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 September 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 November 6, 2001: 37,208,445
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements (unaudited) 3
Balance Sheets at September 30, 2001 and December 31, 2000.... 3
Statements of Operations for the three months and nine months
ended September 30, 2001 and 2000.......................... 4
Statements of Stockholders' Equity for the nine months
ended September 30, 2001................................... 5
Statements of Cash Flows for the nine months
ended September 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 2. Changes in Securities and Use of Proceeds................ 21
Item 5. Other Information........................................ 21
Item 6. Exhibits and Reports on Form 8-K......................... 21
2
Item 1. FINANCIAL STATEMENTS
ORASURE TECHNOLOGIES, INC.
BALANCE SHEETS
(Unaudited)
September 30, 2001 December 31, 2000
------------------ -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,295,719 $ 5,095,639
Short-term investments 13,410,799 14,956,779
Accounts receivable, net of allowance for
doubtful accounts of $207,138 and $114,685 7,306,719 5,276,772
Notes receivable from officer 75,000 175,649
Inventories 3,420,102 1,495,604
Prepaid expenses and other 1,171,417 1,189,210
-------------- ---------------
Total current assets 27,679,756 28,189,653
-------------- ---------------
PROPERTY AND EQUIPMENT, net 7,523,851 6,738,034
PATENTS AND PRODUCT RIGHTS, net 2,132,496 2,402,386
OTHER ASSETS 1,141,492 406,099
-------------- --------------
$ 38,477,595 $ 37,736,172
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,098,707 $ 1,125,138
Accounts payable 2,125,285 1,522,295
Accrued expenses 3,291,433 4,047,231
-------------- ---------------
Total current liabilities 6,515,425 6,694,664
-------------- ---------------
LONG-TERM DEBT 3,829,899 4,644,098
-------------- ---------------
OTHER LIABILITIES 117,834 225,334
-------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.000001, 25,000,000
shares authorized, none issued - -
Common stock, par value $.000001, 120,000,000
shares authorized, 37,195,877 and 36,434,004
shares issued and outstanding 37 36
Additional paid-in capital 151,818,602 148,767,789
Accumulated other comprehensive loss (14,422) (231,247)
Accumulated deficit (123,789,780) (122,364,502)
-------------- ---------------
Total stockholders' equity 28,014,437 26,172,076
-------------- ---------------
$ 38,477,595 $ 37,736,172
============== ===============
The accompanying notes are an integral part of these statements.
3
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Product $8,236,352 $6,867,729 $23,207,345 $20,397,691
Licensing and product development 362,302 354,649 1,303,129 604,608
--------- --------- ---------- ----------
8,598,654 7,222,378 24,510,474 21,002,299
--------- --------- ---------- ----------
COSTS AND EXPENSES:
Cost of products sold 2,872,753 3,096,668 8,579,752 8,210,484
Research and development 2,247,975 2,800,366 6,838,056 6,632,699
Sales and marketing 1,961,817 1,791,039 5,888,432 4,995,080
General and administrative 1,527,081 1,827,928 4,594,217 5,502,178
Merger-related - 5,919,764 - 5,919,764
Restructuring-related - - 450,000 -
--------- ---------- ---------- ----------
8,609,626 15,435,765 26,350,457 31,260,205
--------- ---------- ---------- ----------
Operating loss (10,972) (8,213,387) (1,839,983) (10,257,906)
INTEREST EXPENSE (101,555) (122,869) (310,279) (375,677)
INTEREST INCOME 241,805 396,686 742,818 943,869
FOREIGN CURRENCY GAIN (LOSS) (114,819) 28,418 2,911 19,750
GAIN ON SALE OF SECURITIES - - - 600,000
--------- --------- ---------- ----------
Income (loss) before income taxes 14,459 (7,911,152) (1,404,533) (9,069,964)
INCOME TAXES 1,199 (12,673) (20,745) (24,363)
--------- --------- ---------- ----------
NET INCOME (LOSS) $ 15,658 $(7,923,825) $(1,425,278) $(9,094,327)
========= ========== ========== ==========
EARNINGS (LOSS) PER SHARE:
BASIC $ 0.00 $ (0.22) $ (0.04) $ (0.26)
========= ========== ========== ==========
DILUTED $ 0.00 $ (0.22) $ (0.04) $ (0.26)
========= ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 37,057,079 35,369,781 36,740,600 34,546,219
========== ========== ========== ==========
DILUTED 39,009,095 35,369,781 36,740,600 34,546,219
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
4
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Other
-------------- Additional Comprehensive Accumulated
Shares Amount Paid-in Capital Income (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
Common stock issued upon exercise of options 267,411 - 1,216,524 - - 1,216,524
Comprehensive income: ----------
Net income - - - - 15,658 15,658
Currency translation adjustment - - - 118,241 - 118,241
Unrealized gain on marketable securities - - - 297,857 - 297,857
----------
Total comprehensive income 431,756
---------- ----- ----------- --------- ----------- ----------
Balance at September 30, 2001 37,195,877 $ 37 $151,818,602 $(14,422) $(123,789,780) $28,014,437
========== ===== =========== ========= =========== ==========
The accompanying notes are an integral part of these statements.
5
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2001 2000
---- ----
OPERATING ACTIVITIES:
Net loss $(1,425,278) $(9,094,327)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock based compensation expense 70,580 792,685
Amortization of deferred revenue (107,500) (107,500)
Depreciation and amortization 1,537,873 1,332,532
Loss on disposition of property and equipment 11,353 914
Gain on disposition of investment in affiliated company (16,853) -
Changes in assets and liabilities:
Accounts receivable (2,367,200) (689,870)
Inventories (1,924,498) 630,065
Prepaid expenses and other assets 118,442 55,647
Accounts payable and accrued expenses (152,808) 4,173,744
--------- ---------
Net cash used in operating activities (4,255,889) (2,906,110)
----------- ----------
INVESTING ACTIVITIES:
Purchases of short-term investments (23,250,109) (19,891,729)
Proceeds from the sale of short-term investments 24,810,795 20,974,026
Purchases of property and equipment (2,094,220) (2,542,540)
Proceeds from the sale of property and equipment 29,067 -
Purchase of patents and product rights - (136,038)
Increase in other assets (224,888) (20,404)
Proceeds from disposition of investment in affiliated company 106,102 -
----------- ----------
Net cash used in investing activities (623,253) (1,616,685)
----------- ----------
FINANCING ACTIVITIES:
Repayments of term debt (840,630) (783,609)
Proceeds from issuance of common stock 2,980,233 19,876,012
----------- ----------
Net cash provided by financing activities 2,139,603 19,092,403
----------- ----------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (60,381) (133,075)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,799,920) 14,436,533
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,095,639 2,049,644
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,295,719 $ 16,486,177
=========== ============
- -------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES
Increase in fair value of securities available for sale $ 277,206 $ 131,250
=========== ============
Non-cash investment in a non-affiliated entity $ 337,253 $ -
=========== ============
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 Reports
on Form 10-Q for the three-month periods ended March 31 and June 30, 2001.
