, whether or not the member or members constitute a
quorum, may unanimously appoint another director to act at the meeting in the
place of any such absent or disqualified member, provided that the director so
appointed meets any qualifications stated in these Bylaws or the resolution
designating the committee or any amendment thereto.
SECTION 16. COMMITTEE PROCEDURES.
Unless otherwise provided in these Bylaws or in the resolution designating any
committee, any committee may fix its rules or procedures, fix the time and place
of its meetings and specify what notice of meetings, if any, shall be given.
ARTICLE V
OFFICERS
SECTION 1. DESIGNATIONS.
The officers of this Corporation shall be a Chairman of the Board of Directors,
a Chief Executive Officer, a President, as many Vice Presidents as the Board of
Directors may from time to time deem advisable and one or more of which may be
designated Executive Vice President or Senior Vice President, a Secretary, a
Treasurer, and such Assistant Secretaries and Assistant Treasurers as the Board
of Directors may from time to time deem advisable, and such other officers as
the Board of Directors may from time to time deem advisable and designate. The
Chairman of the Board of Directors shall be a member of and be elected by the
Board of Directors. All other officers shall be elected by the Board of
Directors. All officers shall hold office until their respective successors are
elected and shall have qualified. Any two offices may be held by one person
except the office of President and Vice President.
SECTION 2. CHAIRMAN OF THE BOARD.
The Chairman of the Board of Directors shall preside at all meetings of the
Directors and stockholders at which he or she is present and shall have such
other duties, power and authority as may be prescribed by the Board of Directors
from time to time or elsewhere in these Bylaws.
SECTION 3. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall have such general executive powers and duties
as are usually vested in the office of the chief executive officer and shall
perform such other duties as are authorized by the Board of Directors. Unless
the Board of Directors otherwise provides, the Chief Executive Officer, or any
person designated in writing by the Chief Executive Officer, shall have full
power and authority on behalf of the Corporation to: (i) attend and to vote or
take action at any meeting of the holders of securities of corporations in which
the Corporation may hold securities, and at such meetings shall possess and may
exercise any and all rights and powers incident to being a holder of such
securities, and (ii) execute and deliver waivers of notice and proxies for
-12-
and in the name of this Corporation with respect to securities of any such
corporation held by this Corporation.
SECTION 4. PRESIDENT.
The President shall have such general executive powers and duties of supervision
and management as are usually vested in such office and shall perform such other
duties as are authorized by the Board of Directors or the Chief Executive
Officer. The Chairman of the Board, the Chief Executive Officer, or the
President shall sign contracts, certificates and other instruments of the
Corporation as authorized by the Board of Directors.
SECTION 5. VICE PRESIDENTS.
A Vice President shall have the right and power to perform all duties and
exercise all authority of the President, in case of the absence of the President
or upon vacancy in the office of President or delegation by the Board of
Directors, until the Board of Directors otherwise provides, and shall have all
power and authority usually enjoyed by a person holding the office of Vice
President.
SECTION 6. SECRETARY AND ASSISTANT SECRETARIES.
The Secretary shall issue notices of all directors' and stockholders' meetings,
and shall attend and keep the minutes of the same; shall have charge of all
corporate books, records and papers; shall be custodian of the corporate seal;
shall attest with his or her signature, which may be a facsimile signature if
authorized by the Board of Directors, and impress with the corporate seal, all
stock certificates and written contracts of the Corporation; and shall perform
all other duties as are incident to his or her office. Any Assistant Secretary,
in the absence or inability of the Secretary, shall perform all duties of the
Secretary and such other duties as may be required.
SECTION 7. TREASURER AND ASSISTANT TREASURERS.
