-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U0GXK+leHMt1sxSBrp1QY8kY9UJor54s0prH3ofp89aVl4rh2XUqz72+AzOSq84q nZ2j3bfTma5GzcKww7yllg== 0000010427-98-000034.txt : 19981111 0000010427-98-000034.hdr.sgml : 19981111 ACCESSION NUMBER: 0000010427-98-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAUSCH & LOMB INC CENTRAL INDEX KEY: 0000010427 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 160345235 STATE OF INCORPORATION: NY FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04105 FILM NUMBER: 98742062 BUSINESS ADDRESS: STREET 1: BAUSCH & LOMB INCORPORATED STREET 2: ONE BAUSCH & LOMB PLACE CITY: ROCHESTER STATE: NY ZIP: 14604-2701 BUSINESS PHONE: 7163386000 MAIL ADDRESS: STREET 1: ONE BAUSCH & LAMB PLACE STREET 2: P O BOX 54 CITY: ROCHESTER STATE: NY ZIP: 14604-2701 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended Commission File September 26, 1998 Number: 1-4105 BAUSCH & LOMB INCORPORATED (Exact name of registrant as specified in its charter) New York 16-0345235 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Bausch & Lomb Place, Rochester NY 14604-2701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 338-6000 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No The number of shares of Common stock of the registrant, outstanding as of September 26, 1998, was 56,089,874 consisting of 55,416,393 shares of Common stock and 673,481 shares of Class B stock which are identical with respect to dividend and liquidation rights, and vote together as a single class for all purposes. PART I - FINANCIAL INFORMATION Item 1. Financial Statements The accompanying unaudited interim consolidated financial statements of Bausch & Lomb Incorporated and Consolidated Subsidiaries have been prepared by the company in accordance with the accounting policies stated in the company's 1997 Annual Report on Form 10-K and should be read in conjunction with the Notes To Financial Statements appearing therein, and are based in part on approximations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation in accordance with generally accepted accounting principles have been included in these financial statements. BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF EARNINGS
Third Quarter Ended Nine Months Ended Dollar Amounts In Millions - Sept 26, Sept 27, Sept 26, Sept 27, Except Per Share Data 1998 1997 1998 1997 Net Sales $575.6 $468.3 $1,763.7 $1,442.7 Costs And Expenses Cost of products sold 258.2 213.1 832.6 671.8 Selling, administrative and general 216.7 181.2 691.5 564.0 Research and development 22.9 16.4 66.4 48.1 Purchased in-process research and development - - 85.0 - Restructuring charges - 16.0 11.3 54.9 497.8 426.7 1,686.8 1,338.8 Operating Earnings 77.8 41.6 76.9 103.9 Other (Income) Expense Interest and investment income (13.4) (10.9) (34.2) (30.3) Interest expense 25.6 13.9 77.4 41.6 Gain from foreign currency, net (1.3) (1.0) (4.9) (4.8) Gain on divestitures - - (56.0) - 10.9 2.0 (17.7) 6.5 Earnings Before Income Taxes And Minority Interest 66.9 39.6 94.6 97.4 Provision for income taxes 24.1 15.6 34.1 39.2 Earnings Before Minority Interest 42.8 24.0 60.5 58.2 Minority interest in subsidiaries 6.3 5.5 18.0 16.2 Net Earnings 36.5 18.5 42.5 42.0 Retained Earnings At Beginning Of Period 893.6 919.4 916.5 924.7 Cash Dividends Declared: Common stock, $0.26 and $0.78 per share in both 1998 and 1997 14.6 14.5 43.5 43.3 Retained Earnings At End Of Period $915.5 $923.4 $ 915.5 $ 923.4 Basic Earnings Per Share $ 0.65 $ 0.33 $ 0.76 $ 0.76 Diluted Earnings Per Share $ 0.65 $ 0.33 $ 0.76 $ 0.75 Average Shares Outstanding - Basic (000s) 56,022 55,369 55,714 55,421 Average Shares Outstanding - Diluted (000s) 56,501 55,735 56,264 55,421 See Notes to Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES BALANCE SHEET
September 26, December 27, Dollar Amounts In Millions 1998 1997 ASSETS Current Assets Cash, cash equivalents and short-term investments $ 148.7 $ 183.7 Trade receivables, less allowances of $30.2 and $14.0, respectively 496.9 374.8 Inventories, net 415.9 324.3 Deferred taxes, net 97.7 66.0 Other current assets 165.7 141.4 1,324.9 1,090.2 Property, Plant And Equipment, net 692.5 580.2 Goodwill And Other Intangibles, less accumulated amortization of $124.6 and $116.6, respectively 802.0 406.9 Other Investments 547.1 546.4 Other Assets 173.1 149.2 Total Assets $3,539.6 $2,772.9 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 193.6 $ 339.4 Current portion of long-term debt 27.5 4.4 Accounts payable 87.1 72.0 Accrued compensation 104.8 73.6 Accrued liabilities 382.5 365.9 Federal, state and foreign income taxes payable 58.6 32.0 854.1 887.3 Long-Term Debt, less current portion 1,280.7 510.8 Other Long-Term Liabilities 112.9 119.4 Minority Interest 440.0 437.0 Total Liabilities 2,687.7 1,954.5 Shareholders' Equity 4% Cumulative Preferred stock, par value $100 per share - - Class A Preferred stock, par value $1 per share - - Common stock, par value $0.40 per share, 60,198,322 shares issued 24.1 24.1 Class B stock, par value $0.08 per share, 975,280 and 856,905 shares issued, respectively 0.1 0.1 Capital in excess of par value 80.1 76.8 Retained earnings 915.5 916.5 Common and Class B stock in treasury, at cost, 5,083,728 and 5,846,286 shares, respectively (193.9) (223.1) Accumulated other comprehensive income 34.3 29.1 Other shareholders' equity (8.3) (5.1) Total Shareholders' Equity 851.9 818.4 Total Liabilities And Shareholders' Equity $3,539.6 $2,772.9 See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CASH FLOWS
Nine Months Ended September 26, September 27, Dollar Amounts In Millions 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 42.5 $ 42.0 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 87.4 68.8 Amortization 33.6 15.7 Change in deferred income taxes (0.4) (0.8) Gain on divestitures, net of taxes (32.8) - Restructuring charges, net of taxes 7.6 36.9 Purchased in-process research and development, net of taxes 51.0 - Loss on retirement of fixed assets 2.9 6.3 Changes in assets and liabilities: Trade receivables (53.0) (30.2) Inventories 3.8 18.0 Other current assets (14.0) (44.1) Accounts payable and accruals (94.2) (25.8) Income taxes 8.7 42.2 Other long-term liabilities (6.8) (13.9) Net cash provided by operating activities 36.3 115.1 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (132.6) (81.2) Net cash paid for acquisition of businesses (715.1) (46.6) Net cash received from divestitures 135.0 - Other 11.0 (10.4) Net cash used in investing activities (701.7) (138.2) CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of Common and Class B shares (0.2) (21.4) Exercise of stock options 27.2 11.4 Net (repayments) proceeds from notes payable (143.7) 67.9 Proceeds from issuance of long-term debt 801.2 13.5 Repayment of long-term debt (12.0) (2.7) Payment of dividends (43.5) (43.1) Net cash provided by financing activities 629.0 25.6 Effect of exchange rate changes on cash, cash equivalents and short-term investments 1.4 (8.1) Net decrease in cash, cash equivalents and short-term investments (35.0) (5.6) Cash, cash equivalents and short-term investments, beginning of period 183.7 167.8 Cash, cash equivalents and short-term investments, end of period $148.7 $162.2 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 71.0 $ 46.3 Income taxes $ 33.0 $ 27.5 See Notes To Financial Statements
BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Dollar Amounts in Millions - Except Per Share Data NOTE A: Acquisitions and Divestitures 1) As described in the 1997 Annual Report on Form 10-K, on December 29, 1997, the company acquired Chiron Vision Corporation (Chiron Vision) from Chiron Corporation, and on December 31, 1997, it acquired Storz Instrument Company (Storz) from American Home Products Corporation. The acquisitions were accounted for as purchases, whereby the purchase price, including acquisition costs, was allocated to identified assets, including tangible and intangible assets, purchased research and development and liabilities based upon their respective fair values. The excess of the purchase price over the value of identified assets and liabilities, in the amount of approximately $168, was recorded as goodwill and is being amortized over lives of twenty to forty years. The following selected, unaudited pro forma data is presented to provide a summary of the combined results of Bausch & Lomb, Chiron Vision and Storz as if the acquisitions had occurred as of the beginning of 1997. The pro forma data is for informational purposes only and may not necessarily reflect the results of operations had the companies operated as one for the three- and nine-month periods ending September 27, 1997. No effect has been given for synergies, if any, that may be realized through the acquisition. Third Quarter Ended Nine Months Ended (Unaudited) September 27, 1997 September 27, 1997 Net sales $567.2 $1,742.9 Operating earnings $ 49.6 $ 119.7 Net earnings $ 15.5 $ 29.0 Earnings per share - basic $ 0.28 $ 0.52 Earnings per share - diluted $ 0.28 $ 0.52