Results of operations for the period ended September 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:
September 30, December 31,
2001 2000
------- ----------
Raw materials $1,082,957 $473,575
Work-in-process 797,669 348,819
Finished goods 1,539,476 673,210
---------- ----------
$3,420,102 $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 nine-month periods ended
September 30, 2001, one customer accounted for 20.8 and 21.8 percent of total
revenues, respectively, as compared to 23.4 percent for each of 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 earnings
(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 earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares outstanding
during the reported period. Diluted earnings per share is computed in a manner
similar to basic earnings per share except that the weighted average number of
shares outstanding is increased to include incremental shares from the assumed
exercise of stock options and warrants, if dilutive. The number of incremental
shares is calculated by assuming that outstanding stock options and warrants
were exercised and the proceeds from such exercises were used to acquire shares
of common stock at the average market price during the reporting period.
The computations of basic and diluted earnings (loss) per share are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Net income (loss) $ 15,658 $(7,923,825) $(1,425,278) $(9,094,327)
======== =========== =========== ===========
Weighted average shares of common
stock outstanding:
Basic 37,057,079 35,369,781 36,740,600 34,546,219
Dilutive effect of stock options
and warrants 1,952,016 - - -
--------- -------- ---------- ---------
Diluted 39,009,095 35,369,781 36,740,600 34,546,219
========== ========== ========== ==========
Earnings (loss) per share:
Basic $ 0.00 $ (0.22) $ (0.04) $ (0.26)
========== ========== ========== ==========
Diluted $ 0.00 $ (0.22) $ (0.04) $ (0.26)
========== ========== ========== ==========
The computations of diluted earnings (loss) per share for the three-month period
ended September 30, 2001 and 2000 and for the nine-month periods ended September
30, 2001 and 2000 exclude the effect of outstanding common stock options and
warrants to purchase 89,750, 2,948,364, 4,010,811 and 3,036,026 shares,
respectively, because the effect of including such shares is anti-dilutive.
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.
8
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 amount of foreign currency
forward exchange contracts outstanding at September 30, 2001 was $242,807.
During the three-month and nine-month periods ended September 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. The following table
represents total revenues by geographic area (amounts in thousands):
For the three months For the nine months
ended September 30, ended September 30,
2001 2000 2000 2000
---- ---- ---- ----
United States $7,355 $6,512 $20,650 $18,059
Europe 814 555 2,586 1,766
Other regions 430 155 1,275 1,177
---- ----- ----- ------
$8,599 $7,222 $24,511 $21,002
====== ====== ======= =======
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 measures of 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, but are not limited to: 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; ability to sell products internationally; 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; the impact
of terrorist attacks and civil unrest; and general political, 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 September 30, 2001 compared to September 30, 2000
Comparative results of operations (in thousands, except %) are summarized as
follows:
Three Months Ended September 30,
----------------------------------------------------
Dollars Percentage of
Total Revenues (%)
------------------- -------------------
Percent
Change (%)
2001 2000 Inc.(Dec.) 2001 2000
--------- --------- ---------- --------- ---------
Revenues
Product $8,237 $ 6,867 20 96 95
License and product
development 362 355 2 4 5
--------- --------- --------- ---------
8,599 7,222 19 100 100
--------- --------- --------- ---------
Cost and expenses
Cost of products sold 2,873 3,097 (7) 33 43
Research and development 2,248 2,800 (20) 26 39
Sales and marketing 1,962 1,791 10 23 25
General and
administrative 1,527 1,828 (16) 18 25
Merger-related - 5,920 (100) - 82
--------- --------- --------- ---------
8,610 15,436 (44) 100 214
--------- --------- --------- ---------
Operating loss (11) (8,214) (100) - (114)
Interest expense (102) (123) (17) (1) (2)
Interest income 242 397 (39) 3 6
Foreign currency gain
(loss) (115) 29 (496) (1) -
Gain on sale of securities - - N/A - -
--------- --------- ---------- --------- ---------
Income (loss) before
income taxes 14 (7,911) 100 - (110)
Income taxes 2 (13) 115 - -
--------- --------- --------- ---------
Net Income (loss) $ 16 $(7,924) 100 - (110)
========= ========= ========= =========
Total revenues increased 19% to approximately $8.6 million in the third 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
due to the continued market penetration of Intercept, initial shipments of
OraQuick(R) into Sub-Saharan Africa for the Centers for Disease Control and
Prevention's ("CDC") LIFE Initiative, and increased sales of the Company's
Histofreezer(R) cryosurgical delivery system. Excluding revenues in the prior
period from the discontinued Serum Western Blot product line, total revenues
would have increased approximately 27%.
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 September 30,
----------------------------------------------------
Dollars Percentage of
Total Revenues (%)
-------------------- -------------------
Percent
Change(%)
2001 2000 Inc. (Dec.) 2001 2000
---------- --------- ----------- --------- ---------
Product revenues
Oral specimen
collection devices $ 3,139 $2,856 10 36 40
OraQuick(R) 415 - N/A 5 -
Histofreezer(R)
cryosurgical systems 1,954 1,737 12 23 24
Immunoassay tests 2,027 1,445 40 23 20
Western Blot HIV
confirmatory tests 143 538 (73) 2 7
Other product revenue 559 291 92 7 4
---------- --------- --------- ---------
8,237 6,867 20 96 95
License and product
development 362 355 2 4 5
---------- --------- --------- ---------
Total revenues $ 8,599 $7,222 19 100 100
========== ========= ========= =========
Product revenues increased 20% to approximately $8.2 million for the third
quarter of 2001 from approximately $6.9 million in 2000. Sales of oral specimen
collection devices and immunoassay tests increased 10% and 40% to approximately
$3.1 million and $2.0 million, respectively, as a result of increased sales to
the public health and substance abuse testing markets. Histofreezer(R) revenues
increased 12% to approximately $2.0 million, reflecting higher domestic sales.
