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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-22418
ITRON, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1011792
(State of Incorporation) (I.R.S. Employer Identification Number)
2818 North Sullivan Road
Spokane, Washington 99216-1897
(509) 924-9900
(Address and telephone number of registrant's principal executive offices)
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_____
As of October 31, 1998, there were outstanding 14,698,021 shares of the
registrant's common stock, no par value, which is the only class of common or
voting stock of the registrant.
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ITRON, INC.
INDEX
Part 1: Financial Information Page
Item 1: Financial Statements (Unaudited)
Consolidated Statements of Operations . . . . . . . . . . . . . . 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . . . . 4-5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 6-11
Part 2: Other Information
Item 1: Legal Proceedings . . . . . . . . . . . . . . . . . .. . . . . . 12
Item 5: Other Information . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 1: Financial Statements
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
-------------- -------------- ------------- --------------
Revenues
AMR systems $35,511 $38,751 $130,102 $ 96,655
Handheld systems 12,016 12,689 33,226 35,714
Outsourcing 7,312 6,987 15,988 19,373
-------------- -------------- ------------- --------------
Total revenues 54,839 58,427 179,316 151,742
Cost of revenues
AMR systems 27,094 21,522 92,518 56,375
Handheld systems 6,479 9,322 17,595 25,392
Outsourcing 6,235 5,483 13,409 14,965
-------------- -------------- ------------- --------------
Total costs of revenues 39,808 36,327 123,522 96,732
-------------- -------------- ------------- --------------
Gross profit 15,031 22,100 55,794 55,010
Operating expenses
Sales and marketing 6,641 6,800 20,211 21,385
Product development 8,434 8,079 26,354 23,481
General and administrative 3,119 2,867 9,423 8,568
Amortization of intangibles 597 534 1,776 1,611
Restructuring charges 3,247 - 3,247 -
-------------- -------------- ------------- --------------
Total operating expenses 22,038 18,280 61,011 55,045
-------------- -------------- ------------- --------------
Operating income (loss) (7,007) 3,820 (5,217) (35)
Other income (expense)
Equity in affiliates (874) (200) (1,224) (355)
Interest, net (1,678) (972) (4,611) (3,206)
-------------- -------------- ------------- --------------
Total other income (expense) (2,552) (1,172) (5,835) (3,561)
Income (loss) before income taxes (9,559) 2,648 (11,052) (3,596)
Benefit (provision) for income taxes 3,630 (1,005) 4,200 1,305
-------------- -------------- ------------- --------------
Net income (loss) $ (5,929) $ 1,643 $ (6,852) $ (2,291)
============== ============== ============= ==============
Basic earnings per share $ (0.40) $ 0.11 $ (0.47) $ (0.16)
Diluted earnings per share $ (0.40) $ 0.11 $ (0.47) $ (0.16)
The accompanying notes are an integral part of these financial statements.
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September 30, December 31,
1998 1997
----------------- -----------------
Assets
Current assets
Cash and cash equivalents $ 4,385 $ 3,023
Accounts receivable, net 51,796 61,442
Current portion of outsourcing contracts receivable 12,523 8,445
Inventories 23,405 31,985
Deferred income taxes, net 9,872 5,668
Other 3,397 1,888
----------------- -----------------
Total current assets 105,378 112,451
----------------- -----------------
Property, plant and equipment, net 44,488 49,067
Equipment used in outsourcing, net 50,012 42,848
Intangible assets, net 18,810 21,472
Long-term portion of outsourcing contracts receivable 18,541 11,119
Other 3,323 3,254
----------------- -----------------
Total assets $ 240,552 $ 240,211
================= =================
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings $ 11,590 $ 1,560
Accounts payable and accrued expenses 28,786 35,825
Deferred revenue 4,936 6,759
----------------- -----------------
Total current liabilities 45,312 44,144
----------------- -----------------
Convertible subordinated debt 63,400 63,400
Mortgage notes payable 6,281 6,440
Project financing 7,843 2,414
Deferred income taxes payable, net 2,499 2,499
Warranty and other obligations 1,283 887
----------------- -----------------
Total noncurrent liabilities 81,306 75,640
----------------- -----------------
Shareholders' equity
Common stock 105,618 105,193
Retained earnings 9,463 16,315
Other (1,147) (1,081)
----------------- -----------------
Total shareholders' equity 113,934 120,427
----------------- -----------------
Total liabilities and shareholders' equity $ 240,552 $ 240,211
================= =================
The accompanying notes are an integral part of these financial statements.
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine months ended September 30,
1998 1997
-------------- --------------
OPERATING ACTIVITIES
Net loss $ (6,852) $ (2,291)
Noncash charges (credits) to income:
Depreciation and amortization 15,150 12,887
Deferred income taxes (4,141) (1,288)
Equity in affiliates, net 1,224 355
Changes in operating accounts:
Accounts receivable 9,646 (7,476)
Inventories 8,580 2,457
Accounts payable and accrued expenses (6,191) 2,734
Wages and benefits payable (2,134) 3,373
Outsourcing contracts receivable (11,500) (15,646)
Deferred revenue (1,823) (807)
Other, net (1,435) 2,449
-------------- --------------
Cash provided (used) by operating activities 524 (3,253)
-------------- --------------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (5,202) (7,863)
Equipment used in outsourcing (9,296) (22,308)
Proceeds from sale of equipment used in outsourcing - 3,035
Other, net (784) (1,256)
-------------- --------------
Cash used by investing activities (15,282) (28,392)
-------------- --------------
FINANCING ACTIVITIES
Change in short-term borrowings, net 10,030 (33,062)
Issuance of convertible subordinated debt - 63,400
Debt issuance costs - (2,355)
Project financing 5,429 1,486
Issuance of common stock 1,979 4,556
Purchase and retirement of common stock (1,554) -
Other, net 236 413
-------------- --------------
Cash provided by financing activities 16,120 34,438
-------------- --------------
Increase in cash and equivalents 1,362 2,793
Cash and cash equivalents at beginning of period 3,023 2,243
-------------- --------------
Cash and cash equivalents at end of period $ 4,385 $ 5,036
============== ==============
The accompanying notes are an integral part of these financial statements.
ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Note 1: Basis of Presentation
The consolidated financial statements presented in this Form 10-Q are unaudited
and reflect, in the opinion of management, all normal recurring adjustments
necessary for a fair presentation of operations for the three and nine month
periods ended September 30, 1998. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission on March 31, 1998.
The Company reports revenue in three categories: AMR (automatic meter reading)
systems, Handheld systems (EMR or electronic meter reading and the handheld
portion of off-site meter reading "OMR"), and Outsourcing. EMR involves the use
of handheld computers as meter reading management and data storage devices and
the visual on-site inspection of meters. AMR involves reading meters from a
distance using various communication technologies including radio frequency and
telephone. The major AMR technologies employed are OMR, which uses handheld
devices to read meter modules, mobile AMR, which uses vans to read meter modules
and fixed network AMR. AMR and Handheld systems revenues include all product and
other revenue associated with each business segment. Outsourcing includes
revenues for contracts under which the Company may install, own, and/or operate
an AMR system to provide meter reading and advanced communications services over
a period of time, typically 15 years.
The results of operations for the three and nine month periods ended September
30, 1998, are not necessarily indicative of the results expected for the full
fiscal year or for any other fiscal period.