2) On May 22, 1998, the company sold its skin care business to The Andrew Jergens Company for $135 in cash plus the assumption of certain liabilities. NOTE B: Inventories Inventories consisted of the following: September 26, December 27, 1998 1997 Raw materials and supplies $ 95.4 $ 96.3 Work in process 36.4 23.4 Finished products 297.4 218.1 429.2 337.8 Less: Allowance for valuation of certain U.S. inventories at last- in, first-out cost 13.3 13.5 $415.9 $324.3 NOTE C: Property, Plant And Equipment Major classes of property, plant and equipment consisted of the following: September 26, December 27, 1998 1997 Land $ 26.7 $ 21.0 Buildings 393.4 392.2 Leasehold improvements 38.9 34.9 Machinery and equipment 907.1 727.0 1,366.1 1,175.1 Less: Accumulated depreciation 673.6 594.9 $ 692.5 $ 580.2 NOTE D: Adoption of SFAS No. 130 In the first quarter of 1998, the company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. Under SFAS 130, the term "comprehensive income" is used to describe the total of net earnings plus other comprehensive income which, for the company, includes foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available-for- sale. SFAS 130 does not impact the calculation of net earnings or earnings per share nor does it impact reported assets, liabilities or total shareholders' equity. It does impact the presentation of the components of shareholders' equity within the balance sheet and will result in the presentation of the components of comprehensive income within an annual financial statement, which must be displayed with the same prominence as other financial statements. The components of the company's total comprehensive income were: Three Months Ended Nine Months Ended Sept 26, Sept 27, Sept 26, Sept 27, 1998 1997 1998 1997 Net earnings $36.5 $18.5 $42.5 $42.0 Foreign currency translation adjustments, net of taxes 12.0 (11.4) 5.2 (49.8) Unrealized holding gain, net of taxes - - - 11.8 Total Comprehensive Income $48.5 $ 7.1 $47.7 $ 4.0 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Dollar Amounts in Millions - Except Per Share Data This financial review, which should be read in conjunction with the accompanying financial statements, contains management's discussion and analysis of the company's results of operations, liquidity and an updated 1998 outlook. References within this financial review to earnings per share refer to diluted earnings per share. RESULTS OF OPERATIONS Comparability of Business Segment Information Comparison of the company's 1998 and 1997 third quarter and nine- month operating results requires the consideration of certain significant events. As announced in April 1997, the company's board of directors approved plans to restructure portions of each of the company's four business segments, as well as certain corporate administrative functions. Restructuring charges concluded during the second quarter of 1998. A pre-tax restructuring charge of $11 was recorded for the nine-month period ending in September 1998 compared to charges of $16 and $55, respectively, for the three- and nine-month periods ending September 1997. The after- tax impact of these charges for the nine-month period ending in September 1998 was $8 or $0.13 per share and, for 1997, $11 or $0.20 per share and $37 or $0.67 per share, respectively, for the three- and nine-month periods. During the fourth quarter of 1997, the company divested its thin film business, which was reported in the eyewear segment. This business contributed sales of $4 and $13, respectively, for the three- and nine-month periods ending in September 1997 and operating losses of $2 and $4, respectively, for the same periods. As described in Note A, the company acquired Chiron Vision and Storz during the first quarter of 1998. The purchase price was allocated to net assets acquired and to purchased in-process research and development (R&D). Purchased in-process R&D includes the value of products in the development stage not considered to have reached technological feasibility. In accordance with applicable accounting rules, purchased in-process R&D is required to be expensed, and, accordingly, a pre-tax charge of $85 was recorded during the first quarter of 1998. The after-tax impact for the nine-month period was $51 or $0.91 per share. As described in Note A, the company sold its skin care business during the second quarter of 1998. As a result, a non- recurring gain of $56 ($33 or $0.59 per share after taxes) was recorded. This business was reported in the healthcare segment and contributed sales and operating earnings of $9 and $3, respectively, for the quarter ended September 1997. For the nine months ending September 1998 and September 1997, the skin care business contributed sales of $19 and $33, respectively, and operating earnings of $3 in 1998 and $6 in 1997. Net Sales By Business Segment The company's operating results are reported in four business segments: vision care, eyewear, pharmaceuticals/surgical and healthcare. The vision care segment includes contact lenses and lens care products. The eyewear segment includes sunglasses, vision accessories and the divested thin film coating business. The pharmaceuticals/surgical segment includes prescription ophthalmics, over-the-counter (OTC) medications, and products and equipment for cataract, refractive and other ophthalmic surgery. The healthcare segment includes biomedical products and services, hearing aids and the divested skin care business. The following is a summary of sales by business segment: Net Sales By Business Segment Third Quarter Nine Months 1998 1997 1998 1997 Vision Care $249.2 $241.8 $ 708.1 $ 674.4 Eyewear - ongoing 97.7 100.6 358.4 369.8 Pharmaceuticals/Surgical 151.5 43.0 453.1 146.1 Healthcare - ongoing 77.2 69.7 224.9 204.4 Continuing Net Sales 575.6 455.1 1,744.5 1,396.7 Divested - 13.2 19.2 46.0 Net Sales $575.6 $468.3 $1,763.7 $1,442.7 Total net sales for the quarter ended September 26, 1998 increased $107 or 23% from the 1997 third quarter. The results include $101 in 1998 third-quarter revenues generated by the acquired pharmaceutical and surgical product lines. When results for the divested skin care and thin film businesses are excluded from the 1998 and 1997 results, revenues increased $121 or 26%. On a constant dollar basis (that is, excluding the effect of foreign currency exchange rate changes), continuing business revenues increased 29% compared to the prior-year period. Vision Care Segment Revenues The vision care segment includes results of the contact lens and lens care businesses, with lenses comprising 45% and lens care representing 55% of third quarter year-to-date revenues. For the third quarter of 1998, revenues increased to $249, an increase of 3% (6% on a constant dollar basis) from the 1997 third quarter, resulting from a 6% improvement in contact lens sales combined with a 1% increase in lens care. Contact lens revenue gains, 10% in constant dollars, were driven by continued strong growth in planned replacement and disposable lenses (collectively PRD), including SofLens one day disposable lenses in Europe, which experienced a more than doubling of sales compared with the prior year period, and Medalist lenses in Japan, which is now the market leader in that country. PRD sales in the U.S. grew modestly but were offset by declining sales of rigid gas permeable and traditional lenses. Despite difficult comparisons to the 1997 third quarter which benefited from the initial sell-in of Renu Multiplus, revenues from lens care products were up 3% in constant dollars, driven primarily by strong gains in Europe. Year-to-date, vision care revenues increased 5% or 8% on a constant dollar basis. Improvement was driven primarily by contact lens sales, which have posted 12% constant dollar increases compared to 1997. Eyewear Segment Revenues The following analysis excludes results from the divested thin film business. Eyewear segment results are primarily driven by sales of sunglass products, which account for over 97% of this segment's portfolio. For the third quarter of 1998, eyewear segment revenues decreased 3% from the comparable 1997 period. On a constant dollar basis, segment revenues were even with 1997. Sunglass revenues in the U.S. increased 1% despite lower sales to Sunglass Hut International (SHI), the region's largest