OraQuick(R) generated approximately $415,000 of revenues for the third quarter,
primarily reflecting product shipped internationally to the CDC under the LIFE
Initiative. Sales of the Western Blot confirmatory tests, which were comprised
exclusively of the oral Western Blot in 2001, declined 73% to approximately
$143,000 for the third 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.(R) saliva alcohol test and certain
Intercept(R)-related sales to criminal justice and drug rehabilitation clients,
increased 92% to approximately $559,000 from approximately $291,000 in 2000.
Total Intercept(R) sales, including devices, immunoassay tests, and related
equipment, equaled approximately $889,000 for the quarter, as compared to
approximately $45,000 in 2000. As a percentage of total revenues, international
revenues increased 75% to approximately $1.2 million primarily as a result of
the market introduction of OraQuick(R) into Sub-Saharan Africa.
12
The table below shows the amount of the Company's total revenues (in thousands,
except %) generated in each of its principal markets and by license and product
development activities.
Three Months Ended September 30,
----------------------------------------------------
Percentage of
Dollars Total Revenues (%)
------------------- -------------------
Percent
Change(%)
2001 2000 Inc. (Dec.) 2001 2000
---------- --------- ----------- --------- ---------
Market revenues
Insurance testing $2,775 $2,990 (7) 32 41
Public health 1,686 1,348 25 20 19
Physician offices 1,954 1,736 12 23 24
Substance abuse testing 1,695 676 151 20 9
Other markets 127 117 9 1 2
--------- --------- --------- ---------
8,237 6,867 20 96 95
License and product
development 362 355 2 4 5
--------- --------- --------- ---------
Total revenues $8,599 $7,222 19 100 100
========= ========= ========= =========
Sales to the insurance testing market declined by 7% to approximately $2.8
million in the third quarter of 2001 as a result of an overall decline in the
number of life insurance applications. Sales to the public health market
increased 25% to approximately $1.7 million in the third quarter as a result of
continued penetration by the Company's laboratory-based HIV test. Sales to
physician offices, which consisted solely of the Histofreezer(R) cryosurgical
delivery system, increased 12% to approximately $2.0 million, reflecting higher
domestic sales. Sales to the substance abuse testing market increased 151% to
approximately $1.7 million in the third quarter of 2001 as a result of the
continued market penetration of Intercept(R) and increased forensic toxicology
sales. Sales to other markets increased 9% to approximately $127,000.
License and product development revenues increased 2% to approximately $362,000
in the third quarter of 2001 from approximately $355,000 in 2000. During the
third quarter of 2001, license and product development revenues primarily
consisted of revenue from UPT development agreements and a grant from the
National Institutes of Health for an oral fluid based syphilis test.
On June 29, 2001, the Company filed with the U.S. Food and Drug Administration
("FDA") an application for pre-market approval of its OraQuick(R) rapid HIV test
using whole blood and an application for 510(k) clearance for the UPlink(TM)
drugs of abuse rapid detection system, including six drug assays. During the
third quarter, the FDA responded to the OraQuick(R) submission with certain
questions. The Company provided answers to the questions and the review is
proceeding as expected. The FDA also responded to the UPlink(TM) submission.
Because this product is the first reader-based, oral fluid point of care testing
system submitted to the FDA, and because of the broad clinical utility of the
UPlink(TM) system, the FDA has requested sixty additional trial samples for each
of the six drug assays. The time required to collect and submit the additional
data is expected to delay receipt of FDA clearance until the first quarter of
2002.
Despite the increase in third quarter revenues, the Company experienced
unforeseen delays in sales of the OraQuick(R) HIV test to the Company's African
distributor. These delays were caused by delays in the government purchase
process in Africa. As a result of the Company's reliance upon third party
distributors to develop and penetrate the African market for OraQuick(R) and the
fact that significant potential customers are government entities, it is
difficult for the Company to accurately forecast the timing of international
OraQuick(R) revenues.
The Company's gross margin increased to approximately 67% in the third quarter
of 2001 from 57% in 2000. Excluding a one-time write-off of obsolete inventory
in the third quarter of 2000, the gross margin for the third quarter of 2000
would have been 65%. The gross margin increase in the third quarter of 2001 was
primarily the result of negotiated contract savings and cost savings as a result
of the Company's manufacturing reorganization.
13
Gross margin, based upon product revenues, was 65% in the third quarter of 2001
as compared to 63% in 2000, excluding the one-time inventory write-off.
Research and development expenses decreased 20% to approximately $2.2 million in
the third quarter of 2001 from approximately $2.8 million in 2000, as a result
of improved internal efficiencies resulting from the merger of Epitope, Inc. and
STC Technologies, Inc. into the Company in September 2000. Research and
development efforts in the third quarter of 2001 were focused on the development
of drugs of abuse and infectious disease assays for UPlink(TM) and the ongoing
development of oral fluid-based tests for a variety of diseases or conditions,
such as hepatitis C, syphilis, and diabetic markers. Research and development
expenses, as a percentage of third quarter revenues, declined to approximately
26% from 39% in 2000. Research and development expenses are expected to increase
slightly during the remainder of 2001 as clinical trials for OraQuick(R) and
UPlink(TM) research activities continue.
Sales and marketing expenses increased 10% to approximately $2.0 million in the
third quarter of 2001 from approximately $1.8 million in 2000. This increase was
primarily the result of costs including increased staffing and related charges
associated with the development of foreign markets for OraQuick(R), the
continued marketing of the Intercept(R) drugs of abuse service, and initial
UPlink(TM) criminal justice marketing efforts. Sales and marketing expenses, as
a percentage of third quarter revenues, declined to approximately 23% from 25%
in 2000.
General and administrative expenses decreased 16% to approximately $1.5 million
in the third 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. General and administrative expenses, as a
percentage of third quarter revenues, declined to approximately 18% from 25% in
2000.
Merger-related expenses were approximately $5.9 million in 2000. These
non-recurring costs included fees for investment banking, attorneys, and
accountants.
The operating loss of approximately $11,000 in the third quarter of 2001
improved from a loss of approximately $8.2 million in 2000, which included
approximately $5.9 million of one-time merger-related expenses. Excluding the
one-time merger-related expenses, the operating loss improved by $2.3 million
from the third quarter of 2000, as a result of increasing revenues, improving
gross margins, and lower operating expenses.
Interest expense decreased by 17% to approximately $102,000 in the third quarter
of 2001 from approximately $123,000 in 2000 as a result of principal loan
repayments.
Interest income decreased to approximately $242,000 in the third quarter of 2001
from approximately $397,000 in 2000 as a result of lower cash and cash
equivalents available for investment and lower interest rates.
Foreign currency loss was approximately $115,000 in the third quarter of 2001
compared to a gain of approximately $29,000 in 2000.