Note 2: Balance Sheet Components
Inventories (unaudited, in thousands): September 30, December 31,
1998 1997
----------------- ----------------
Material $ 10,733 $ 14,418
Work in process 2,395 3,138
Finished goods 7,966 7,304
Field inventories awaiting installation - 5,178
----------------- ----------------
Total manufacturing inventories 21,094 30,038
Service inventories 2,311 1,947
----------------- ----------------
Total inventories $ $
23,405 31,985
================= ================
Note 3: Impact of Recent Accounting Pronouncements and New Accounting Standards
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, (SFAS 130), "Reporting Comprehensive Income," that
establishes new rules for reporting and display of comprehensive income and its
components. Adoption of SFAS 130 requires unrealized gains or losses on
foreign currency translation adjustments to be included in other comprehensive
income, which prior to adoption were reported separately in shareholders'
equity. The components of comprehensive income, net of related tax, are as
follows (in thousands):
Nine months ended September 30,
1998 1997
----------------- -----------------
Loss attributable to common shareholders $ (6,852) $ (2,291)
Foreign currency translation adjustment (41) 35
----------------- -----------------
Comprehensive income $ $
(6,893) (2,256)
================= =================
Note 4: Restructuring
In the third quarter of 1998, in connection with management's plan to reduce
costs and improve operating efficiencies, the Company recorded a restructuring
charge of $3.2 million. The restructuring plan primarily involved the
elimination and/or consolidation of approximately 150 positions and the
write-off of certain of the Company's intangible assets as follows (in
thousands):
Activity Accrual
Through Balance
Nine months ended September 30, 1998 Cash/Non-Cash Expensed 9/30/98 At 9/30/98
------------------- -------------- -------------- --------------
Severance and related charges Cash $ 1,502 $ 1,315 $ 587
Write-down of intangible assets Non-Cash 1,104 1,104 -
Other Non-Cash 241 241 -
-------------- -------------- --------------
Total restructuring charge $ 3,247 $ 2,660 $ 587
============== ============== ==============
Additionally, the Company discontinued business activities in one of its
jointly-owned entities during the third quarter resulting in a non-cash charge
of $500,000. This expense is reflected in equity in affiliates in the
accompanying financial statements.
Note 5: Contingencies
The Company, together with Johnny M. Humphreys, Chairman, President and Chief
Executive Officer, is a defendant in a proposed class action filed by certain
former shareholders in federal court, alleging violations of the federal
securities laws arising out of alleged misleading disclosures or omissions made
by the Company regarding its business and technology. The Company believes this
action is without merit and intends to vigorously defend against it. At this
time, it is not possible to predict the ultimate outcome of the proceedings.
The Company is also a defendant in a patent infringement lawsuit filed by
CellNet Data Systems for allegedly infringing its U.S. Patent No. 4,783,623. On
November 2, 1998 Itron won summary judgment in the matter when the Court ruled
that none of the accused Itron products infringed any of the asserted claims in
CellNet's patent. Should CellNet decide to appeal this decision, Itron will
defend vigorously against such an appeal; however, at this time it is not
possible to predict the ultimate outcome.
The Company and certain of its officers, directors and shareholders were
defendants in a proposed class action filed by a shareholder in the Superior
Court of the State of Washington for Spokane County. On July 31, 1998, the Court
issued a Memorandum Decision ruling that the Complaint failed to state a cause
of action. On September 2, 1998 the lawsuit was dismissed with prejudice.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Total Company revenues for the quarter ended September 30, 1998 decreased $3.6
million, or 6%, from the comparable quarter in 1997. Revenues increased $27.6
million, or 18%, for the nine months ended September 30, 1998 from the same year
to date period in 1997.
Three months ended September 30, Nine months ended September 30,
------------------------------------------- -------------------------------------------
Increase Increase
Revenues (in millions) 1998 (Decrease) 1997 1998 (Decrease) 1997
------------ ------------ ------------ ------------ ------------- ------------
AMR systems $ 35.5 (8%) $ 38.8 $ 130.1 35% $ 96.7
Handheld systems 12.0 (5%) 12.7 33.2 (7%) 35.7
Outsourcing 7.3 5% 7.0 16.0 (17%) 19.4
------------ ------------ ------------ ------------
Total revenues $ 54.8 (6%) $ 58.4 $ 179.3 18% $ 151.7
============ ============ ============ ============
AMR systems revenues decreased 8% in the third quarter of 1998 from the third
quarter of 1997. Year to date AMR revenues increased 35%, to $130.1 million, for
the nine months ended September 30, 1998 compared to $96.7 million in the
comparable 1997 period. The decrease for the quarter was primarily caused by
slow industry-wide bookings for AMR in the first half of 1998. The increase in
revenues for the year to date period was mainly due to higher electric meter
module shipments in support of a fixed network AMR contract signed in 1997,
which is being installed during 1998, and due to increased shipments of water
meter modules, in support of a large multi-year contract signed in 1997. The
increased shipments of electric and water meter modules have somewhat offset
lower shipments of gas meter modules. Gas meter module shipments have declined
from last year due to the completion of a large turn-key gas contract. Average
selling prices for meter modules have decreased minimally from 1997. The Company
expects that AMR systems revenues will continue to grow over the longer term.
However, the growth in the near term may not be at levels experienced in the
past because AMR business continues to be dependent upon the timing and
resolution of industry regulatory reform issues, mergers and acquisitions in the
utility industry, development of international markets, and other factors.
Handheld systems revenues for the quarter and year to date periods ended
September 30, 1998 decreased 5% and 7%, respectively, from the comparable 1997
periods. The Company had higher international handheld shipments in the 1997
period to a Korean utility and the shipments are now substantially complete. The
Company expects that handheld systems revenues may decline further as a
percentage of total revenues over time as utilities adopt more advanced meter
reading technologies. The Company expects future handheld systems revenues to be
driven by sales to new customers internationally and by conversion to Year 2000
compliant software and equipment and normal upgrade and replacement sales
domestically.
Outsourcing revenues increased somewhat in the third quarter of 1998 versus the
third quarter of 1997 but decreased $3.4 million for the nine months ended
September 30, 1998 from the comparable period in 1997. The lower year to date
revenues in the 1998 period are because the Company is nearing completion of the
installation phase of its outsourcing contract with the Duquesne Light Company
("Duquesne"). During the quarter the Company successfully completed its last
remaining critical milestone for the Duquesne agreement. Revenues from
outsourcing contracts are expected to decrease as a percentage of total revenues
in the foreseeable future if the Company does not sign any new outsourcing
agreements.
Gross Margin
Overall gross margins were 27% of revenues for the current quarter and 31% for
the nine month period ended September 30, 1998, compared to gross margins of 38%
and 36% for each of the same periods in 1997. The percentages for 1998 and 1997
in the table below reflect gross margins as a percentage of corresponding
revenues.
Three months ended September 30, Nine months ended September 30,
---------------------------------------- -------------------------------------------
Margin Margin
Gross margin 1998 Inc.(Dec) 1997 1998 Inc.(Dec) 1997
------------ ------------- ----------- ----------- ------------ ------------
AMR systems 24% (20%) 44% 29% (13%) 42%
Handheld systems 46% 19% 27% 47% 18% 29%
Outsourcing 15% (7%) 22% 16% (7%) 23%
Total gross margin 27% (9%) 38% 31% (5%) 36%
AMR margins for the quarter and year to date 1998 periods were 24% and 29%,
respectively, of AMR systems revenues compared to 44% and 42% in the comparable
1997 periods. This margin decline is primarily the result of the Company's
turn-key contract with Virginia Power and a higher level of installation and
service activities in the current year. The lower margin contract with Virginia
Power is primarily the result of the early life cycle status of the Company's
fixed network products and installation activities. AMR margins are expected to
increase in the future because the contract with Virginia Power will be
substantially complete late in 1998 or early in 1999. However, AMR margins have
fluctuated in the past depending on the mix of meter module (gas, electric or
water) shipments, the level of fixed network components shipped and the level of
installation activities in any particular period, and are expected to continue
to do so in the future.