The Treasurer shall have custody of all money and securities of the Corporation
and shall give bond in such sum and with such sureties as the directors may
specify, conditioned upon the faithful performance of the duties of his or her
office. He or she shall keep regular books of account and shall submit them,
together with all of his or her records and other papers, to the directors for
their examination and approval annually; and quarterly or as and when directed
by the Board of Directors, he or she shall submit to each director a statement
of the condition of the business and accounts of the Corporation; and shall
perform all such other duties as are incident to his or her office. An Assistant
Treasurer, in the absence or inability of the Treasurer, shall perform all the
duties of the Treasurer and such other duties as may be required.
-13-
SECTION 8. BONDING.
Any officer or employee of the Corporation shall give such bond for the faithful
performance of his or her duties in such sum, as and when the Board of Directors
may direct.
ARTICLE VI
DIVIDENDS
SECTION 1. Dividends shall be paid out of the net income or earned surplus of
the Corporation, determined after making proper provision for required sinking
fund deposits for debt obligations and proper provisions for working capital and
such reserves as may be required by good and generally accepted accounting
practice, when declared from time to time by resolution of the Board of
Directors. No such dividends shall be declared or paid which will impair the
capital of the Corporation.
ARTICLE VII
AMENDMENTS
SECTION 1. Except as otherwise provided in the Certificate of Incorporation of
the Corporation, these Bylaws may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors, subject to the power
of stockholders to amend, alter or repeal the Bylaws, or as otherwise may from
time to time be authorized by the laws of the State of Delaware.
ARTICLE VIII
CORPORATE SEAL
SECTION 1. The corporate seal of this Corporation shall have inscribed thereon
the name of the Corporation and its state of incorporation.
-14-
EXECUTION COPY
SECOND AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS SECOND AMENDMENT is dated as of June 29, 2001 (this "SECOND
AMENDMENT") to the Stockholders' Agreement dated as of March 30, 1999, as
amended (the "STOCKHOLDERS Agreement"), by and among OraSure Technologies, Inc.
(as successor to STC Technologies, Inc.), a Delaware corporation (the
"COMPANY"), and the Investors identified therein. Capitalized terms not
otherwise defined herein shall have the respective meanings set forth in the
Stockholders' Agreement.
WHEREAS, the Stockholders' Agreement provides the Investors with
certain rights and the parties now desire to supplement and amend the terms of
the Stockholders' Agreement pursuant to the terms of this Second Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the Company and the Investors hereby agree as follows:
1. Limitations on Registration Rights; Holdback.
(a) The Company may delay the filing, delay the effectiveness or
suspend the effectiveness of a registration statement of the Company covering
Restricted Shares as contemplated by Sections 3.4, 3.5 or 3.6 of the
Stockholders' Agreement or otherwise prepared by the Company (including any
shelf registration statement on Form S-3) (a "REGISTRATION STATEMENT") or
require the Investors to suspend sales or other dispositions of Restricted
Shares under an effective Registration Statement, in each case for such time as
may be required by the Company, if (i) in the Board's judgment, the sale of
Restricted Shares thereunder would interfere with or be detrimental to a planned
offering by the Company of any of the Company's securities, (ii) in the Board's
judgment, the sale of Restricted Shares thereunder would have a material adverse
effect on the business, prospects, operations, results of operations, assets,
liabilities, or condition (financial or otherwise) of the Company; (iii) the
Company is engaged in discussions concerning any possible merger, acquisition,
financing, business combination, restructuring or sale of all or any substantial
portion of the Company or its assets, or any similar transaction or (iv) the
Company would be required to disclose in such Registration Statement material
information that it would not otherwise be required to disclose in its filings
with the Commission pursuant to the Exchange Act and that it has not then
disclosed in such filings with the Commission (each an "ALLOWED DELAY").
Notwithstanding the foregoing, the Company shall not be entitled to exercise its
right to defer filing or effectiveness of or to suspend sales or other
dispositions under a Registration Statement pursuant to an Allowed Delay for
more than ninety (90) consecutive days. In the event of an Allowed Delay, the
Company shall promptly (x) notify the Investors in writing (a "DELAY Notice") of
the existence (but not the substance) of the Allowed Delay and (y) advise the
Investors in writing to cease all sales or other dispositions under such
Registration Statement until the expiration of the period provided for in the
Delay Notice. To the extent required by the Stockholders' Agreement, upon
expiration of the Allowed Delay, the Company shall again be required to file,
cause the effectiveness of, or permit the resumption of sales and dispositions
under the Registration Statement.