customer. Outside the U.S. revenues declined 6% or 1% on a constant dollar basis. In Europe, revenues increased 10% but these gains were offset by results in the Asia-Pacific and Latin America regions, as difficult economic situations led to sales shortfalls. Year-to-date, segment revenues declined 3% from 1997 and were flat on a constant dollar basis. U.S. revenues declined 4% due primarily to lower sales to SHI. If sales to SHI are excluded from both years, U.S. sunglass sales increased 1%. Non-U.S. revenues decreased 3% but increased 2% after adjusting for currency. Pharmaceuticals/Surgical Segment Revenues Third-quarter revenues for the pharmaceuticals/surgical segment increased $109 versus 1997, reflecting the first-quarter addition of the former Chiron Vision and Storz product lines. Pharmaceuticals revenues, benefiting from acquired product lines, increased 35% or 33% on a constant dollar basis. In the U.S., pharmaceuticals revenues for the quarter increased 29% over 1997 due to the acquired product lines, as well as increased revenues from Trimethoprim and Crolom and the introduction of Lotemax and Alrex. Also contributing to this increase was the general eye care business, where sales of Opcon- A drove increases in revenues from 1997. Competitive pressures, including price declines on certain generic products, partially offset these sales increases. Third quarter non-U.S. pharmaceuticals revenues improved 43% over the prior year, reflecting results for the company's Dr. Mann Pharma subsidiary in Germany, which benefited from a second quarter 1998 acquisition. Double-digit constant dollar sales growth in prescription ophthalmics in combination with improved results in the OTC business, led by ibu-Vivimed, also contributed to the third quarter sales performance. Year-to-date, revenues for the segment increased $307 from 1997, due mainly to the acquired product lines. Pharmaceuticals revenues increased 19%, or 22% on a constant dollar basis. U.S. sales advanced 22%, primarily reflecting the acquired product lines. Excluding incremental sales from the acquisitions described previously, pharmaceuticals revenues were up 4% or 5% on a constant dollar basis. Healthcare Segment Results The following analysis excludes 1998 and 1997 revenues from the divested skin care business. Healthcare segment revenues for the third quarter of 1998 increased $8 or 11% (14% on a constant dollar basis) over the comparable period in 1997. Year-to-date revenues increased $21 or 10% (13% on a constant dollar basis). Sales of biomedical products rose 10% in the quarter and 8% year- to-date, driven primarily by strong increases in the biotechnology and services business. Hearing aid revenues advanced 15% in the quarter and 20% year-to-date reflecting an increase in the number of company-owned retail outlets. Although increased company-owned retail outlets has resulted in higher hearing aid revenues in 1998, the business's profitability has not met management's expectations. As a result, management is in the process of assessing the value of the business in relation to the company's portfolio. Net Sales By Geographic Region The following analysis excludes revenues from the divested thin film and skin care businesses. Sales in markets outside the U.S. totaled $275 in the third quarter of 1998, an increase of $54 or 24% compared with the 1997 period. Year-to-date sales were $864 compared to $707 in 1997, an increase of 22%. Non-U.S. sales from the acquired surgical businesses and increased revenues for vision care products, primarily contact lenses, offset declines in the eyewear segment. For the three- and nine-month periods, currency exchange rates had a negative impact on non-U.S. sales of 6% and 7%, respectively. Non-U.S. sales represented 50% and 51%, respectively, of year-to-date consolidated revenues for the nine- month periods ending September 1998 and 1997. Third-quarter sales in the European region advanced 50% versus 1997, with minimal impact due to currency, due in large part to incremental pharmaceuticals/surgical sales and growth in vision care sales. Sunglass sales for both the quarter and year- to-date periods increased over the 1997 periods. Third quarter sales in the Asia-Pacific region were flat to prior year, but advanced 13% in constant dollars, due in large part to incremental surgical sales and to the strong growth of PRD lenses throughout most of the region. Revenues in Japan were down 4% versus 1997 for the quarter, but improved 13% in constant dollars due primarily to the continued success of Medalist contact lenses. Revenues in Canada and Latin America increased 12% over the prior quarter and 25% over the prior year-to-date due mainly to incremental surgical sales and sales of vision care products, including ReNu MultiPlus. Latin America eyewear sales declined during the quarter as economic conditions deteriorated in the region. U.S. sales totaled $301 in the third quarter, an increase of $67 or 29% from 1997, due primarily to incremental surgical sales. For the year, sales increased $191 to $880, an increase of 28%, again primarily due to acquired businesses. Costs And Expenses The following analysis excludes results from the divested thin film and skin care businesses. The ratio of cost of products sold to sales was 44.9% during the third quarter of 1998 versus 45.3% in 1997. Favorability in manufacturing costs for the eyewear segment contributed to this improvement. For the nine-month period, this ratio was 47.4% for 1998 and 46.5% for 1997. The 1998 year-to-date ratio reflected the $32 impact of higher reported cost of products sold resulting from purchase accounting inventory adjustments related to the surgical acquisitions. The 1997 year-to-date ratio reflected a $9 provision for the projected cost of exiting certain Ray-Ban product lines. Integration costs resulting from the surgical acquisitions contributed to this unfavorable variance but were partially offset by favorable manufacturing costs in the eyewear segment which resulted from restructuring efforts. Selling, administrative and general expenses, including corporate administration, were 37.7% of sales in the third quarter of 1998 compared to 38.9% in 1997. Year-to-date, these expenses were 39.0% of sales versus 38.9% in 1997. The year-over- year unfavorable ratio reflected planned increases in marketing and advertising, higher selling costs as well as the incremental expenses and integration costs associated with the transition of the acquired product lines of Chiron Vision and Storz. Included in the 1997 year-to-date amount was a $2 provision for the write- off of the company's equity investment in a start-up eyewear technology venture. Corporate administration expenses were 2.0% of sales in the third quarter of 1998, versus 2.3% in the same period of 1997. Year-to-date, the amounts were 1.9% versus 2.5%. The reduction reflects the continued efforts resulting from company-wide restructuring and a higher sales base due to the surgical acquisitions. R&D expenses totaled $23 in the third quarter of 1998, an increase of $7 over 1997. This represented 4.0% of sales in 1998, as compared to 3.5% in 1997. On a year-to-date basis, R&D expense was 3.8% of sales versus 3.3% in 1997. The increase is due primarily to spending in the pharmaceuticals/surgical segment. Restructuring Reserves As described in previous filings, in the first quarter of 1997 the company's board of directors approved plans to restructure all business segments as well as certain corporate administrative functions. As a result, cumulative pre-tax restructuring charges of $74 were recorded throughout 1997. An additional $11 was recorded in the first half of 1998 in connection with these programs. The restructuring effort is expected to significantly reduce the company's fixed cost structure and realign the organization to meet its strategic objectives through the closure, relocation and consolidation of manufacturing, distribution, sales and administrative operations, and workforce reductions. The following table sets forth the activity in the restructuring reserve through September 26, 1998: Vision Pharma/ Corporate Care Eyewear Surgical Healthcare Administration Total Restructuring Provisions $23.3 $41.4 $5.0 $5.9 $9.9 $85.5 Less charges: Non-cash items 3.3 7.1 - 1.8 0.3 12.5 Cash payments 13.0 26.5 3.4 2.4 8.9 54.2 Balance at September 26, 1998 $ 7.0 $ 7.8 $1.6 $1.7 $0.7 $18.8