Handheld systems margins improved from 27% and 29% in the 1997 three and nine
month periods, respectively, to 46% and 47% of revenues in the corresponding
1998 periods. The increase is primarily the result of a combination of software
revenues being a larger, and international shipments being a smaller, portion of
total handheld systems revenues in the current periods. Third quarter results
included a one-time charge of approximately $1 million from the write down of
inventory primarily related to the Company's handheld business. The affected
inventory consisted of components that could no longer be utilized because of a
design change. Handheld business in 1997 included a large international order
with lower than usual margins. Handheld margins are expected to remain fairly
level for the remainder of the year.
Outsourcing margins were 15% and 16% of revenues for the third quarter and first
nine months of 1998 compared to 22% and 23% in the comparable periods of 1997.
The lower margins in 1998 are due to a larger percentage of revenue in the 1998
periods being generated from the Company's contract with Duquesne. This contract
is the Company's first large scale, fixed network installation involving the
integration of several meter reading technologies and consequently has a low
margin. Outsourcing gross profit in the nine month period ended September 30,
1997 included a one-time benefit from a customer's decision to convert its
outsourcing contract to a system purchase. The Company expects outsourcing
margins to remain fairly consistent on a percentage basis in the near future.
However, if the Company enters into additional outsourcing agreements, margins
are expected to improve.
Operating Expenses
Three months ended September 30, Nine months ended September 30,
----------------------------------------- -----------------------------------------
(in millions) Increase Increase
Operating expenses 1998 (Decrease) 1997 1998 (Decrease) 1997
------------ ------------ ---------- ----------- ------------- -----------
Sales and marketing $ 6.6 (2%) $ 6.8 20.2 (5%) $ 21.4
Product development 8.4 4% 8.1 26.4 12% 23.4
General and administrative 3.2 9% 2.9 9.4 10% 8.6
Amortization of intangibles 0.6 12% 0.5 1.8 10% 1.6
Restructuring charge 3.2 100% - 3.2 100% -
------------ ---------- ---------- ----------
Total operating expenses $ 22.0 21% $ 18.3 $ 61.0 11% $ 55.0
============ ========== =========== ===========
Sales and marketing expenses of $6.6 million for the three months ended
September 30, 1998 remained fairly level with the $6.8 million in the same
period in 1997. For the year to date period ended September 30, 1998, sales and
marketing expenses were $20.2 million, or 5%, lower than the $21.4 million in
the comparable nine months of 1997. Sales and marketing expenses for the year to
date period decreased as a percentage of revenues from 14% to 11%. The increased
expenses in 1997 were primarily due to unusually high consulting charges. Sales
and marketing expenses are expected to remain at approximately 11% to 12% of
total revenues for the remainder of the year and into 1999.
Product development expenses of $8.4 million in the current quarter increased
$300,000, or 4%, over the comparable quarter ended September 30, 1997. For the
year to date period ended September 30, 1998, product development expenses of
$26.4 million were up $3 million, or 12%, from $23.4 million in the same period
in 1997. However, as a percentage of revenues, product development expenses
remained level at 15%. The increased spending for both the quarter and year to
date was primarily related to spending on fixed network AMR products, expansion
of meter coverage, development of new models of water and electric meter
modules, commercial and industrial hardware and software and systems integration
products. Product development expenses are expected to decrease both in dollars
and as a percentage of revenue in the fourth quarter of 1998 and for 1999
because of management's restructuring plan, which was announced in the third
quarter of 1998 (see restructuring charge discussed below).
General and administrative expenses of $3.2 million in the third quarter of 1998
were $300,000 higher than in the same three months of 1997. For the year to date
periods, general and administrative expenses increased $855,000, or 10%, yet
decreased as a percentage of revenues to 5% from 6%. The increase in spending
for the year to date period was primarily due to a corporate reorganization in
1997 and related reclassification of certain expenses. General and
administrative expenses are expected to remain at approximately 5% to 6% of
total revenues in the foreseeable future.
Amortization of intangibles increased slightly in the three and nine month
periods of 1998 over the same periods in 1997, yet remained at 1% of total
revenues. The increased expenses were due to amortization of an exclusive
marketing agreement for distribution of STAR software, which was acquired during
the last half of 1997. STAR software is used to support half-hourly metering
data for customers above 100kw who purchase power competitively. The software is
currently being used in the United Kingdom to retrieve and manage half-hourly
data from more than 60,000 meters and has also been installed in California as
part of its Independent System Operator metering system.
In the third quarter of 1998 the Company announced, and began the implementation
of, a restructuring plan to reduce costs and improve operating efficiencies
resulting in a $3.7 million charge, $500,000 of which is reflected in equity in
affiliates. (See Note 4 to the Company's consolidated financial statements). The
restructuring plan primarily involved the elimination and/or consolidation of
approximately 150 positions, the write-off of certain of the Company's
intangible assets due to a reduction in the scope of planned technology
development and discontinuation of a jointly-owned entity. Total operating
expenses (without the effect of bonus programs) are expected to decrease by
approximately $8 million in 1999 due to the restructuring plan. The majority of
the savings will be in the product development area. The Company intentionally
increased product development spending in the last two years to expand its
selection, and enhance the functionality, of its meter modules, increase the
capability of its fixed network and meet customer commitments. As these goals
have been achieved, and because of slower bookings, the Company has scaled back
its product development spending to lower levels. In addition to the reduction
in operating expenses, the Company expects to see a small reduction in its cost
of sales from the restructuring plan. Although all known costs have been
expensed, the Company is considering several alternatives to further improve
operating efficiencies which may result in additional restructuring charges in
the future.
Interest and Other, Net
Three months ended September 30, Nine months ended September 30,
----------------------------------------- ---------------------------------------
(in millions) Increase Increase
Other expense 1998 (Decrease) 1997 1998 (Decrease) 1997
---------- ------------ ---------- ----------- ------------- -----------
Equity in affiliates loss $ (0.9) 337% $ (0.2) $ (1.2) 245% $ (0.4)
Net interest expense (1.7) 73% (1.0) (4.6) 44% (3.2)
---------- ---------- ----------- -----------
Total other expense $ (2.6) 118% $ (1.2) $ (5.8) 64% $ (3.6)
========== ========== =========== ===========
The Company had net interest expense of $1.7 million and $4.6 million for the
third quarter and year to date periods of 1998, respectively, compared to net
interest expense of $1.0 million and $3.2 million in the same periods of 1997.
The Company capitalized interest related to outsourcing installations in 1998 of
$260,000, all of which was in the first quarter. Capitalized interest during the
quarter and year to date periods of 1997 was $110,000 and $517,000,
respectively. Interest expense was higher in the 1998 periods due to inclusion
of a full nine months of interest related to the Company's $63.4 million 6 3/4%
Convertible Subordinated Notes which the Company placed in March of 1997. The
equity in affiliates loss substantially consists of operating losses incurred by
the Company's investments in several joint ventures. As part of the
restructuring plan discussed above, the Company discontinued the remaining
business activities of a jointly-owned entity in the third quarter of 1998
incurring a charge of $500,000 related to the decision, This charge is included
in the equity in affiliates loss.
Income Taxes
The Company had an income tax benefit of 38% of pre-tax earnings for the nine
months ended September 30, 1998, which is comparable to the 36% benefit for the
same period in 1997. To the extent pre-tax earnings, or the components of those
earnings, differ from expectations, the effective tax rate for the year could
change from the current year-to-date rate.
FINANCIAL CONDITION
Three months ended September 30, Nine months ended September 30,
----------------------------------------- ---------------------------------------
(in millions) Increase Increase
Cash flows information 1998 (Decrease) 1997 1998 (Decrease) 1997
------------ ------------ ---------- ---------- ------------ -----------
Operating activities $ 1.2 (563%) $ (8.1) $ .5 112% $ (3.2)
Investing activities (4.0) 52% (8.9) (15.3) 41% (28.4)
Financing activities 1.4 (91%) 1.7 16.1 (55%) 34.4
------------ ---------- ---------- -----------
Net increase (dec.) in cash $ (1.4) 180% $ (15.3) $ 1.3 (85%) $ 2.8
============ ========== ========== ==========
Operating activities generated $1.2 million in cash during the third quarter of
1998 and $524,000 during the first nine months of the year. Operating activities
consumed $8.1 million and $3.2 million, respectively during the comparable
periods one year ago. The increase in cash flows from operating activities was
primarily caused by increased collections of accounts receivable during the 1998
periods.