-1-
(b) If the Company shall at any time register any of its
securities under the Securities Act, for offer or sale to the public, then the
Investors shall not make any short sale, assignment, transfer, pledge,
hypothecation, gift or other disposition (including the grant of any option for
sale) of any Restricted Shares (other than for the public sale of those
Restricted Shares included in and sold pursuant to such registration) without
the prior written consent of the Company for such period as may be designated by
the Company and, if the registration shall be, in whole or in part, an
underwritten offering, the managing underwriter; provided that no such period
shall begin more than ten (10) days prior to the effectiveness of a Registration
Statement pursuant to which such public offer or sale will be made and shall not
last more than ninety (90) days after the effective date of such Registration
Statement.
(c) The Company shall use its commercially reasonable efforts to
keep any Registration Statement covering Restricted Shares effective, including,
but not limited to, preparing and filing with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
until the earlier of (i) the sale of all Restricted Shares covered thereby or
(ii) two years following the effective date of such Registration Statement.
Notwithstanding the foregoing, the Company's obligations pursuant to this
Section 1(c) and Section 3 of the Stockholders Agreement are subject to the
terms of Section 1(a) hereof.
2. Obligations of the Investors. In connection with any registration of
the Restricted Shares, each of the Investors shall:
(a) furnish to the Company such information regarding itself, the
Restricted Shares held by it and the intended method of disposition of the
Restricted Shares held by it as shall be reasonably requested by the Company and
shall execute such documents in connection with such registration as the Company
may reasonably request;
(b) cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of a Registration
Statement or any amendment or supplement thereto;
(c) upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 3.7(e) of the Stockholders
Agreement, immediately discontinue disposition of Restricted Shares pursuant to
a Registration Statement covering such Restricted Shares until the Investor's
receipt of the copies of the supplemented or amended prospectus contemplated by
such Section 3.7(e) and, if so directed by the Company, deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession, of the
prospectus covering such Restricted Shares current at the time of receipt of the
notice of the happening of an event as described in such Section 3.7(e);
(d) upon receipt of any Delay Notice, immediately discontinue the
sale or disposition of Restricted Shares until the expiration of the Allowed
Delay or any extension thereof pursuant to a subsequent Delay Notice; and
-2-
(e) comply with all applicable laws and regulations in connection
with any sale, transfer or other disposition of Restricted Shares.
3. Indemnification. Each prospective seller, and any underwriter acting
on its behalf, of Restricted Shares registered pursuant to any Registration
Statement prepared by the Company, whether or not pursuant to Section 3 of the
Stockholders' Agreement, will indemnify and hold harmless (in the same manner
and to the same extent as set forth in Section 3.9(a) of the Stockholders'
Agreement) the Company, each director of the Company, each officer of the
Company who signs such Registration Statement and any person who controls the
Company within the meaning of the Securities Act, with respect to any untrue
statement or omission from such Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, if such untrue statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller or such underwriter specifically for use
in the preparation of such Registration Statement, preliminary prospectus, final
prospectus or amendment or supplement; provided, however, that the maximum
amount of liability in respect of such indemnification shall be limited, in the
case of each prospective seller, to an amount equal to the net proceeds actually
received by such prospective seller from the sale of Restricted Shares effected
pursuant to such Registration Statement.
4. Acknowledgment of Obligations. Each prospective seller, and any
underwriter acting on its behalf, of Restricted Shares registered pursuant to
any Registration Statement prepared by the Company, whether or not pursuant to
Section 3 of the Stockholders' Agreement, shall be bound by all of the
applicable terms and provisions set forth in the Stockholders' Agreement and
this Second Amendment.