Net income was approximately $16,000 in the third quarter of 2001 compared to a
loss of approximately $7.9 million in 2000, which included one-time
merger-related expenses of approximately $5.9 million.
14
Results of Operations
Nine months ended September 30, 2001 compared to September 30, 2000
Comparative results of operations (in thousands, except %) are summarized as
follows:
Nine Months Ended September 30,
----------------------------------------------------
Dollars Percentage of
Total Revenues (%)
------------------- -------------------
Percent
Change(%)
2001 2000 Inc. (Dec.) 2001 2000
---------- --------- ----------- --------- ---------
Revenues
Product $23,207 $20,397 14 95 97
License and product
development 1,303 605 115 5 3
--------- --------- --------- ---------
24,510 21,002 17 100 100
--------- --------- --------- ---------
Cost and expenses
Cost of products sold 8,580 8,211 4 35 39
Research and development 6,838 6,632 3 28 32
Sales and marketing 5,888 4,995 18 24 24
General and
administrative 4,594 5,502 (17) 19 26
Merger-related - 5,920 (100) - 28
Restructuring-related 450 - N/A 2 -
--------- --------- --------- ---------
26,350 31,260 (16) 108 149
--------- --------- --------- ---------
Operating loss (1,840) (10,258) (82) (8) (49)
Interest expense (310) (376) (18) (1) (2)
Interest income 743 944 (21) 3 5
Foreign currency gain 3 20 (85) - -
Gain on sale of securities - 600 (100) - 3
--------- --------- --------- ---------
Loss before
income taxes (1,405) (9,070) (85) (6) (43)
Income taxes (21) (24) (13) - -
--------- --------- --------- ---------
Net loss $(1,426) $(9,094) (84) (6) (43)
========= ========= ========= =========
Total revenues increased 17% to approximately $24.5 million for the first nine
months of 2001 from approximately $21.0 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. Excluding revenues in the prior period from the discontinued Serum
Western Blot product line, total revenues would have increased approximately
24%.
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.
Nine Months Ended September 30,
----------------------------------------------------
Dollars Percentage of
Total Revenues (%)
------------------- -------------------
Percent
Change(%)
2001 2000 Inc. (Dec.) 2001 2000
---------- --------- ----------- --------- ---------
Product revenues
Oral specimen
collection devices $9,855 $8,271 19 40 39
OraQuick(R) 655 - N/A 3 -
Histofreezer(R)
cryosurgical systems 4,733 4,681 1 19 22
Immunoassay tests 5,835 4,959 18 24 24
Western Blot HIV
confirmatory tests 471 1,424 (67) 2 7
Other product revenue 1,658 1,062 56 7 5
------- ------- -------- --------
23,207 20,397 14 95 97
License and product
development 1,303 605 115 5 3
-------- -------- -------- --------
Total revenues $24,510 $21,002 17 100 100
======== ======== ======== ========
Product revenues increased 14% to approximately $23.2 million for the first nine
months of 2001 from approximately $20.4 million in the first nine months of
2000. Sales of oral specimen collection devices and immunoassay tests increased
19% and 18% to approximately $9.9 million and $5.8 million, respectively, as a
result of increased sales to the public health and substance abuse testing
markets. Histofreezer(R) revenues remained flat at approximately $4.7 million.
OraQuick(R) generated approximately $655,000 of revenues during the nine months
ended September 30, 2001. Sales of the Western Blot confirmatory tests, which
were comprised exclusively of the oral Western Blot in 2001, declined 67% to
approximately $471,000 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.(R) saliva alcohol test and certain Intercept(R)-related
equipment sales to criminal justice and drug rehabilitation clients, increased
56% to approximately $1.7 million from approximately $1.1 million in 2000. Total
Intercept(R) sales for the first nine months of 2001, including devices,
immunoassay tests, and related equipment, totaled approximately $2.5 million as
compared to approximately $218,000 in 2000. As a percentage of total revenues,
international revenues increased to approximately 31% in the first nine months
of 2001 to approximately $3.9 million, as a result of the market introduction of
OraQuick(R) into Sub-Saharan Africa and increased oral fluid collection devices
and related assays.
16
The table below shows the amount of the Company's total revenues (in thousands,
except %) generated in each of its principal markets and by license and product
development activities.
Nine Months Ended September 30,
----------------------------------------------------
Percentage of
Dollars Total Revenues (%)
------------------- -------------------
Percent
Change(%)
2001 2000 Inc. (Dec.) 2001 2000
---------- --------- ----------- --------- ---------
Market revenues
Insurance testing $8,665 $9,736 (11) 36 46
Public health 4,525 3,321 36 18 16
Physician offices 4,733 4,680 1 19 22
Substance abuse testing 4,893 2,268 116 20 11
Other markets 391 392 - 2 2
--------- --------- --------- ---------
23,207 20,397 14 95 97
License and product
development 1,303 605 115 5 3
--------- --------- --------- ---------
Total revenues $24,510 $21,002 17 100 100
========= ========= ========= =========
Sales to the insurance testing market declined by 11% to approximately $8.7
million for the first nine months of 2001 as a result of an overall decline in
the number of insurance applications. Sales to the public health market
increased 36% to approximately $4.5 million for the first nine months of 2001 as
a result of the continued penetration of the Company's laboratory-based HIV
test. Sales to physician offices, which consisted solely of the Histofreezer(R)
cryosurgical delivery system, remained flat at approximately $4.7 million in the
first nine months of 2001. Sales to the substance abuse testing market increased
116% to approximately $4.9 million in the first nine months of 2001 as a result
of the continued market penetration of Intercept(R) and increased forensic
toxicology sales. Sales to other markets remained flat at approximately
$391,000.
License and product development revenues increased 115% to approximately $1.3
million for the first nine months of 2001 from approximately $605,000 in 2000.
This increase was attributable principally to additional revenues resulting from
the recognition of milestone payments under existing development arrangements.
The Company's gross margin increased to approximately 65% in the first nine
months of 2001 from 61% in 2000. Excluding a one-time write-off of obsolete
inventory in the third quarter of 2000, the gross margin for the first nine
months of 2000 would have been 63%. This increase was primarily the result of
negotiated contract savings, cost savings as a result of the Company's
manufacturing reorganization, and higher license and product development
revenues, partially offset by incremental costs associated with the ramp up of
OraQuick(R) manufacturing. Gross margin, based upon product revenues, was 63% in
the first nine months of 2001 compared to 62% for 2000, excluding the one-time
inventory write-off.