Investing activities consumed $15.3 million in the first nine months of 1998
compared to $28.4 million in the comparable period in 1997. The Company is
investing less cash in equipment used in outsourcing as installation at the
Company's outsourcing project with Duquesne is nearing completion. During the
first nine months of 1998 Itron invested $9.3 million for outsourcing equipment
compared to $22.3 million in the previous year. During the nine months ended
September 30, 1997 the Company received $3.0 million from a customer converting
its outsourcing contract to a sale. Costs of capital acquisitions in the last
quarter of the year are expected to be approximately $2 million for Itron fixed
assets and somewhat less than that for equipment used in outsourcing.
Financing activities in the first nine months of 1998 provided $16.1 million in
cash, which is substantially lower than the $34.4 generated in the same period
of 1997. Financing activities in the 1998 period consisted primarily of
borrowings under the Company's bank line of credit and cash received from a
project financing facility for an outsourcing agreement. The Company received
$2.0 million from the issuance of common stock and has repurchased $1.6 million
of common stock. The Company may repurchase additional shares of common stock in
the future. Financing activities in the 1997 nine month period generated $61.0
million in cash from the Convertible Subordinated Note offering, $33.1 million
of which was used to pay off the Company's bank line of credit.
During the third quarter of 1998 the Company signed an agreement to extend its
revolving line of credit with two banks. The agreement is for a maximum
revolving credit facility of $35 million. Borrowings available under the
facility are based on accounts receivable and inventory, in which the Company
has granted the banks a security interest. The pricing of borrowings are based
on a financial ratio. The Company reduced the maximum credit from that of the
prior credit line because it expected that $35 million will be more than
adequate in the next twelve months to fund operations. The Company is near
completion of its installation efforts at Duquesne. One of the primary reasons
for increased borrowings in the past was a large amount of expenditures for this
project. The Company expects to use project financing to fund the majority of
future outsourcing contracts. Existing sources of liquidity at September 30,
1998 include approximately $4.4 million of existing cash and cash equivalents
and $19 million of available borrowings under the revolving credit facility. The
Company believes that existing cash and available borrowings will be sufficient
to fund operations for the remainder of 1998 and throughout 1999.
Year 2000 Compliance
In general, the "year 2000 problem" concerns software programs that contain only
a two-digit year value (99 to 00) rather than a four-digit year value (1999 to
2000) to indicate a change from 1999 to 2000. The issue is whether computer
systems and non information technology systems, such as embedded
micro-controllers, will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail.
The Company instituted a year 2000 program in 1997 to address year 2000 issues
by identifying potential risks that the Company had and has developed solutions
to mitigate those risks. The Company believes that it will be successful in
implementing the identified solutions in a timely manner in order to mitigate
potential year 2000 problems.
The Company has potential risks related to the year 2000 problem in three areas;
1) suppliers, 2) internally developed software and hardware the Company sells,
and 3) internal software and hardware systems. The following addresses each of
these potential risk areas.
1) Suppliers: The Company has mailed letters to it's key suppliers from which
it purchases the majority of its materials. It has received replies back
from almost 90% of such suppliers indicating that they will be year 2000
compliant by December 1998. The Company is pursuing the issue with
suppliers who have not yet responded.
2) Internally developed software and hardware for sale to customers: The
Company is in the process of ensuring that products available for sale to
customers are year 2000 compliant. A small number of software platforms
will not be upgraded and all customers affected have been notified.
Alternatives, including upgrading systems, have been developed for them.
The process for upgrading the remaining software and hardware began in late
1997 and the Company intends to have all major applications updated by
December 1998. This process is on schedule and approximately 85% complete.
3) Internal software and hardware systems: The Company upgraded its financial
software including general ledger, manufacturing and sales order processing
to be year 2000 compliant during the second quarter of 1998 for domestic
and Australian operations. Subsidiaries in the United Kingdom and France
are expected to be upgraded by mid-1999. The Company also has a variety of
other software and hardware, including personal computer software and
software used in engineering functions, whose year 2000 compliance is in
the process of being ensured. All internal software is expected to be
compliant within the same time frame as concerns European operations.
Additionally, the Company is in the process of developing contingency plans for
any unforeseen critical business systems issues arising from the year 2000
problem. The Company does not anticipate that it will incur significant
operating expenses or be required to invest heavily in computer systems
improvements to be year 2000 compliant. Total costs for the year 2000 issue are
estimated to be $1 million to $2 million, of which approximately $700,000 has
been spent to date. However, as the compliance process is not yet complete,
unavoidable uncertainty exists concerning the costs associated with year 2000
compliance. Any year 2000 compliance problem of either the Company or its
collaborative partners could have a material adverse effect on the Company's
business, financial condition and results of operations.
Certain Forward-Looking Statements
When included in this Quarterly Report on Form 10-Q, the words "expects,"
"believes," "intends," "anticipates," "plans," "projects" and "estimates,"
and analogous or similar expressions are intended to identify
forward-looking statements. Such statements, which include, but are not
limited to, statements contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" are inherently subject to
a variety of risks and uncertainties that could cause actual results to
differ materially from those reflected in such forward-looking statements.
Such risks and uncertainties include, among others, the Company's ability
to implement and estimate the cost impact of restructuring actions, the
cost and timing of addressing year 2000 issues, changes in the utility
industry regulatory environment, delays or difficulties in introducing new
products, increased competition and various other matters, many of which
are beyond the Company's control. These and other risks are described in
more detail in "Description of Business -- Certain Risk Factors" in the
Company's most recent Annual Report on Form 10-K, and such description is
hereby incorporated herein by reference. These forward-looking statements
speak only as of the date of this report. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions
to any forward-looking statement contained herein to reflect any change on
the Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Part 2: Other Information
Item 1: Legal Proceedings
Haub vs. Itron, Inc., Johnny M. Humphreys, Paul A. Redmond, Jon E. Eliassen, and
Washington Water Power Company. On September 3, 1997, Itron and its Chief
Executive Officer, Johnny M. Humphreys, agreed to accept service of a complaint
filed in the Superior Court of the State of Washington, County of Spokane (Civil
Action No. 97204889-8). The complaint, which purported to be brought on behalf
of plaintiff Katya M. Haub and a class of all similarly situated, asserted
claims against defendants Itron, Inc., Johnny M. Humphreys, Paul A. Redmond, Jon
E. Eliassen, and Washington Water Power Company under the Washington State
Securities Act, the Washington State Consumer Protection Act, and the common law
of negligent misrepresentation. The complaint sought monetary damages, costs and
attorneys' fees and unspecified equitable or injunctive relief. On July 31,
1998, the Court issued a Memorandum Decision ruling that the Complaint failed to
state a cause of action. On September 2, 1998 the lawsuit was dismissed with
prejudice.
On May 29, 1997, Itron and its President and Chief Executive Officer, Johnny M.
Humphreys, were served with a complaint alleging securities fraud filed by Mark
G. Epstein (Epstein vs. Itron, et al.) on his own behalf and alleged to be on
behalf of a class of all others similarly situated, in the U.S. District Court
for the Eastern District of Washington (Civil Action N. CS-97-214 RHW). The
complaint alleges, among other matters, that Itron and Mr. Humphreys violated
Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
thereunder by making allegedly false statements regarding the development
status, performance and technological capabilities of Itron's Fixed Network AMR
system and regarding the suitability of Itron's encoder receiver transmitter
devices for use with an advanced Fixed Network AMR system. The complaint seeks
monetary damages, costs and attorney's fees and unspecified equitable or
injunctive relief. The lawsuit is in the discovery phase. The Court has set a
trial date of September 7, 1999. The Company believes it has good defenses to
the claims alleged and intends to defend itself vigorously against this action.