Remaining reserves primarily represent liabilities related to employee separations. No further provisions are expected to be recorded for the 1997 restructuring program. Operating Earnings For the third quarter of 1998, the company's reported operating earnings were $78, compared to earnings of $42 for the same 1997 period, or $56 when discontinued businesses and restructuring charges are excluded from 1997 results. On a year-to-date basis, the company reported operating earnings of $77 compared to $104 in the prior year. Ongoing businesses generated operating earnings of $74 as compared to $102 in 1997. This was primarily driven by the purchase accounting adjustment for in-process R&D related to the acquisitions of the surgical businesses. Excluding this charge and restructuring charges in both periods, operating earnings from ongoing businesses would have been $170 in 1998 versus $157 in 1997. The increase in comparable basis results for both the quarter and year-to-date was driven mainly by incremental results in the pharmaceuticals/surgical segment as well as year-over-year improvements in manufacturing costs in the eyewear segment. Other Income And Expenses Income from interest and investments totaled $13 for the third quarter. The increase of $3 over the same period in 1997 was primarily because of a gain on the sale of an equity investment that was acquired as part of a prior year divestiture. Interest expense for the quarter of $26, an increase of $12 over the third quarter of 1997, reflected the incremental debt associated with recent acquisitions. Foreign currency gains of $1 were primarily the result of favorable hedging activities. Liquidity And Financial Resources Cash Flows From Operating Activities Cash provided by operating activities was $36 through the third quarter of 1998, a $79 unfavorable change versus the comparable 1997 period. Increases in accounts receivable, a payment to fund a settlement of litigation commenced in a prior year, and the timing of income tax payments and refunds, partially offset by the relative favorability in the settlement of foreign exchange contracts, were the primary reasons for the unfavorability to the prior year period. Cash Used In Investing Activities Cash used in investing activities was $702 for the first nine months of 1998, an increase of $564 from the comparable 1997 period, reflecting acquisitions and capital spending offset by an inflow from the skin care divestiture. Capital spending increased $51 to $133 compared to the prior year period. A significant portion of 1998 capital spending is being used to support expanded contact lens manufacturing capacity. Cash Provided By Financing Activities Through the third quarter of 1998, $629 was provided by financing activities versus $26 for the comparable 1997 period. New borrowings were primarily used to fund acquisitions and capital expenditures. Free Cash Flow Free cash flow for the third quarter of 1998 was $75 compared to $49 for the third quarter of 1997 due to a variety of operational factors including increased earnings, the timing of income tax payments and lower cash outlays for restructuring charges. For the first nine months of 1998, free cash flow was negative $94 compared to positive $15 in the prior year, primarily due to amounts described under "Cash Flows From Operating Activities" above. The positive free cash flow for the third quarter of 1998 is consistent with historical trends whereby the company has been a user of free cash during the first half of the year and a provider of free cash during the second half. Financial Position The company's total debt, consisting of short- and long-term borrowings, increased $647 from year-end 1997 due primarily to the borrowings needed to complete the surgical business acquisitions. The increase in debt is reflected in the ratio of total debt to capital, which was 63.8% at the end of the third quarter of 1998 versus 51.6% at the end of the comparable 1997 period. During the third quarter of 1998, the company sold $300 of putable / callable long-term notes with varying maturities and interest rates, and $200 of 30-year debentures. The proceeds were used to reduce short-term debt. During the second quarter, the company used cash proceeds from the sale of the skin care business to reduce outstanding short-term debt. Cash and short-term investments totaled $149 at the end of the 1998 third quarter compared to $184 at December 1997 and $162 at September 1997. Access to Financial Markets The company maintains U.S. revolving credit agreements, with both short-term and 5-year terms, totaling $700. The interest rates under these agreements are based on the LIBOR rate, or, at the company's option, the higher of several other common indices. No debt was outstanding under these agreements as of September 26, 1998. At September 26, 1998, the 5-year term portion of these revolving credit agreements supported $300 of unsecured promissory notes, which have been classified as long-term debt. In addition, the company maintains other lines of credit on which it may draw to meet its financing requirements. The company believes its existing credit facilities will provide adequate liquidity to meet obligations, fund capital expenditures and invest in potential growth opportunities. Working Capital Working capital amounted to $471 at the end of the third quarter of 1998, $203 at year-end 1997 and $19 at the end of the third quarter of 1997. The increase in working capital primarily reflects the reduction of short-term borrowings due to the issuance of long-term debt. The current ratio was 1.6, 1.2 and 1.0 for these periods, respectively. OTHER FINANCIAL DATA Dividends declared on common stock were $0.26 per share in the third quarters of both 1998 and 1997. The return on average shareholders' equity of 6.3% for the twelve-month period ended September 26, 1998 reflected restructuring charges, the first quarter 1998 charge for purchased in-process R&D, the second quarter 1998 gain on divestiture and a fourth quarter 1997 charge for a litigation settlement. This ratio was 6.8% for the twelve- month period ending September 27, 1997, and also reflected restructuring and a gain on divestiture. Risks Associated With Year 2000 Date Issues The company has been addressing the potential risks associated with the year 2000 date issue. It has established a formal program to assess and renovate internal information technology ("IT") and non-information technology ("non-IT") operations that are at risk, and further, to evaluate the year 2000 readiness of key third party suppliers and recipients of products, services, materials or data. Year 2000 issues are being addressed through a combination of software replacement, system upgrades and, in limited instances, source code modifications (collectively, "renovation"). Ongoing reengineering projects have had the incidental benefit of remediating several major year 2000 issues. The assessment phase of IT systems is substantially complete. The renovation phase is on schedule and the company plans to have all key IT systems tested and compliant by the end of June 1999. Other IT systems should be tested and compliant during the first three quarters of 1999, depending on the project. For non-IT systems, the company has engaged a leading production systems integration firm specializing in Year 2000 assessment and remediation of manufacturing, distribution and research and development facilities. The assessment phase is ongoing and should be completed by the end of the first quarter 1999. Based on information available at this time, the company plans to have all key non-IT systems tested and compliant during the third or fourth quarter 1999,depending on the project. The company has been assessing the readiness of key suppliers and customers since early 1998. To further facilitate this assessment, the company will interact with each major supplier or recipient of data, materials, products or services, including face-to-face interviews with those considered to be critical to the company. This assessment is scheduled for completion early in the fourth quarter of 1999. Anticipated costs, comprised of both period expenses and capital expenditures, of identifying and remediating year 2000 issues in the above-described areas is expected to be in the range of $65-$75, of which approximately $20 has been incurred to date. Of the total anticipated costs, approximately 50% is expected to be capitalized as part of system upgrades and replacements. Management believes that its year 2000 program will substantially reduce the risk of a material adverse impact on future financial results caused by the year 2000 issue. Potential risks of a failure to address a year 2000 issue (whether IT, non-IT or external) that could have a materially detrimental impact to the company include the inability to manufacture or ship products, the inability to receive and fill