Research and development expenses increased 3% to approximately $6.8 million for
the first nine months of 2001 from approximately $6.6 million in 2000, as a
result of continued development of the UPlink(TM) reader, test cassette and
collector, DNA feasibility studies, and clinical trial expenses for the
OraQuick(R) HIV rapid test, partially offset by improved internal efficiencies
and cost savings as a result of the merger. Research and development expenses,
as a percentage of revenues, declined to approximately 28% from 32% in 2000.
Sales and marketing expenses increased 18% to approximately $5.9 million in the
first nine months of 2001 from approximately $5.0 million in 2000. This increase
was primarily the result of additional costs associated with the development of
foreign markets for OraQuick(R), the continued marketing of the Intercept(R)
drugs-of-abuse service, and the launch of UPlink(TM) in the criminal justice
market. Sales and marketing expenses, as a percentage of revenues, remained
constant at 24%.
17
General and administrative expenses decreased 17% to approximately $4.6 million
for the first nine months of 2001 from approximately $5.5 million in 2000. This
decrease reflects cost savings from the elimination of duplicative overhead
structures as a result of the merger. General and administrative expenses, as a
percentage of revenues, declined to approximately 19% from 26% in 2000.
Merger-related expenses were approximately $5.9 million in 2000. These
non-recurring costs primarily included fees for investment bankers, attorneys,
and accountants.
Restructuring related expenses were approximately $450,000 as a result of the
first quarter manufacturing restructuring in 2001. 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 nine months ended
September 30, 2001, from approximately $10.3 million in 2000, which included
approximately $5.9 million of one-time merger expenses. This improvement is the
result of increasing revenues, improving gross margins and lower general and
administrative expenses, partially offset by increased sales and marketing,
research and development expenses, and restructuring related charges.
Interest expense decreased by 18% to approximately $310,000 in the first nine
months of 2001 from approximately $376,000 in 2000 as a result of principal loan
repayments.
Interest income decreased by 21% to approximately $743,000 in the first nine
months of 2001 from approximately $944,000 in 2000 as a result of lower cash and
cash equivalents available for investment and lower interest rates.
Foreign currency gain was approximately $3,000 in the first nine months of 2001
compared to a gain of approximately $20,000 in 2000.
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 ("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 nine months of 2001
compared to a net loss of approximately $9.1 million in 2000, which included
$5.9 million of one-time merger-related expenses.
Liquidity and Capital Resources
September 30, December 31,
2001 2000
------------ ------------
(In thousands)
Cash and cash equivalents $ 2,296 $5,096
Short-term investments 13,411 14,957
Working capital 21,164 21,495
The Company's cash, cash equivalents and short-term investments position
decreased approximately $4.3 million from December 31, 2000 to approximately
$15.7 million at September 30, 2001, primarily as a result of increased working
capital requirements, partially offset by proceeds from the exercise of stock
options. At September 30, 2001, the Company's working capital was approximately
$21.2 million.
18
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 $4.3 million for the
first nine months of 2001, as a direct result of increased accounts receivable
and inventory levels. The increased accounts receivable is the result of higher
sales in 2001. The increased inventory levels reflect the buildup of OraQuick(R)
and UPlink(TM) inventory in anticipation of future sales opportunities.
Net cash used in investing activities during the first nine months of 2001 was
approximately $623,000 as a result of approximately $2.1 million in capital
expenditures, primarily reflecting the Company's investment to expand
OraQuick(R) manufacturing in Bethlehem, Pennsylvania. Capital expenditures are
anticipated to increase during the remainder of 2001 and into the first half of
2002 as a result of additional commitments the Company has made for the purchase
and installation of fully automated lateral flow manufacturing equipment for
UPlink(TM), additional space for research and development activities, and
expanded manufacturing capacity. Partially offsetting the capital expenditures
was the sale of short-term investments to fund operating and capital expenditure
requirements.
Net cash provided by financing activities was approximately $2.1 million during
the first nine months of 2001, principally reflecting $3.0 million of proceeds
from the exercise of stock options, partially offset by term debt repayments.
At September 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 $3.0
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 September 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. Accordingly, the Company has no material
market risk to report under this Item.
The Company holds approximately $13.4 million of financial instruments 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 $243,000 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
19
Netherlands represented approximately $0.5 million (6.3% of total revenues) and
$1.5 million (6.2% of total revenues) for the three months and nine months ended
September 30, 2001, respectively. Management does not expect the risk of foreign
currency fluctuations to be material.
20
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 27, 2001, the Board of Directors of the Company amended the Amended
and Restated Bylaws (the "Bylaws") of the Company to increase the notice period
required for stockholders to submit proposals or nominate directors for
consideration at meetings of stockholders. The Bylaws, as so amended, provide
that in order to be timely, a stockholder's notice of a proposal or director
nomination must be received by the Company not less than ninety (90) days nor
more than one hundred twenty (120) days prior to the meeting; provided that in
the event that less than one hundred (100) days notice or prior disclosure of
the date of the meeting is given or made to stockholders, the stockholder's
notice must be received by the Company no later than the close of business on
the tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever occurs first. A
complete copy of the amended and restated Bylaws is filed as an Exhibit to this
Report.
Item 5. OTHER INFORMATION
The Company has scheduled its 2002 Annual Meeting of Stockholders (the "2002
Annual Meeting") for May 9, 2002, in Bethlehem, Pennsylvania. The record date
for determining stockholders entitled to notice of and to vote at the 2002
Annual Meeting is March 28, 2002. Stockholders desiring to submit proposals for
inclusion in the Company's proxy materials for the 2002 Annual Meeting must meet
the eligibility and other requirements imposed by rules issued by the Securities
and Exchange Commission. To be included, proposals must be received by the
Company at 150 Webster Street, Bethlehem, Pennsylvania 18015, Attention:
Secretary, not later than December 20, 2001. If a stockholder proposal or
director nomination is to be presented without inclusion in the Company's proxy
materials for the 2002 Annual Meeting, the Company must receive the proposal or
nomination no later than February 9, 2002, in accordance with the advance notice
provisions of the Company's Bylaws.
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.
None.
21
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/ Ronald H. Spair
------------------------------------
Date: November 13, 2001 Ronald H. Spair
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Mark L. Kuna
------------------------------------
Date: November 13, 2001 Mark L. Kuna
Controller
(Principal Accounting Officer)
/s/ Richard D. Hooper
------------------------------------
Date: November 13, 2001 Richard D. Hooper
Vice President, Finance
22
EXHIBIT INDEX
Exhibit
3 Amended and Restated Bylaws of OraSure Technologies, Inc., Effective as
of September 27, 2001.