On October 3, 1996, Itron filed a patent infringement suit against CellNet Data
Systems ("CellNet") in the United States District Court for the District of
Minnesota, alleging that CellNet is infringing on the Company's United States
Patent No. 5,553,094, entitled "Radio Communication Network for Remote Data
Generating Stations," issued on September 3, 1996. The Company is seeking
injunctive relief as well as monetary damages, costs and attorneys' fees. The
discovery phase of this lawsuit has commenced. There can be no assurance that
the Company will prevail in this action or, even if it does prevail, that legal
costs incurred by the Company in connection therewith will not have a material
adverse effect on the Company's financial condition.
On April 29, 1997, Itron was served by CellNet with a complaint alleging patent
infringement. On November 2, 1998 Itron won summary judgment in the lawsuit.
CellNet sued Itron in U.S. District Court for the Northern District of
California, for allegedly infringing its U.S. Patent No. 4,783,623. CellNet
sought injunctive relief and damages. In its decision to grant summary judgment,
the Court ruled that none of the accused Itron products infringed any of the
asserted claims in CellNet's patent. Should CellNet decide to appeal this
decision, Itron would defend vigorously against such an appeal.
Item 5: Other Information
Under the federal proxy solicitation rules, proposals submitted by a shareholder
for inclusion in the Company's proxy materials for the 1999 Annual Meeting must
be received by the Company by December 1, 1998.
In addition, the Company's Bylaws include advance notice provisions whereby
shareholders desiring to bring business before a shareholders' meeting must do
so in accordance with the terms of the advance notice provisions. These advance
notice provisions require that, among other things, shareholders give timely
written notice to the Company's Secretary regarding such business. To be timely,
the notice must be received at least 90 days prior to the anniversary date of
the prior year's annual meeting. Accordingly, a shareholder who intends to
present a proposal at the 1999 Annual Meeting without inclusion of the proposal
in the Company's proxy materials must provide written notice of the business
they wish to propose to the Company's Secretary not later than February 5, 1999.
The Company reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with these
and other applicable requirements.
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 3.2 - Restated bylaws
Exhibit 11 - Statement re Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the quarter
ended September 30, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Commission Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITRON, INC.
(Registrant)
By: /s/ DAVID G. REMINGTON
David G. Remington
Vice President and
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
Date: November 12, 1998
ITRON, INC. EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(Unaudited, shares in thousands)
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- -------------
Weighted average number of common shares
outstanding 14,663 14,470 14,660 13,959
Basic earnings per share $ (0.40) $ 0.11 $ (0.47) $ (0.16)
=============== ============== ============== =============
Three months ended Nine months ended
September 30, September 30,
------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- -------------
Weighted average number of common shares
outstanding 14,663 14,470 14,660 13,959
Dilutive effect of outstanding stock options
and warrants - 504 - -
--------------- -------------- -------------- -------------
Weighted average shares outstanding based on
average market price 14,663 14,974 14,660 13,959
=============== ============== ============== =============
Diluted earnings per share $ (0.40) $ 0.11 $ (0.47) $ (0.16)
=============== ============== ============== =============
5
9-mos
Dec-31-1998
Sep-30-1998
4,385
0
65,536
(1,217)
23,405
105,618
146,475
(51,975)
240,552
45,312
0
0
0
105,485
8,316
240,552
179,316
179,316
123,522
123,522
62,235
(6,441)
(4,611)
(11,052)
4,200
(6,852)
0
0
0
(6,852)
(.47)
(.47)
RESTATED BYLAWS
OF
ITRON, INC.
Originally adopted on: March 3, 1988
Restated Bylaws adopted on: November 3, 1998
Amendments are listed on page i
[10145-0001/SB921150.174]
AMENDMENTS
Section Amendment Date of Amendment
CONTENTS
SECTION 1. OFFICES .................................................. 1
SECTION 2. SHAREHOLDERS ............................................. 1
2.1 Annual Meeting ........................................... 1
2.2 Special Meetings ......................................... 1
2.3 Meetings by Communication Equipment ...................... 1
2.4 Date, Time and Place of Meeting .......................... 1
2.5 Notice of Meeting ........................................ 2
2.6 Business for Shareholders' Meetings ...................... 2
2.6.1 Business at Annual Meetings ............... 2
2.6.2 Business at Special Meetings .............. 3
2.6.3 Notice to Corporation ..................... 3
2.7 Waiver of Notice ......................................... 3
2.8 Fixing of Record Date for Determining Shareholders ....... 3
2.9 Voting Record ............................................ 4
2.10 Quorum ................................................... 4
2.11 Manner of Acting ......................................... 4
2.12 Proxies .................................................. 4
2.13 Voting of Shares ......................................... 5
2.14 Voting for Directors ..................................... 5
2.15 Action by Shareholders Without a Meeting ................. 5
SECTION 3. BOARD OF DIRECTORS ....................................... 5
3.1 General Powers ........................................... 5
3.2 Number and Tenure ........................................ 6
3.3 Nomination and Election. ................................. 6
3.3.1 Nomination ................................ 6
3.3.2 Election .................................. 7
3.4 Annual and Regular Meetings .............................. 7
3.5 Special Meetings ......................................... 7
3.6 Meetings by Communications Equipment ..................... 8
3.7 Notice of Special Meetings ............................... 8
3.7.1 Personal Delivery ........................ 8
3.7.2 Delivery by Mail ......................... 8
3.7.3 Delivery by Private Carrier .............. 8
3.7.4 Facsimile Notice ......................... 8
3.7.5 Delivery by Telegraph .................... 8
3.7.6 Oral Notice .............................. 9
3.8 Waiver of Notice ......................................... 9
3.8.1 In Writing ............................... 9
3.8.2 By Attendance ............................ 9
3.9 Quorum ................................................... 9
3.10 Manner of Acting ......................................... 9
3.11 Presumption of Assent .................................... 9
3.12 Action by Board or Committees Without a Meeting .......... 10
3.13 Resignation .............................................. 10
3.14 Removal .................................................. 10
3.15 Vacancies ................................................ 10
3.16 Executive and Other Committees ........................... 11
3.16.1 Creation of Committees ................... 11
3.16.2 Authority of Committees .................. 11
3.16.3 Quorum and Manner of Acting .............. 11
3.16.4 Minutes of Meetings ...................... 11
3.16.5 Resignation .............................. 12
3.16.6 Removal .................................. 12
3.16.7 Audit Committee ........................... 12
3.16.8 Compensation Committee .................... 12
3.17 Compensation ............................................. 12
SECTION 4. OFFICERS ................................................. 13
4.1 Appointment and Term ..................................... 13
4.2 Resignation .............................................. 13
4.3 Removal .................................................. 13
4.4 Contract Rights of Officers .............................. 13
4.5 Chairman of the Board .................................... 13
4.6 President ................................................ 14
4.7 Vice President ........................................... 14
4.8 Secretary ................................................ 14
4.9 Treasurer ................................................ 14
4.10 Salaries ................................................. 15
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS .................... 15
5.1 Contracts ................................................ 15
5.2 Loans to the Corporation ................................. 15
5.3 Checks, Drafts, Etc. .................................... 15
5.4 Deposits ................................................. 15
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER................ 15
6.1 Issuance of Shares ....................................... 15
6.2 Certificates for Shares .................................. 15
6.3 Stock Records ............................................ 16
6.4 Restriction on Transfer .................................. 16
6.5 Transfer of Shares ....................................... 16
6.6 Lost or Destroyed Certificates ........................... 17
SECTION 7. BOOKS AND RECORDS ........................................ 17
SECTION 8. ACCOUNTING YEAR .......................................... 18
SECTION 9. SEAL ..................................................... 18
SECTION 10. INDEMNIFICATION .......................................... 18
10.1 Right to Indemnification ................................. 18
10.2 Restrictions on Indemnification .......................... 18
10.3 Advancement of Expenses .................................. 19
10.4 Right of Indemnitee to Bring Suit ........................ 19
10.5 Procedures Exclusive ..................................... 19
10.6 Nonexclusivity of Rights ................................. 19
10.7 Insurance, Contracts and Funding ......................... 20
10.8 Indemnification of Employees and Agents of the Corporation 20
10.9 Persons Serving Other Entities ........................... 20
SECTION 11. AMENDMENTS ............................................... 20
RESTATED BYLAWS
OF
ITRON, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at the
principal place of business or such other place as the Board of Directors
("Board") may designate. The corporation may have such other offices, either
within or without the State of Washington, as the Board may designate or as the
business of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting
The annual meeting of the shareholders shall be held within 90 to 180
days after the fiscal year end of the corporation at a date and time determined
by resolution of the Board of Directors, the purpose of electing Directors and
transacting such other business as may properly come before the meeting. If the
day fixed for the annual meeting is a legal holiday at the place of the meeting,
the meeting shall be held on the next succeeding business day.