orders, and problems with customers or suppliers including the loss of electrical power or the failure of a key customer or supplier to purchase products or provide anticipated goods and services. At this stage, no overall contingency plan has been developed. Specified contingency plans will be developed as specific risks are identified. The estimated costs of remediation and the expected completion dates described above are based on information available at this time and may be updated as additional information and assessment phase results become available. Readers are referred to the section of this filing labeled "Information Concerning Forward-Looking Statements" which addresses forward-looking statements made by the company. OUTLOOK The vision care segment is expected to return to high single- digit revenue growth in the fourth quarter and continue into 1999 as the difficult comparisons versus the ReNu Multiplus launch in the U.S. will be mitigated. In addition, the company expects to launch its line of disposable toric contact lenses in the U.S. during the fourth quarter. Fourth quarter revenues in the eyewear segment are expected to be essentially even with the prior year. Operating margins for the year are expected to be in the range of 3%, a 6 percentage point increase from 1997. This is below the company's stated goal of 5%, the result of revenue shortfalls from SHI that began in the third quarter. The company is assessing whether the future performance of SHI will impact the ability to meet the operating margin goals of 10% in 1999 and 15% in 2000. The pharmaceuticals/surgical segment is expected to experience accelerated growth throughout the rest of the year, due to newly introduced and acquired products. Third quarter trends are expected to continue for pharmaceuticals products, while surgical product revenues should accelerate due to the launch of a new insertion system for foldable intraocular lenses, enhancements to the Millennium line of phacoemulsiphication equipment, and the recent signing of a major managed care contract for cataract products. Earnings from the surgical business are expected to be slightly accretive to the fourth quarter and to 1998, and will gain momentum in 1999 as additional manufacturing sites are consolidated and the company realizes the benefit of administrative consolidations which have taken place over the last nine months. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS When used in this discussion, the words "anticipate," "should," "expect," "estimate," "project" and similar expressions are intended to identify forward-looking statements. The forward- looking statements contained in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve predictions of future company performance, and are thus dependent on a number of factors affecting the company's performance. Where possible, specific factors that may impact performance materially have been identified in connection with specific forward-looking statements. Additional risks and uncertainties include, without limitation, the impact of competition, seasonality and general economic conditions in the global sunglass, vision care and ophthalmic surgical and pharmaceutical markets, where the company's core businesses compete, changes in global economic and political conditions, customer concentration (the company's five largest customers accounted, in the aggregate, for over 10% of total sales in the first nine months of 1998 changing trends in consumer preferences and tastes, legal proceedings initiated by or against the company, changes in government regulation of the company's products and operations, changes in private and regulatory schemes providing for the reimbursement of patient medical expenses, difficulties or delays in the development, production, testing and marketing of products and the effect of changes within the company's organization, and such other factors as are described in greater detail in the company's filings with the Securities and Exchange Commission, including its 1997 Annual Report on Form 10-K. PART II - OTHER INFORMATION Item 1. Legal Proceedings In its 1997 Annual Report on Form 10-K, the company reported the proposed settlement of shareholder actions against the company, the former Chief Executive Officer and Chairman, Daniel E. Gill and four other officers. On October 28, 1998, the United States District Court for the Western District of New York approved this settlement. Item 6. Exhibits and Reports on Form 8-K (a) Item 601 Exhibits Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference. (b) Reports on Form 8-K Current Report on Form 8-K dated July 29, 1998 included supplemental indentures No. 1 and No. 2 between the company and Citibank N.A. and the underwriting agreement specific to these supplemental indentures. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAUSCH & LOMB INCORPORATED Date: November 10, 1998 By: Robert B. Stiles Senior Vice President and General Counsel Date: November 10, 1998 By: Stephen C. McCluski Senior Vice President and Chief Financial Officer EXHIBIT INDEX S-K Item 601 No. Document (3)-a By-laws of Bausch & Lomb Incorporated, as amended, effective October 26, 1998 (filed herewith). (4)-a Certificate of Incorporation of Bausch & Lomb Incorporated (filed as Exhibit (4)-a to the company's Annual Report on Form 10-K for the fiscal year ended December 29, 1985, File No. 1-4105, and incorporated herein by reference). (4)-b Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-b to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4105, and incorporated herein by reference). (4)-c Certificate of Amendment of Bausch & Lomb Incorporated (filed as Exhibit (4)-c to the company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992, File No. 1-4105, and incorporated herein by reference). (4)-d Form of Indenture, dated as of September 1, 1991, between the company and Citibank, N.A., as Trustee, with respect to the company's Medium-Term Notes (filed as Exhibit (4)-a to the company's Registration Statement on Form S-3, File No. 33- 42858, and incorporated herein by reference). (4)-e Supplemental Indenture No. 1, dated May 13, 1998, between the Company and Citibank N.A. (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K, dated July 24, 1998, File No. 1-4105, and incorporated herein by reference). (4)-f Supplemental Indenture No. 2, dated as of July 29, 1998, between the Company and Citibank N.A. (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K, dated July 24, 1998, File No. 1- 4105, and incorporated herein by reference). (11) Statement Regarding Computation of Per Share Earnings (filed herewith). (12) Statement Regarding Computation of Ratio of Earnings to Fixed Charges (filed herewith). (27) Financial Data Schedule (filed herewith). EX-11 2 Bausch & Lomb Incorporated Exhibit 11 Statement Regarding Computation of Per Share Earnings (Share Amounts in Thousands Except Per Share Data)
Three Months Ended Nine Months Ended Sept 26, Sept 27, Sept 26, Sept 27, 1998 1997 1998 1997 Net Earnings (in millions) (a) $36.5 $18.5 $42.5 $42.0 Actual outstanding Common and Class B shares at beginning of period 55,888 55,421 55,209 55,404 Sum of weighted average activity of repurchases and issuances of Common and Class B stock and cancellation of restricted stock grants 134 (52) 505 17 Weighted Basic Shares (b) 56,022 55,369 55,714 55,421 Effect of assumed exercise of Common stock equivalents 479 366 550 279 Weighted Diluted Shares 56,501 55,735 56,264 55,700 Basic earnings per share $0.65 $0.33 $0.76 $0.76 Diluted earnings per share $0.65 $0.33 $0.76 $0.75
EX-12 3 Bausch & Lomb Incorporated Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
(Dollar Amounts In Millions) For Nine Months For the Year Ending Ending Sept. 26, 1998 December 27, 1997 Earnings before provision for income taxes and minority interests $ 94.6 $118.0 Fixed charges 79.1 57.9 Capitalized interest, net of current period amortization 0.2 0.3 Total earnings as adjusted $173.9 $176.2 Fixed charges: Interest (including interest expense and capitalized interest) $ 77.4 $ 56.1 Portion of rents representative of the interest factor 1.7 1.8 Total fixed charges $ 79.1 $ 57.9 Ratio of earnings to fixed charges 2.20 3.04 Excluding the effects of the restructuring charges, purchased- in-process research and development charges from the surgical acquisitions and the gain on sale of the skin care business in 1998, the ratio of earnings to fixed charges at September 26, 1998 would have been 2.71. Excluding the effects of the restructuring charges recorded in 1997, the ratio of earnings to fixed charges at December 27, 1997 would have been 4.28.