10 Employment Agreement dated as of November 1, 2001 between OraSure
Technologies and Ronald H. Spair.
23
AMENDED AND RESTATED BYLAWS
OF
ORASURE TECHNOLOGIES, INC.
Effective as of September 27, 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 150 Webster Street,
Bethlehem, Pennsylvania 18015.
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 ninety (90) days nor more than one hundred twenty (120) days prior to
the
2
meeting; provided, however, that in the event that less than one hundred (100)
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 tenth (10th) 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 ninety (90) days nor more than one hundred twenty
(120) days prior to the meeting; provided, however, that in the event that less
than one hundred (100) 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 tenth
(10th) 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
3
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 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
5
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.
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
6
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 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.
7
(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 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.
5
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 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
9
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.
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.
10
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.
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.
11
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 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
12
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 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
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of November 1, 2001, between Ronald
H. Spair ("Employee") and OraSure Technologies, Inc., a Delaware corporation
(the "Company").
1. Services.
1.1 Employment. The Company agrees to employ Employee as Executive
Vice President and Chief Financial Officer of the Company, and Employee hereby
accepts such employment in accordance with the terms and conditions of this
Agreement.
1.2 Duties. Employee shall have the position named in Section 1.1 with
such powers and duties appropriate to that office (a) as may be provided by the
bylaws of the Company, (b) as otherwise set forth in Exhibit A attached to this
Agreement, and (c) as determined by the Company's board of directors (the "Board
of Directors") from time to time. Subject to the provisions of Section 6.4
hereof, Employee's position and duties may be changed from time to time during
the term of this Agreement. Employee's place of work shall be the Company's
headquarters, at its present location or as it may be relocated.
1.3 Outside Activities. Employee shall obtain the consent of the Chief
Executive Officer of the Company before he engages, either directly or
indirectly, in any other professional or business activities that may require an
appreciable portion of Employee's time or effort to the detriment of the
Company's business.
1.4 Direction of Services. Employee shall at all times discharge his
duties in consultation with and under the supervision and direction of the Chief
Executive Officer of the Company.
2. Term. The initial term of this Agreement shall begin as of the date
first written above and end on the second anniversary of that date, unless
sooner terminated in accordance with Section 6 below. Thereafter, this Agreement
shall automatically renew from year to year for successive one-year terms (a)
unless either party gives the other party written notice of that party's intent
not to renew this Agreement at least 120 days before the expiration of its
current term or (b) the Agreement is terminated in accordance with Section 6
below.
3. Compensation and Expenses.
3.1 Salary. As compensation for services under this Agreement, the
Company shall pay to Employee a regular salary of $200,000 per annum. Subject to
the provisions of Section 6.4 hereof, such salary may be adjusted from time to
time in the discretion of the Board of Directors. Payment shall be made on a
bi-weekly basis, less all amounts required by law or authorized by Employee to
be withheld or deducted. Employee will receive a performance evaluation and
salary review within approximately six months of the commencement of Employee's
employment with the Company.
3.2 Bonus. The Company shall establish a Management Incentive Plan for
the payment of bonuses to management employees (the "MIP"), on such terms as may
be approved by the Board of Directors or its compensation committee (the
"Compensation Committee"). In addition to the salary described in Section 3.1
above, Employee shall be entitled to participate in the MIP commencing in 2002.
3.3 Long-Term Incentive. To the extent otherwise eligible, Employee
shall be entitled to participate in accordance with the terms of the plan in any
long-term incentive plan that may from time to time be adopted by the Board of
Directors or the Compensation Committee, in its sole discretion.
3.4 Additional Employee Benefits. To the extent otherwise eligible,
Employee shall be entitled to receive or participate in any additional benefits,
including without limitation medical and dental insurance programs, profit
sharing or pension plans, and medical reimbursement plans, which may from time
to time be made available by the Company to corporate officers. The Company may
change or discontinue such benefits at any time in its sole discretion.
3.5 Expenses.
3.5.1 Job-Related. The Company shall reimburse Employee for all reasonable and
necessary expenses incurred in carrying out his duties under this Agreement,
subject to compliance with the Company's reasonable policies relating to expense
reimbursement.
3.5.2 Relocation. The Company shall reimburse Employee for
reasonable expenses incurred in connection with relocation up to a maximum
aggregate amount of $40,000. Expenses which shall be reimbursable under this
Section 3.5.2 shall include expenses for transporting and storing Employee's
household goods, closing costs associated with the sale of Employee's existing
house in Hamilton Square, New Jersey and purchase of a new house, temporary
living expenses and other relocation expenses. In order to be eligible for
reimbursement, all relocation expenses must be incurred on or prior to the
one-year anniversary of the commencement of Employee's employment with the
Company. The aggregate reimbursement required hereunder shall be made net of
applicable income taxes as the Company shall compensate Employee, through a
gross-up of Employee's income, for Federal, state and local income taxes payable
by Employee on the reimbursable costs paid to Employee. If Employee voluntarily
terminates his employment with the Company on or prior to the one-year
anniversary of the commencement of his employment with the Company, Employee
shall repay to the Company all amounts paid by the Company under this Section
3.5.2.
3.6 Fees. All compensation earned by Employee, other than pursuant to
this Agreement, as a result of services performed on behalf of the Company or as
a result of or arising out of any work done by Employee in any way related to
the scientific or business activities of the Company shall belong to the
Company. Employee shall pay or deliver such compensation to the Company promptly
upon receipt. For the purposes of this provision, "compensation" shall include,
but is not limited to, all professional and nonprofessional fees, lecture fees,
expert testimony fees, publishing fees, royalties, and any related income,
earnings,
2
or other things of value; and "scientific or business activities of the Company"
shall include, but not be limited to, any project or projects in which the
Company is involved and any subject matter that is directly or indirectly
researched, tested, developed, promoted, or marketed by the Company.
4. Stock Options. Subject to approval by the Board of Directors or the
Compensation Committee, Employee shall be granted an option to purchase 150,000
shares of the Company's common stock. Such option shall be granted as of the
date Employee commences employment with the Company, shall be exercisable at the
fair market value of the Company's common stock on the date of grant (i.e. the
average of the high and low sales prices as reported in The Nasdaq Stock
Market), and shall be subject to such other terms and conditions as are
consistent with option grants provided to other senior Company management. In
addition to the foregoing option grant, Employee shall be entitled to
participate in the Company stock award plan. The number of additional stock
options that are granted to Employee under the plan from time to time shall be
determined by the Board of Directors or the Compensation Committee.