2.2 Special Meetings
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 25% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 Meetings by Communication Equipment
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
2.4 Date, Time and Place of Meeting
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board.
2.5 Notice of Meeting
Written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 nor more than 60 days before such
meeting. Further, notice of a meeting called by the requisite percentage of
shareholders pursuant to Section 2.2 hereof, shall be given not less than 20 nor
more than 60 days before such meeting. Such notice may be transmitted by mail,
private carrier, personal delivery, telegraph, teletype or communications
equipment which transmits a facsimile of the notice to like equipment which
receives and reproduces such notice. If these forms of written notice are
impractical in the view of the Board, the Chairman of the Board, the President
or the Secretary, written notice may be transmitted by an advertisement in a
newspaper of general circulation in the area of the corporation's principal
office. If such notice is mailed, it shall be deemed effective when deposited in
the official government mail, first-class postage prepaid, properly addressed to
the shareholder at such shareholder's address as it appears in the corporation's
current record of shareholders. Notice given in any other manner shall be deemed
effective when dispatched to the shareholder's address, telephone number or
other number appearing on the records of the corporation. Any notice given by
publication as herein provided shall be deemed effective five days after first
publication.
2.6 Business for Shareholders' Meetings
2.6.1 Business at Annual Meetings
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a shareholder pursuant to written notice thereof,
in accordance with subsection 2.6.3 hereof, and received by the Secretary not
fewer than 90 nor more than 120 days prior to the anniversary date of the prior
year's annual meeting. Any shareholder notice shall set forth (i) the name and
address of the shareholder proposing such business; (ii) a representation that
the shareholder is entitled to vote at such meeting and a statement of the
number of shares of the corporation which are beneficially owned by the
shareholder; (iii) a representation that the shareholder intends to appear in
person or by proxy at the meeting to propose such business; and (iv) as to each
matter the shareholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting, the language of the proposal (if
appropriate), and any material interest of the shareholder in such business. No
business shall be conducted at any annual meeting of shareholders except in
accordance with this subsection 2.6.1. If the facts warrant, the Board, or the
chairman of an annual meeting of shareholders, may determine and declare (a)
that a proposal does not constitute proper business to be transacted at the
meeting or (b) that business was not properly brought before the meeting in
accordance with the provisions of this subsection 2.6.1 and, if, in either case,
it is so determined, any such business not properly brought before the meeting
shall not be transacted. In addition to the procedures set forth in this
subsection 2.6.1, shareholders desiring to include a proposal in the Company's
proxy statement must also comply with the requirements set forth in Rule 14a-8
under Section 14 of the Securities Exchange Act of 1934, as amended, or any
successor provision.
2.6.2 Business at Special Meetings
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.4
hereof, shall come before such meeting.
2.6.3 Notice to Corporation
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.4, subsection 2.6.1 or subsection 2.6.2
hereof must be given, either by personal delivery or by registered or certified
mail, postage prepaid, to the Secretary at the corporation's executive offices
in the City of Spokane, State of Washington.
2.7 Waiver of Notice
Whenever any notice is required to be given to any shareholder under
the provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance thereat in
person or by proxy, unless such shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
2.8 Fixing of Record Date for Determining Shareholders
For the purpose of determining shareholders entitled (a) to notice of
or to vote at any meeting of shareholders or any adjournment thereof, (b) to
demand a special meeting, or (c) to receive payment of any dividend, or in order
to make a determination of shareholders for any other purpose, the Board may fix
a future date as the record date for any such determination. Such record date
shall be not more than 70 days, and in case of a meeting of shareholders not
less than 10 days prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares) the record date shall be the date the
Board authorizes the stock dividend or distribution.
2.9 Voting Record
At least 10 days before each meeting of shareholders, an alphabetical
list of the shareholders entitled to notice of such meeting shall be made,
arranged by voting group and by each class or series of shares therein, with the
address of and number of shares held by each shareholder. This record shall be
kept at the principal office of the corporation for 10 days prior to such
meeting, and shall be kept open at such meeting, for the inspection of any
shareholder or any shareholder's agent.
2.10 Quorum
A majority of the votes entitled to be cast on a matter by the holders
of shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a quorum of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business thereat, it is
deemed present for quorum purposes for the remainder of the meeting and any
adjournment thereof (unless a new record date is or must be set for the
adjourned meeting) notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
2.11 Manner of Acting
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
2.12 Proxies
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 11 months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle the holder thereof to vote at any reconvened meeting
following adjournment of such meeting but shall not be valid after the final
adjournment thereof.
2.13 Voting of Shares
Except as provided in the Articles of Incorporation or in Section 2.14
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon such
matter.
2.14 Voting for Directors
Each shareholder entitled to vote at an election of Directors may vote,
in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are Directors to be elected and for whose election such
shareholder has a right to vote, or (unless otherwise provided in the Articles
of Incorporation) each such shareholder may cumulate such shareholder's votes by
distributing among one or more candidates as many votes as are equal to the
number of such Directors multiplied by the number of such shareholder's shares.
Unless otherwise provided in the Articles of Incorporation, the candidates
elected shall be those receiving the largest number of votes cast, up to the
number of Directors to be elected.
2.15 Action by Shareholders Without a Meeting
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting if one or more written consents setting forth the action
so taken are signed by all shareholders entitled to vote on the action and are
delivered to the corporation. If not otherwise fixed by the Board, the record
date for determining shareholders entitled to take action without a meeting is
the date the first shareholder signs the consent. A shareholder may withdraw a
consent only by delivering a written notice of withdrawal to the corporation
prior to the time that all consents are in the possession of the corporation.
Action taken by written consent of shareholders without a meeting is effective
when all consents are in the possession of the corporation, unless the consent
specifies a later effective date. Any such consent shall be inserted in the
minute book as if it were the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, the Board, except as may be otherwise provided in these Bylaws,
the Articles of Incorporation or the Washington Business Corporation Act.
3.2 Number and Tenure
The Board shall be composed of not less than three nor more than nine
Directors, the specific number to be set by resolution of the Board or the
shareholders. The number of Directors may be changed from time to time by
amendment to these Bylaws, but no decrease in the number of Directors shall have
the effect of shortening the term of any incumbent Director. Prior to the 1992
annual election of Directors, unless a Director dies, resigns, or is removed,
his or her term of office shall expire at the next annual meeting of
shareholders. At the 1992 annual election of Directors, the Board of Directors
shall be divided into three classes (said classes to be as equal in number as
may be possible) with the following classes being elected for the terms set
forth below:
Class Term
Class 1 1 year
Class 2 2 years
Class 3 3 years
Subsequent to the 1992 annual election of Directors, a Director's term
shall be three years, and each Director shall serve for the term for which he or
she was elected, or until his or her successor shall have been elected and
qualified, or until his or her death, resignation or removal from office;
provided, however, that a Director shall continue to serve until his or her
successor is elected or until there is a decrease in the authorized number of
Directors. Directors need not be shareholders of the corporation or residents of
the State of Washington and need not meet any other qualifications.