EX-27 4
5 9-MOS DEC-26-1998 SEP-26-1998 140804 7877 527107 (30187) 415889 1324861 1366088 673567 3539639 854063 1280741 0 0 24148 827738 3539639 1763732 1763732 832576 832576 854210 8079 77359 94636 34136 42542 0 0 0 42542 0.76 0.76 Income Before Taxes and Minority Interest
EX-3.A 5 BAUSCH & LOMB INCORPORATED BY-LAWS BAUSCH & LOMB INCORPORATED BY-LAWS ENACTED JUNE 16, 1964, AS AMENDED ARTICLE I MEETING OF SHAREHOLDERS SECTION 1. ANNUAL MEETINGS. A meeting of shareholders entitled to vote shall be held annually for the election of directors and the transaction of other business on such date (except a Sunday or holiday) and at such time during regular business hours as shall be fixed by the Board of Directors. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the Board of Directors. SECTION 3. PLACE OF MEETINGS. Meetings of shareholders shall be held at the principal office of the Corporation, or at such other place, within or without the State of New York, as may be fixed by the Board of Directors. SECTION 4. NOTICE OF MEETINGS. (a) Notice of each meeting of shareholders shall be in writing and shall state the place, date and hour of the meeting. Notice of a Special Meeting shall state the purpose or purposes for which it is being called and shall also indicate that it is being issued by or at the direction of the person or persons calling the meeting. If, at any meeting, action is proposed to be taken which would, if taken, entitle shareholders, fulfilling the requirements of Section 623 of the Business Corporation law, to receive payment for their shares, the notice of such meeting shall include a statement of that purpose and to that effect and be accompanied by a copy of such section and an outline of the material terms. (b) A copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at the address for such shareholder as it appears on the record of shareholders, or, if the shareholder shall have filed with the Secretary a written request that notices to him or her be mailed to some other address, then directed to him or her at such other address. (c) Any previously scheduled meeting of the shareholders may be postponed, and (unless the Corporation's Certificate of Incorporation otherwise provides or if not permitted by law) any special meeting of the shareholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of shareholders. SECTION 5. WAIVER OF NOTICE. Notice of meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by that shareholder. SECTION 6. QUORUM AND ADJOURNED MEETINGS. (a) At any Annual or Special Meeting the holders of a majority of the shares of stock entitled to vote thereat, present in person or by proxy, shall constitute a quorum for the transaction of any business, provided that when a specified item of business is required to be voted on by a class or series, voting as a class, the holders of a majority of the shares of stock of such class or series shall constitute a quorum for the transaction of such specified item of business except that if the holders of 4% Cumulative Preferred Stock should be entitled to elect Directors as provided in Article 7(B) of the Company's Certificate of Incorporation, a quorum shall, insofar as the election of such Directors is concerned but not otherwise, be such number of shares of 4% Cumulative Preferred Stock as shall be represented in person or by proxy. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders. (b) Despite the absence of a quorum, the Chairman of the meeting or a majority of the shares held by shareholders present at such meeting may adjourn the meeting to another time and place, and it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted that might have been transacted on the original date of the meeting. If, after the adjournment, however, the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder on the new record date entitled to notice under Section 4 of this Article I of the By-Laws. SECTION 7. ORGANIZATION. At every meeting of shareholders, the Chairman of the Board of Directors or the president, or in the absence of both of them, a Vice President appointed by the Board, shall act as chairman of the meeting. The Secretary, or in the Secretary's absence a person selected by the Chairman of the meeting, shall act as secretary of the meeting. SECTION 8. VOTING. (a) Whenever any corporate action, other than the election of Directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by law or by the Certificate of Incorporation, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. (b) The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote. (c) Directors shall, except as otherwise required by law, be elected by a plurality of the votes cast at a meeting of shareholders by holders of shares entitled to vote in the election; provided, however, that a nomination shall be accepted, and votes cast for a nominee shall be counted by the inspectors of election, only if the person is nominated in accordance with the procedures set forth in Subsection 8(d). (d) (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (A) pursuant to the Corporation's notice of meeting,(B) by or at the direction of the Board of Directors or (C) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this By-Law. (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (C) of paragraph (d)(l) of this By-Law, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (A) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or as otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that 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 and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (d)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 100 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (e) Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. In the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the shareholder's notice required by paragraph (d)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. (f) (1) Only such persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Certificate of Incorporation or the By-Laws of the Corporation, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By- Law, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions or this By- Law, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights of (A) Shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (B) the holders of any series of Preferred Stock to elect directors under specified circumstances. SECTION 9. QUALIFICATION OF VOTERS. (a) Every shareholder of record of Common Stock or Class B Stock of the Corporation shall be entitled at every meeting of such shareholders to one vote for every share of Common Stock and one vote for every share of Class B Stock standing in his or her name on the record of shareholders on a day and hour fixed by the Board of Directors, which day shall not be more than sixty nor less than ten days before the date of such meeting. (b) Shares of stock belonging to the Corporation and shares held by another domestic or foreign corporation of any type or kind, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall not be shares entitled to vote or to be counted in determining the total number of outstanding shares. (c) Shares held by an administrator, executor, guardian, conservator, committee, or other fiduciary, except a trustee, may be voted by such person, either in person or by proxy, without transfer of such shares into his or her name. Shares held by a trustee may be voted by the trustee, either in person or by proxy, only after the shares have been transferred into his or her name as trustee or into the name of his or her nominee. (d) Shares standing in the name of another domestic or foreign corporation of any type or kind may be voted by such officer, agent or proxy as the By-Laws of such corporation may provide, or in the absence of such provision, as the Board of Directors of such corporation may provide. SECTION 10. PROXIES. (a) Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him or her by proxy. Any such proxy shall be delivered to the Secretary or to the inspectors of election, if any, at or prior to the meeting. (b) No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law. (c) The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the shareholder who executed the proxy unless, before the authority is exercised, written notice of an adjudication of such incompetence or of such death is received by the Secretary. (d) Without limiting the manner in which a shareholder may authorize another person or persons to act for him or her as proxy pursuant to Section 10(a) hereof, a shareholder may: i. execute a writing authorizing another person or persons to act as proxy, such execution being accomplished by the shareholder or shareholder's authorized representative signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile; or ii. authorize another person or persons to act for him or her as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can reasonably be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors, or, if there are no inspectors, such other persons making that determination, shall specify the nature of the information upon which they relied. (e) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to paragraph 10(d) hereof may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile or telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. SECTION 11. INSPECTORS OF ELECTION. (a) The Board of Directors, the Chairman of the Board or the President, in advance of any shareholders' meeting, shall appoint one or more inspectors to act at the meeting or any adjournment thereof. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors, the Chairman of the Board or the President in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. (b) The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. The inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. SECTION 12. LIST OF SHAREHOLDERS. A list of shareholders as of the record date, certified by the Secretary or by the transfer agent, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding thereat shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting. ARTICLE II DIRECTORS SECTION 1. NUMBER, TERM OF OFFICE AND CLASSIFICATION. Subject to the provisions of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock or Class B Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be not less than three nor more than twenty-five persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be determined from time to time by the affirmative vote of (i) a majority of the entire Board of Directors or (ii) the holders of at least eighty percent of the outstanding voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock or Class B Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1986, another class to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1987, and another class to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1988, with the directors in each class to hold office until their successors are elected and qualified. At each annual meeting of the shareholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election. SECTION 2. RESIGNATIONS. Any Director may resign at any time pursuant to written notice given to the Chairman of the Board. SECTION 3. VACANCIES; REMOVAL. (a) Except as otherwise provided for or fixed by or pursuant to the provisions of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock or Class B Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next annual meeting of shareholders and until such director's successor shall have been elected and qualified. (b) Subject to the rights of any class or series of stock having a preference over the Common Stock or Class B Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office, but only for cause and only by the affirmative vote of the holders of two-thirds of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. SECTION 4. FIRST MEETING. As soon as practical after each annual election of Directors, the Board of Directors shall meet for the purpose of organization and the transaction of other business. Notice of such meeting need not be given. Such first meeting may be held at any other time which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors. SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such times as may be fixed from time to time by the Board of Directors without notice. SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the President, or by any three Directors. Notice of a special meeting shall state the date, place and hour of such meeting and shall be deemed sufficient if given orally, delivered in writing or sent by telegraph or telefacsimile or electronic mail transmission, in each case, not less than 12 hours before the meeting, or if mailed not less than 24 hours before the meeting. SECTION 7. PLACE OF MEETING. Meetings of the Board of Directors shall be held at such place or places within or without the State of New York as the Board of Directors from time to time may by resolution determine. SECTION 8. WAIVERS OF NOTICE. Notice of a meeting need not be given to any Director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of such notice. SECTION 9. QUORUM AND MANNER OF ACTING. (a) One-third of the entire Board of Directors shall constitute a quorum for the transaction of business or of any specified item of business. The vote of a majority of the Directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board. (b) A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting to another time and place without notice to any Director. SECTION 10. ORGANIZATION. At each meeting of the Board of Directors, the Chairman of the Board, or, in the Chairman's absence, the President, or, in the absence of both of them, a chairman chosen by a majority of the directors present shall preside. The Secretary shall act as secretary of the Board of Directors. In the event the Secretary shall be absent from any meeting of the Board of Directors, the meeting shall select its secretary. SECTION 11. COMPENSATION. The Board of Directors shall have authority to fix the compensation of Directors for services in any capacity. SECTION 12. INTERESTED DIRECTORS. (a) No contract or other transaction between the Corporation and one or more of its Directors, or between the Corporation and any other corporation, firm, association or other entity in which one or more of its directors are Directors or Officers, or are financially interested, shall be either void or voidable for this reason alone or by reason alone that such Director or Directors are present at the meeting of the Board of Directors, or of a committee thereof, which approves such contract or transaction, or that his or their votes are counted for such purpose, provided the party or parties thereto shall have established affirmatively that the contract or transaction was fair and reasonable as to the Corporation at the time such contract or transaction was approved by the Board, a committee, or the shareholders. (b) Any such contract or transaction may be approved as fair and reasonable if: (1) the fact of common directorship, officership or financial interest is disclosed or known to the Board or committee and the Board or committee approves such contract or transaction by a vote sufficient for such purpose without counting the vote or votes of such interested Director or Directors (although common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board or of a Committee which approves such contract or transaction), or (2) such common directorship, officership or financial interest is disclosed or known to the shareholders entitled to vote thereon, and such contract or transaction is approved by vote of the shareholders. SECTION 13. LOANS TO DIRECTORS. A loan shall not be made by the Corporation to any Director unless it is authorized by vote of the shareholders. For this purpose, the shares of the Director who would be the borrower shall not be shares entitled to vote or be included in determining a quorum. SECTION 14. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto shall be filed with the minutes of the proceedings of the Board or committee. SECTION 15. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. ARTICLE III COMMIITEES SECTION 1. EXECUTIVE COMMITTEE. There shall be an Executive Committee consisting of the Chairman of the Board, the President and not less than three other Directors elected by a majority of the entire Board of Directors who shall serve at the pleasure of the Board. The Board of Directors shall elect one of the members of the Executive Committee to be Chairman of the Executive Committee, and may designate one or more other Directors as alternate members of the Committee who may be designated by the Chairman of the Executive Committee or, in such Chairman's absence, by the Chairman of the Board to replace any absent member or members at any meeting of the Committee. The Executive Committee shall have all the authority of the Board, except it shall have no authority as to the following matters: (1) The submission to shareholders of any action that needs shareholders' authorization; (2) The filling of vacancies in the Board or in any committee; (3) The fixing of compensation of the Directors for serving on the Board or on any committee; (4) The amendment or repeal of the By-laws, or the adoption of new By-laws; and (5) The amendment or repeal of any resolution of the Board which, by its terms, shall not be so amendable or repealable. SECTION 2. ADDITIONAL COMMITTEES. The Board of Directors by resolution adopted by a majority of the entire Board may designate from among its members additional committees, each of which shall consist of one or more Directors and shall have such authority as provided in the resolution designating the committee, except that such authority shall not exceed the authority of the Executive Committee. The Board may designate a member of any committee to be chairman of the committee and may designate one or more other Directors as alternate members of the committee who may be designated by the chairman of the committee or, in his absence, by the Chairman of the Board to replace any absent member or members at any meeting of the committee. Each committee shall serve at the pleasure of the Board. SECTION 3. RULES OF PROCEDURE. The Executive Committee and, except to the extent determined by the Board of Directors, each other committee shall fix its own rules of procedure. Regular meetings of each committee shall be held at such times as may be fixed from time to time by the Board or the committee. Special meetings shall be held whenever called by the Chairman of the Board, the Chief Executive Officer or the chairman of the committee. No notice need be given of regular meetings. Notice of special meetings shall comply with Article II, Section 6, of the By-laws. At all meetings of the Executive Committee three (3) members shall constitute a quorum for the transaction of business and at all meetings of other committees a majority of the members of the committee shall constitute a quorum. The vote of a majority of the members of a committee present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. (See also Article II, Sections 14 and 15.) ARTICLE IV OFFICERS SECTION 1. OFFICERS ENUMERATED. The offices of the Corporation to which officers may be elected shall include a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a Controller. Any two or more offices may be held by the same person. SECTION 2. TERM OF OFFICE. Those officers whose titles are specifically mentioned in Section 1 of this Article IV shall be elected at the first meeting of the Board of Directors. Unless a shorter term is provided in the resolution of the Board electing such officer, the term of office of such officer shall extend to and expire at the meeting of the Board following the next Annual Meeting. SECTION 3. OTHER OFFICERS. The Board of Directors may elect such other officers, agents or employees as it shall deem necessary, who shall hold their offices for such terms and have such powers and perform such duties as shall be prescribed from time to time by the Board. SECTION 4. REMOVAL OF OFFICERS; RESIGNATION. Any officer may be removed by the Board of Directors, with or without cause, at any time. Removal of an officer without cause shall be without prejudice to his or her contract rights, if any, but election as an officer shall not of itself create contract rights. Any officer may resign from his or her position, effective pursuant to written notice to the Secretary. Vacancies created by the removal or resignation of an officer may, but