5. Termination of Certain Provisions. Sections 2.1, 2.2, 2.4(a)(xiv),
2.4(b), 2.4(c), 2.7(e)(i), 2.9, and 2.12 of the Stockholders' Agreement are
hereby terminated in their entirety and neither the Company nor any Investor
shall have any further rights or obligations under such Sections.
6. Miscellaneous.
(a) Successors and Assigns. Except as otherwise expressly provided
in the Stockholders' Agreement or this Second Amendment, the provisions of the
Stockholders' Agreement and this Second Amendment shall bind and inure to the
benefit of the Company and each of the Investors and the respective successors
and assigns of the Company and each of the Investors. Subject to the
requirements of Section 3 of the Stockholders' Agreement, the Restricted Shares
held by the Investors and all of the rights and obligations set forth in the
Stockholders Agreement and this Second Amendment may be freely assigned, in
whole or in part, by each Investor to any member of such Investor's Group;
provided, however, upon the acceptance any Restricted Shares by any transferee
of the Investor, such transferee shall automatically be bound by the obligations
imposed under the Stockholders' Agreement and this Second Amendment to the same
extent as if such transferee were an Investor. Upon any such transfer of
Restricted Shares by an Investor, such Investor shall, as a condition to such
transfer, deliver to the Company a written notice of such proposed transfer by
which such the transferee is and the securities of the Company owned or acquired
by such transferee are identified. A
-3-
transferee to whom rights are transferred pursuant to this Section 6(a) will be
thereafter deemed to be an Investor for the purpose of the execution of such
transferred rights and may not again transfer such rights to any other person or
entity, other than as provided in this Section 6(a). Neither this Agreement nor
any of the rights or duties of the Company set forth herein shall be assigned by
the Company, in whole or in part, without having first received the written
consent of the Investors holding a majority of the voting power of the
outstanding Series A Preferred Shares held by all Investors, with each such
holder entitled to the number of votes for each such share of Series A Preferred
Stock as equals the number of shares of Common Stock (including fractional
shares) into which each such share of Series A Preferred Stock is then
convertible, rounded up to the nearest one-tenth of a share.
(b) Except as otherwise provided herein, the provisions of the
Stockholders' Agreement, including, but not limited to, Section 3 thereof, shall
remain in full force and effect. To the extent that the terms of the
Stockholders' Agreement conflict with the terms of this Second Amendment, the
terms of this Second Amendment shall control.
(c) The Stockholders' Agreement and this Second Amendment
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
(d) Failure of any party to exercise any right or remedy under
this Second Amendment or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
(e) This Second Amendment shall be enforced, governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to conflict of laws principles. In the event that any provision of this
Second Amendment is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law.
(f) This Second Amendment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Second Amendment, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Second Amendment bearing the signature of the party so delivering
this Second Amendment. This Second Amendment shall be effective upon execution
by the holders of not less than fifty percent (50%) of the outstanding
Restricted Shares pursuant to Section 11 of the Stockholders' Agreement.
(g) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Second Amendment and the consummation of the transactions
contemplated hereby.
[SIGNATURE PAGE FOLLOWS]
-4-
IN WITNESS WHEREOF, the Company and the Investors have caused this
Second Amendment to be duly executed as of the date first above written.
ORASURE TECHNOLOGIES, INC.
By: /s/ Robert D. Thompson
Name: Robert D. Thompson
Title: Chief Executive Officer
HEALTHCARE VENTURES V, L.P.
By: HealthCare Partners V, its General Partner
By: /s/ Jeffrey Steinberg
Name: Jeffrey Steinberg
Title: Administrative Partner
HUDSON TRUST
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
PENNSYLVANIA EARLY STAGE PARTNERS, L.P.
By: Pennsylvania Early Stage Partners GP,
L.L.C., its General Partner
By: /s/ Michael Bolton
Name: Michael Bolton
Title: Managing Director
-5-