3.3 Nomination and Election.
3.3.1 Nomination
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations for the
election of Directors may be made (a) by or at the direction of the Board or (b)
by any shareholder of record entitled to vote for the election of Directors at
such meeting; provided, however, that a shareholder may nominate persons for
election as Directors only if written notice (in accordance with subsection
2.6.3 hereof) of such shareholder's intention to make such nominations is
received by the Secretary not later than (i) with respect to an election to be
held at an annual meeting of the shareholders, not fewer than sixty nor more
than ninety days prior to the date specified in subsection 2.1 hereof for such
annual meeting (or if less than sixty days' notice or prior public disclosure of
the date of the annual meeting is given or made to the shareholders, not later
than the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made) and (ii) with
respect to an election to be held at a special meeting of the shareholders for
the election of Directors, the close of business on the seventh business day
following the date on which notice of such meeting is first given to
shareholders. Any such shareholder's notice shall set forth (a) the name and
address of the shareholder who intends to make a nomination; (b) a
representation that the shareholder is entitled to vote at such meeting and a
statement of the number of shares of the corporation which are beneficially
owned by the shareholder; (c) a representation that the shareholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (d) as to each person the shareholder proposes to
nominate for election or re-election as a Director, the name and address of such
person and such other information regarding such nominee as would be required in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had such nominee been nominated by the Board, and a
description of any arrangements or understandings, between the shareholder and
such nominee and any other persons (including their names), pursuant to which
the nomination is to be made; and (e) the consent of each such nominee to serve
as a Director if elected. If the facts warrant, the Board, or the chairman of a
shareholders' meeting at which Directors are to be elected, shall determine and
declare that a nomination was not made in accordance with the foregoing
procedure and, if it so determined, the defective nomination shall be
disregarded. The right of shareholders to make nominations pursuant to the
foregoing procedure is subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation. The procedures set forth in this subsection 3.3 for nomination
for the election of Directors by shareholders are in addition to, and not in
limitation of, any procedures now in effect or hereafter adopted by or at the
direction of the Board or any committee thereof.
3.3.2 Election
At each election of Directors, the persons receiving the greatest
number of votes shall be the Directors.
3.4 Annual and Regular Meetings
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee thereof, may specify the time and place either within or
without the State of Washington for holding regular meetings thereof without
notice other than such resolution.
3.5 Special Meetings
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chairman of the Board, the President,
the Secretary or, in the case of special Board meetings, any two Directors and,
in the case of any special meeting of any committee designated by the Board, by
the Chairman thereof. The person or persons authorized to call special meetings
may fix any place either within or without the State of Washington as the place
for holding any special Board or committee meeting called by them.
3.6 Meetings by Communications Equipment
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.7 Notice of Special Meetings
Notice of a special Board or committee meeting stating the place, day
and hour of the meeting shall be given to a Director in writing or orally.
Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
3.7.1 Personal Delivery
If notice is given by personal delivery, the notice shall be effective
if delivered to a Director at least two days before the meeting.
3.7.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting,
properly addressed to a Director at his or her address shown on the records of
the corporation, with postage thereon prepaid.
3.7.3 Delivery by Private Carrier
If notice is given by private carrier, the notice shall be deemed
effective when dispatched to a Director at his or her address shown on the
records of the corporation at least three days before the meeting.
3.7.4 Facsimile Notice
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.7.5 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be deemed
effective if the content thereof is delivered to the telegraph company for
delivery to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.7.6 Oral Notice
If notice is delivered orally, by telephone or in person, the notice
shall be deemed effective if personally given to the Director at least two days
before the meeting.
3.8 Waiver of Notice
3.8.1 In Writing
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board or any committee designated by
the Board need be specified in the waiver of notice of such meeting.
3.8.2 By Attendance
A Director's attendance at or participation in a Board or committee
meeting shall constitute a waiver of notice of such meeting, unless the Director
at the beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
3.9 Quorum
A majority of the number of Directors fixed by or in the manner
provided in these Bylaws shall constitute a quorum for the transaction of
business at any Board meeting but, if less than a quorum are present at a
meeting, a majority of the Directors present may adjourn the meeting from time
to time without further notice.
3.10 Manner of Acting
If a quorum is present when the vote is taken, the act of the majority
of the Directors present at a Board meeting shall be the act of the Board,
unless the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Washington Business Corporation Act.
3.11 Presumption of Assent
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.12 Action by Board or Committees Without a Meeting
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.13 Resignation
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of resignation
specifies a later effective date and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.14 Removal
At a meeting of shareholders called expressly for that purpose, one or
more members of the Board, including the entire Board, may be removed with or
without cause (unless the Articles of Incorporation permit removal for cause
only) by the holders of the shares entitled to elect the Director or Directors
whose removal is sought if the number of votes cast to remove the Director
exceeds the number of votes cast not to remove the Director. If the Articles of
Incorporation permit cumulative voting in the election of Directors, then a
Director may not be removed if the number of votes sufficient to elect such
Director if then cumulatively voted at an election of the entire Board or, if
there are classes of Directors, at an election of the class of Directors of
which such Director is a part, is voted against the Director's removal.
3.15 Vacancies
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
3.16 Executive and Other Committees
3.16.1 Creation of Committees
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law. Each committee must have two or more members, who shall serve at the
pleasure of the Board.
3.16.2 Authority of Committees
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (1) authorize
or approve a distribution except according to a general formula or method
prescribed by the Board, (2) approve or propose to shareholders actions or
proposals required by the Washington Business Corporation Act to be approved by
shareholders, (3) fill vacancies on the Board or any committee thereof, (4)
adopt, amend or repeal Bylaws, (5) amend the Articles of Incorporation pursuant
to RCW 23B.10.020, (6) approve a plan of merger not requiring shareholder
approval, or (7) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares except that the Board may authorize a
committee or a senior executive officer of the corporation to do so within
limits specifically prescribed by the Board.
3.16.3 Quorum and Manner of Acting
A majority of the number of Directors composing any committee of the
Board, as established and fixed by resolution of the Board, shall constitute a
quorum for the transaction of business at any meeting of such committee but, if
less than a quorum are present at a meeting, a majority of such Directors
present may adjourn the meeting from time to time without further notice. Except
as may be otherwise provided in the Washington Business Corporation Act, if a
quorum is present when the vote is taken the act of a majority of the members
present shall be the act of the committee.
3.16.4 Minutes of Meetings
All committees shall keep regular minutes of their meetings and shall
cause them to be recorded in books kept for that purpose.
3.16.5 Resignation
Any member of any committee may resign at any time by delivering
written notice thereof to the Chairman of the Board, the President, the
Secretary or the Board. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and the
acceptance of such resignation shall not be necessary to make it effective.
3.16.6 Removal
The Board may remove any member of any committee elected or appointed
by it but only by the affirmative vote of the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws.
3.16.7 Audit Committee
In addition to any committees appointed pursuant to this Section, there
shall be an Audit Committee, appointed annually by the Board, consisting of at
least two Directors who are not members of management. It shall be the
responsibility of the Audit Committee to review the scope and results of the
annual independent audit of books and records of the corporation, to review
compliance with all corporate policies which have been approved by the Board and
to discharge such other responsibilities as may from time to time be assigned to
it by the Board. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board as they
consider appropriate.
3.16.8 Compensation Committee
The Board may, in its discretion, designate a Compensation Committee
consisting of not less than two Directors as it may from time to time determine.