5. Confidentiality Agreement. Employee and the Company are concurrently
entering a confidentiality agreement (the "Confidentiality Agreement").
Employee's compliance with the terms of the Confidentiality Agreement is a
material requirement of this Agreement and any breach of the Confidentiality
Agreement shall constitute a material breach of this Agreement.
6. Termination.
6.1 Termination Upon Death. This Agreement shall terminate immediately
upon Employee's death.
6.2 Termination by Employee. Employee may terminate his employment
under this Agreement by 60 days' written notice to the Company.
6.3 Termination by the Company for Cause. Employee's employment under
this Agreement may be terminated by the Company at any time for cause. Only the
following actions, failures, or events by or affecting Employee shall constitute
"cause" for termination of Employee by the Company: (i) willful and continued
failure by Employee to substantially perform his duties provided herein after a
written demand for substantial performance is delivered to Employee by the Chief
Executive Officer or Board of Directors of the Company, which demand identifies
with reasonable specificity the manner in which Employee has not substantially
performed his duties, and Employee's failure to comply with such demand within a
reasonable time; (ii) the engaging by Employee in gross misconduct or gross
negligence materially injurious to the Company; (iii) the commission of any act
in direct competition with or materially detrimental to the best interests of
the Company; or (iv) Employee's conviction of having committed a felony.
Notwithstanding the foregoing, Employee shall not be deemed to have been
terminated by the Company for cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors of
the Company finding that, in the good faith opinion of the Board of Directors,
the Company has
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cause for the termination of the employment of Employee as set forth in any of
clauses (i) through (iv) above and specifying the particulars thereof in
reasonable detail. The findings of the Board of Directors shall not be binding
on the arbitrators or other finders of fact in connection with any litigation or
dispute arising out of this Agreement.
6.4 Termination by the Company Without Cause. The Company may
terminate Employee's employment under this Agreement without cause by written
notice to Employee. Employee may (but shall not be required to) elect to treat
any of the following events as a termination without cause, provided Employee
acts within 60 days of the event:
6.4.1 A material breach of this Agreement by the Company and a
failure by the Company to cure the breach within 30 days after Employee has
given written notice of the breach to the board of directors.
6.4.2 A reduction in Employee's salary below the amount stated in
Section 3.1 (except as part of and in proportion to a reduction in all executive
officers' salaries) or a change in Employee's title or a substantial diminution
in Employee's duties below those stated in this Agreement.
6.4.3 A "Change of Control" of the Company. For purposes of this
Agreement, a "Change of Control" shall mean a change of control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A as in effect on the date hereof pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"); provided that, without limitation,
such a change of control shall be deemed to have occurred at such time as (i)
any Acquiring Person hereafter becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 30 percent or
more of the combined voting power of Voting Securities; (ii) during any period
of 12 consecutive calendar months, individuals who at the beginning of such
period constitute the board of directors cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election, by
the Company's shareholders of each new director was approved by a vote of at
least a majority of the directors then still in office who were directors at the
beginning of the period; (iii) there shall be consummated (a) any consolidation
or merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which Voting Securities would be converted into cash,
securities, or other property, other than a merger of the Company in which the
holders of Voting Securities immediately prior to the merger have the same, or
substantially the same, proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (b) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company; or (iv) approval by the
shareholders of the Company of any plan or proposal for the liquidation or
dissolution of the Company. For purposes of this Agreement, "Acquiring Person"
means any person or related persons which constitute a "group" for purposes of
Section 13(d) and Rule 13d-5 under the Exchange Act, as such Section and Rule
are in effect as of the date of this Agreement; provided, however, that the term
Acquiring Person shall not include: (i) the Company or any of its subsidiaries;
(ii) any employee benefit plan of the Company or any of its subsidiaries; (iii)
any entity holding voting capital stock of the Company for or pursuant to the
terms of any such employee benefit plan; or (iv) any person or group solely
because such person or group has voting power with respect to capital stock of
the Company arising from a revocable
4
proxy or consent given in response to a public proxy or consent solicitation
made pursuant to the Exchange Act. For purposes of this Agreement, "Voting
Securities" means the Company's issued and outstanding securities ordinarily
having the right to vote at elections for the Company's board of directors.
6.5 Compensation Upon Termination.
6.5.1 Termination Under Sections 6.1, 6.2, or 6.3. In the event
of a termination of Employee's employment under Sections 6.1, 6.2, or 6.3,
Employee's regular compensation pursuant to Section 3.1 shall be prorated and
payable until the date of termination and Employee shall be paid any bonus that
has been approved but not yet paid.
6.5.2 Termination Under Section 6.4. In the event of a
termination of Employee's employment by the Company without cause as provided in
Section 6.4, Employee shall continue to be paid the salary provided in Section
3.1 for the greater of (a) 12 months, (b) the remaining term of this Agreement,
or (c) 36 months if Employee elects to treat an event described in Section 6.4.3
as a termination without cause, from the date of notice of such termination of
employment or the date of such event, in the manner and at the times at which
regular compensation was paid to Employee during the term of his employment
under this Agreement, except that if Employee elects to treat an event described
in Sections 6.4.1, 6.4.2, or 6.4.3 as a termination without cause but continues
to work for the Company or any of its subsidiaries, then any amounts Employee
receives as compensation following the event shall be credited against the
amounts payable to Employee under this section. In no other respect shall the
amount of any payment provided for in this section be reduced by any
compensation or benefits earned by employee as a result of employment after his
termination. As a condition to receipt of the compensation described in the
first sentence of this Section 6.5.2, Employee shall sign and deliver a release
agreement, in form and substance satisfactory to the Company and Employee,
releasing all claims related to Employee's employment. The Company's obligation
to pay the amounts stated in this section shall terminate if Employee fails to
comply with the Confidentiality Agreement within the applicable time period
stated in the first sentence of this section.
7. Remedies. The respective rights and duties of the Company and Employee
under this Agreement are in addition to, and not in lieu of, those rights and
duties afforded to and imposed upon them by law or at equity.
8. Severability of Provisions. The provisions of this Agreement are
severable, and if any provision hereof is held invalid or unenforceable, it
shall be enforced to the maximum extent permissible, and the remaining
provisions of the Agreement shall continue in full force and effect.
9. Nonwaiver. Failure by either party at any time to require performance of
any provision of this Agreement shall not limit the right of the party failing
to require performance to enforce the provision. No provision of this Agreement
may be waived by either party except by a writing signed by that party. A waiver
of any breach of a provision of this Agreement shall be construed narrowly and
shall not be deemed to be a waiver of any succeeding breach of that provision or
a waiver of that provision itself or of any other provision.