need not, be filled as determined by the Board of Directors. SECTION 5. CHAIRMAN OF THE BOARD. The Chairman shall preside over all meetings of the shareholders and of the Board of Directors, and shall perform such other duties as are properly required by the Board of Directors. SECTION 6. PRESIDENT. The President shall perform such duties as are properly required by the Board of Directors or, if the President is not Chief Executive Officer, by the Chief Executive Officer. The President, in the event of the death, resignation, removal, disability or absence of the Chairman, shall possess the powers and perform the duties of the Chairman. SECTION 7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be either the Chairman of the Board or the President, as the Board of Directors shall from time to time determine, and shall, subject to the control of the Board of Directors, have the general powers and duties of supervision and management of the Corporation which usually pertain to the office of chief executive officer, and shall perform such other duties as are properly required by the Board of Directors. The duties of the Chief Executive Officer shall in the event of his or her absence or disability be performed by such other officer as the Chief Executive Officer or the Board of Directors shall designate. SECTION 8. VICE PRESIDENT. The Vice President or, if there be more than one, the Vice Presidents shall generally assist the Chief Executive Officer and the President and perform such duties and exercise such powers as may be assigned and delegated to them by the Chief Executive Officer or the President. SECTION 9. SECRETARY. The Secretary shall act as secretary of all meetings of the Board of Directors and of the shareholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall give or cause to be given all notices required to be given by the Corporation. The Secretary shall prepare or cause to be prepared for use at meetings of shareholders the list of shareholders as of the record date required by Article I, Section 12 of these By-Laws and shall certify or cause the transfer agent to certify such list. The Secretary shall keep a current list of the Directors and officers of the Corporation and shall be the custodian of the seal of the Corporation and shall affix the seal, or cause it to be affixed to all agreements, documents and other papers requiring the seal. The Secretary shall also have custody of the certificate books and shareholder records and such other books and records as the Board may direct and shall perform all other duties incident to such office or which the Board may from time to time assign. SECTION 10. TREASURER. The Treasurer shall have the care and custody of the corporate funds and other valuable effects, including securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall perform all other duties incident to the office of Treasurer which the Board may from time to time assign. SECTION 11. SALARIES. The salaries of the Chairman of the Board and the President of the Company shall be fixed by the Board, and the salaries of all other officers elected by the Board of Directors shall be fixed by the Board or a Committee thereof designated by the Board to do so. ARTICLE V CAPITAL STOCK SECTION 1. SHARE CERTIFICATES. Shares of the Corporation shall be represented by Certificates or shall be uncertificated as shall be approved by the Board of Directors. Certificates representing shares shall be signed by one or more of the Chairman of the Board, the President or any Vice President and by the Secretary or the Treasurer. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer at the date of issue. SECTION 2. TRANSFER AND TRANSFER AGENTS. Upon surrender to the Corporation or to any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or such transfer agent to issue a new certificate to the person entitled thereto, to cancel the old certificate and to record the transaction upon its books. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient, not inconsistent with this section of the By-laws, concerning the issue, registration and transfer of certificates of stock, and may appoint transfer agents and registrars thereof. SECTION 3. REGISTERED SHAREHOLDERS. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends or other distributions, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or legal claim to or interest in such share or shares on the part of any other person. SECTION 4. RECORD DATE. (a) For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action affecting the interests of shareholders, the Board of Directors may fix, in advance, a record date. Such date shall not be more than sixty nor less than ten days before the date of any such meeting, nor more than sixty days prior to any other action. (b) In each such case, except as otherwise provided by law, only such persons as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to express such consent or dissent, or to receive payment of such dividend, or such allotment of rights, or otherwise to be recognized as shareholders for the purpose of any other action affecting the interests of shareholders, notwithstanding any registration of transfer of shares on the books of the Corporation after any such record date so fixed. SECTION 5. LOST, MUTILATED OR DESTROYED CERTIFICATES. The Board of Directors may direct a new certificate for shares to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, mutilated or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, mutilated or destroyed. When authorizing such issue of a new certificate, the Board may, in its discretion, and as a condition precedent to the issuance thereof, require the owner of such lost, mutilated or destroyed certificate, or such person's legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. ARTICLE VI GENERAL PROVISIONS SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law, and may be paid in cash, in property or in shares of the Corporation. SECTION 2. RESERVES. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for the payment of dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board shall think conducive to the interests of the Corporation, and the Board may modify or abolish any such reserve in the manner in which it was created. SECTION 3. DEPOSITS. All monies and other valuable effects shall be deposited in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. SECTION 4. OBLIGATIONS. All checks, notes, drafts or other instruments evidencing indebtedness or obligations of the Corporation shall be signed by an officer or officers or other person or persons, and in the manner (whether manually or by facsimile), designated by the Board or an officer authorized by the Board to make such designation. SECTION 5. AUTHORIZED SIGNATURES. All deeds, bonds, mortgages, contracts, and other instruments requiring a seal, and all endorsements, assignments, transfers, stock powers, bond powers or other instruments of transfer of securities standing in the name of the Corporation, and all proxies to vote upon or consents with respect to shares of stock of other companies standing in the name of the Corporation may be signed or executed by the Chief Executive Officer or by the President or by any other officer authorized to sign such instrument by the Chief Executive Officer or by the President or by the Board of Directors. SECTION 6. SEAL. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors and shall, at least, have inscribed thereon the name of the Corporation and the date of its incorporation. The seal may be used by causing it or a facsimile thereof, to be impressed or affixed or otherwise reproduced. ARTICLE VII AMENDMENTS Subject to any greater vote that may be required by law or pursuant to the Certificate of Incorporation, these By-Laws may be amended, repealed or altered, in whole or in part, by a majority vote of the shares of stock of the Corporation, represented at any regular meeting of shareholders, or at any special meeting where notice of such amendment is incorporated in the notice calling such special meeting, or by the Board of Directors. No amendment of these By-Laws pertaining to the election of Directors or the procedures for the calling and conduct of a meeting of shareholders shall affect the election of Directors or the procedures for the calling or conduct in respect of any meeting of shareholders unless adequate notice thereof is given to the shareholders in a manner reasonably calculated to provide shareholders with sufficient time to respond thereto prior to such meeting. ARTICLE VIII INDEMNIFICATION AND INSURANCE SECTION 1. RIGHT TO INDEMNIFICATION. To the fullest extent authorized or permitted by law, each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that no indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes that his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he personally gained in fact a financial profit or other advantage to which he or she was not legally entitled, and further provided that, except as provided in Section 2 hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 1 shall be a contract right (which shall not be abrogated by any amendment or repeal of this Section 1 with respect to matters arising prior to such amendment or repeal) and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 1 or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 1 is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under Section 1 for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment or expense incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of shareholders or disinterested directors or otherwise. SECTION 4. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under this Article or applicable law. Enacted June 16, 1964; Amended 11/65, 2/66, 3/67, 4/69, 12/70, 5/71, 6/71, 5/72, 11/74, 9/75, 8/76, 11/77, 2/78, 11/78, 4/79, 12/80, 4/81, 5/81, 11/81, 2/83, 7/84, 4/85, 10/86, 10/98. Note: The following provisions of these by-laws were amended by Resolution of the Board of Directors on October 26, 1998. Article I, Sections 1, 4, 5, 6, 7, 8, 9, 10, 11; Article II, Sections 1, 2, 6, 8, 10, 12, 13; Article III, Sections 1, 2; Article IV, Sections 1, 2, 4, 5, 6, 7, 9, 10; Article V, Sections 1, 4, 5; Article VII; Article VIII, Section 1. -----END PRIVACY-ENHANCED MESSAGE-----