The duties of the Compensation Committee shall consist of the following: (a) to
establish and review periodically, but not less than annually, the compensation
of the officers of the corporation and to make recommendations concerning such
compensation to the Board; (b) to consider incentive compensation plans for the
employees of the corporation; (c) to carry out the duties assigned to the
Compensation Committee under any stock option plan or other plan approved by the
corporation; (d) to consult with the President concerning any compensation
matters deemed appropriate by the President or the Compensation Committee; and
(e) such other duties as shall be assigned to the Compensation Committee by the
Board.
3.17 Compensation
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 Appointment and Term
The officers of the corporation shall be those officers appointed from
time to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
4.2 Resignation
Any officer may resign at any time by delivering written notice thereof
to the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.3 Removal
Any officer may be removed by the Board at any time, with or without
cause. An officer or assistant officer, if appointed by another officer, may be
removed by any officer authorized to appoint officers or assistant officers.
4.4 Contract Rights of Officers
The appointment of an officer does not itself create contract rights.
4.5 Chairman of the Board
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board from time to time and shall preside
over meetings of the Board and shareholders unless another officer is appointed
or designated by the Board as Chairman of such meetings.
4.6 President
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of a Chairman
of the Board, and, subject to the Board's control, shall supervise and control
all of the assets, business and affairs of the corporation. In general, the
President shall perform all duties incident to the office of President and such
other duties as are prescribed by the Board from time to time. If no Secretary
has been appointed, the President shall have responsibility for the preparation
of minutes of meetings of the Board and shareholders and for authentication of
the records of the corporation.
4.7 Vice President
In the event of the death of the President or his or her inability to
act, the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the President or by or at the
direction of the Board.
4.8 Secretary
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board and shareholders, maintenance of the
corporation records and stock registers, and authentication of the corporation's
records and shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the President or by or at the direction of the Board. In the absence of
the Secretary, an Assistant Secretary may perform the duties of the Secretary.
4.9 Treasurer
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such amount
and with such surety or sureties as the Board shall determine.
4.10 Salaries
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall be prevented from receiving such salary by reason of
the fact that he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 Loans to the Corporation
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 Checks, Drafts, Etc.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, or agent or agents, of the corporation and
in such manner as is from time to time determined by resolution of the Board.
5.4 Deposits
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
6.2 Certificates for Shares
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by the President or any Vice President and by
the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary and shall include on their face written notice of any restrictions
which may be imposed on the transferability of such shares. All certificates
shall be consecutively numbered or otherwise identified.
6.3 Stock Records
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 Restriction on Transfer
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of l933, as amended, or any applicable state
law, and no interest therein may be sold, distributed, assigned,
offered, pledged or otherwise transferred unless (a) there is an
effective registration statement under such Act and applicable state
securities laws covering any such transaction involving said securities
or (b) this corporation receives an opinion of legal counsel for the
holder of these securities (concurred in by legal counsel for this
corporation) stating that such transaction is exempt from registration
or this corporation otherwise satisfies itself that such transaction is
exempt from registration. Neither the offering of the securities nor
any offering materials have been reviewed by any administrator under
the Securities Act of 1933, as amended, or any applicable state law."
6.5 Transfer of Shares
The transfer of shares of the corporation shall be made only on the
stock transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
6.6 Lost or Destroyed Certificates
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a)......Keep as permanent records minutes of all meetings of its
shareholders and the Board, a record of all actions taken by the shareholders or
the Board without a meeting, and a record of all actions taken by a committee of
the Board exercising the authority of the Board on behalf of the corporation.
(b)......Maintain appropriate accounting records.
(c)......Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d)......Maintain its records in written form or in another form
capable of conversion into written form within a reasonable time.
(e)......Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments
thereto as currently in effect;
2. the Bylaws and all amendments thereto as currently in
effect;
3. the minutes of all meetings of shareholders and
records of all action taken by shareholders without a
meeting, for the past three years;
4. the financial statements described in Section
23B.16.200(1) of the Washington Business Corporation
Act, for the past three years;
5. all written communications to shareholders generally
within the past three years;
6. a list of the names and business addresses of the
current Directors and officers; and
7. the most recent annual report delivered to the
Washington Secretary of State.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar
year"calendar year, provided that if a different accounting year is at any time
selected by the Board for purposes of federal income taxes, or any other
purpose, the accounting year shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal which shall consist of the
name of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 10. INDEMNIFICATION
10.1 Right to Indemnification
Each person who was, is or is threatened to be made a named party to or
is otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of an executive officer of an executive officer of the
corporation as a Director, officer, partner, trustee, employee or agent of
another corporation or of a partnership, joint venture, trust, employee benefit
plan or other enterprise (hereinafter an "indemnitee"), whether the basis of a
proceeding is alleged action in an official capacity as such a Director,
officer, partner, trustee, employee or agent or in any other capacity while
serving as such a Director, officer, partner, trustee, employee or agent, shall
be indemnified and held harmless by the corporation against all expense,
liability and loss (including counsel fees, judgments, fines, ERISA excise taxes
or penalties and amounts to be paid in settlement) actually and reasonably
incurred or suffered by such indemnitee in connection therewith, and such
indemnification shall continue as to an indemnitee who has ceased to be a
Director, officer, partner, trustee, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. Except as
provided in subsection 10.2 of this Section with respect to proceedings seeking
to enforce rights to indemnification, the corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if a proceeding (or part thereof) was authorized or ratified by
the Board. The right to indemnification conferred in this Section shall be a
contract right.
10.2 Restrictions on Indemnification
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification, except that if
Section 23B.08.560 or any successor provision of the Washington Business
Corporation Act is hereafter amended, the restrictions on indemnification set
forth in this subsection 10.2 shall be as set forth in such amended statutory
provision.
10.3 Advancement of Expenses
The right to indemnification conferred in this Section shall include
the right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this subsection 10.3.
10.4 Right of Indemnitee to Bring Suit
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within 60 days after a written claim has been received
by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim. If successful in whole or in part, in any such suit
or in a suit brought by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. The indemnitee
shall be presumed to be entitled to indemnification under this Section upon
submission of a written claim (and, in an action brought to enforce a claim for
an advancement of expenses, where the required undertaking has been tendered to
the corporation) and thereafter the corporation shall have the burden of proof
to overcome the presumption that the indemnitee is so entitled.
10.5 Procedures Exclusive
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the procedures
required by Section 23B.08.550 or any successor provision of the Washington
Business Corporation Act.
10.6 Nonexclusivity of Rights
The right to indemnification and the advancement of expenses conferred
in this Section shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation", general or specific action of the
Board, contract or otherwise.
10.7 Insurance, Contracts and Funding
The corporation may maintain insurance, at its expense, to protect
itself and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The corporation
may enter into contracts with any Director, officer, partner, trustee, employee
or agent of the corporation in furtherance of the provisions of this Section and
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Section.
10.8 Indemnification of Employees and Agents of the Corporation
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any class
or group of employees and agents of the corporation (i) with the same scope and
effect as the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (ii)
pursuant to rights granted pursuant to, or provided by, the Washington Business
Corporation Act; or (iii) as are otherwise consistent with law.
10.9 Persons Serving Other Entities
Any person who, while a Director, officer or employee of the corporation,
is or was serving (a) as a Director or officer of another foreign or domestic
corporation of which a majority of the shares entitled to vote in the election
of its Directors is held by the corporation or (b) as a partner, trustee or
otherwise in an executive or management shall be deemed to be so serving at the
request of an executive officer of an executive officer of the corporation and
entitled to indemnification and advancement of expenses under subsections 10.1
and 10.3 of this Section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the
Board may be amended, repealed, altered or modified by the shareholders.
The foregoing Restated Bylaws were adopted by the Board of Directors on
November 3, 1998.
/s/ MariLyn Blair
Secretary