5
10. Arbitration.
10.1 Claims Covered. All claims or controversies, except for those
excluded by Section 10.2 ("claims"), whether or not arising out of Employee's
employment (or its termination), that the Company may have against the Employee
or that Employee may have against the Company or against its officers,
directors, employees or agents, in their capacity as such or otherwise, shall be
resolved as provided in this Section 10. Claims covered by this Section 10
include, but are not limited to, claims for wages or other compensation due;
claims for breach of any contract or covenant (express or implied); tort claims;
claims for discrimination (including, but not limited to, race, sex, sexual
orientation, religion, national origin, age, marital status, or disability);
claims for benefits (except where an employee benefit or pension plan specifies
that its claims procedure shall culminate in an arbitration procedure different
from this one), and claims for violation of any federal, state, or other
governmental law, statute, regulation, or ordinance, except as provided in
Section 10.2.
10.2 Non-Covered Claims. Claims arising out of the Business Protection
Agreement and workers' compensation or unemployment compensation benefits are
not covered by this Section 10. Non-covered claims include but are not limited
to claims by the Company for injunctive and/or other equitable relief for unfair
competition and/or the use and/or unauthorized disclosure of trade secrets or
confidential information, as to which Employee understands and agrees that the
Company may seek and obtain relief from a court of competent jurisdiction.
10.3 Required Notice of All Claims and Statute of Limitations. Company
and Employee agree that the aggrieved party must give written notice of any
claim to the other party within one year of the date the aggrieved party first
has knowledge of the event giving rise to the claim; otherwise the claim shall
be void and deemed waived even if there is a federal or state statute of
limitations which would have given more time to pursue the claim. The written
notice shall identify and describe the nature of all claims asserted and the
facts upon which such claims are based.
10.4 Arbitration Procedures. Any arbitration shall be conducted in
accordance with the then-current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA"), modified to substitute for AAA
actions, the United States Arbitration and Mediation Service ("USA&MS"), before
an arbitrator who is licensed to practice law in the state of Pennsylvania (the
"Arbitrator"). The arbitration shall take place in or near Bethlehem,
Pennsylvania.
10.4.1 Selection of Arbitrator. The USA&MS shall give each party
a list of 11 arbitrators drawn from its panel of labor-management dispute
arbitrators. Each party may strike all names on the list it deems unacceptable.
If only one common name remains on the lists of all parties, that individual
shall be designated as the Arbitrator. If more than one common name remains on
the lists of all parties, the parties shall strike names alternately until only
one remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, the USA&MS shall furnish an
additional list or lists until an Arbitrator is selected.
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10.4.2 Applicable Law. The Arbitrator shall apply the substantive
law (and the law of remedies, if applicable) specified in this Agreement or
federal law, or both, as applicable to the claim(s) asserted. The Arbitrator,
and not any federal, state, or local court or agency, shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Agreement.
10.4.3 Authority. The Arbitrator shall have jurisdiction to hear
and rule on pre-hearing disputes and is authorized to hold pre-hearing
conferences by telephone or in person as the Arbitrator deems necessary. The
Arbitrator shall have the authority to entertain a motion to dismiss and/or a
motion for summary judgment by any party and shall apply the standards governing
such motions under the Federal Rules of Civil Procedure. The Arbitrator shall
render an award and opinion in the form typically rendered in labor
arbitrations.
10.4.4 Representation. Any party may be represented by an
attorney or other representative selected by the party.
10.4.5 Discovery. Each party shall have the right to take the
deposition of one individual and any expert witness designated by another party.
Each party also shall have the right to make requests for production of
documents to any party. The subpoena right specified below shall be applicable
to discovery pursuant to this paragraph. Additional discovery may be had only
where the Arbitrator selected pursuant to this Agreement so orders, upon a
showing of substantial need. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any experts, and copies of
all exhibits intended to be used at the arbitration. Each party shall have the
right to subpoena witnesses and documents for the arbitration.
10.4.6 Reporter. Either party, at its expense, may arrange for
and pay the cost of a court reporter to provide a stenographic record of
proceedings.
10.4.7 Post-Hearing Briefs. Either party, upon request at the
close of hearing, shall be given leave to file a post-hearing brief. The time
for filing such a brief shall be set by the Arbitrator.
10.5 Enforcement. Either party may bring an action in any court of
competent jurisdiction to compel arbitration under this Agreement and to enforce
an arbitration award. Except as otherwise provided in this Agreement, both the
Company and Employee agree that neither shall initiate or prosecute any lawsuit
(other than for a non-covered claim) in any way related to any claim covered by
this Agreement. A party opposing enforcement of an award may not do so in an
enforcement proceeding, but must bring a separate action in any court of
competent jurisdiction to set aside the award, where the standard of review will
be the same as that applied by an appellate court reviewing a decision of a
trial court sitting without a jury.
10.6 Arbitration Fees and Costs. Company and Employee shall equally
share the fees and costs of the Arbitrator. Each party will deposit funds or
post other appropriate security for its share of the Arbitrator's fee, in an
amount and manner determined by
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the Arbitrator, 10 days before the first day of hearing. Each party shall pay
for its own costs and attorneys' fees, if any, provided that the Arbitrator, in
its sole discretion, may award reasonable fees to the prevailing party in a
proceeding.
11. General Terms and Conditions. This Agreement and the letter dated
October 25, 2001 from the Company to Employee constitute the entire
understanding of the parties relating to the employment of Employee by the
Company, and supersedes and replaces all written and oral agreements heretofore
made or existing by and between the parties relating thereto. This Agreement
shall be construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to any contrary conflicts of laws rules thereof.
This Agreement shall inure to the benefit of any successors or assigns of the
Company. All captions used herein are intended solely for convenience of
reference and shall in no way limit any of the provisions of this Agreement.
Employee acknowledges that he signed this Agreement upon his initial employment
with the Company.
The parties have executed this Employment Agreement as of the date stated
above.
ORASURE TECHNOLOGIES, INC.
/s/ Ronald H. Spair By: /s/ Robert D. Thompson
- ------------------------------------ ------------------------------
Ronald H. Spair
Title: Chief Executive Officer
---------------------------
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EXHIBIT A to Employment Agreement
Specific Duties of Employee as Executive Vice President and Chief Financial
Officer
Employee, as the Executive Vice President and Chief Financial Officer of
the Company, shall be responsible for overseeing the Company's financial growth,
structure and direction and assisting the Company's Chief Executive Officer in
operating and strategic matters.