-----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, OaMWhHSrv6QjcOvIsZx2TAEWBtvJp9jJn8q5SmH4ofk6gaPkqWZKLUbMMg7yaTBJ J2LmZ8A7xITRsDEs9rD61w== 0000070530-01-500003.txt : 20010412 0000070530-01-500003.hdr.sgml : 20010412 ACCESSION NUMBER: 0000070530-01-500003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000225 FILED AS OF DATE: 20010411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0000070530 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 952095071 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06453 FILM NUMBER: 1599849 BUSINESS ADDRESS: STREET 1: 2900 SEMICONDUCTOR DR STREET 2: PO BOX 58090 CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 BUSINESS PHONE: 4087215000 MAIL ADDRESS: STREET 1: 2900 SEMICONDUCTOR DR CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 10-Q 1 form10q_041101.txt FORM 10Q - Q3 - APRIL 11, 2001 2 of 20 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 25, 2001 or - -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________. - Commission File Number: 1-6453 NATIONAL SEMICONDUCTOR CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-2095071 -------- ---------- (State of incorporation) (I.R.S. Employer Identification Number) 2900 Semiconductor Drive, P.O. Box 58090 Santa Clara, California 95052-8090 (Address of principal executive offices) Registrant's telephone number, including area code: (408) 721-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of Each Class Outstanding at February 25, 2001. ------------------- --------------------------------- Common stock, par value $0.50 per share 173,428,952 NATIONAL SEMICONDUCTOR CORPORATION INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations (Unaudited) for the Three Months and Nine Months Ended February 25, 2001 and February 27, 2000 3 Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Nine Months Ended February 25, 2001 and February 27, 2000 4 Condensed Consolidated Balance Sheets (Unaudited) as of February 25, 2001 and May 28, 2000 5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended February 25, 2001 and February 27, 2000 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Part II. Other Information Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 18-19 Signature 20 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts)
Three Months Ended Nine Months Ended Feb. 25, Feb. 27, Feb. 25, Feb. 27, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net sales $ 475.6 $ 548.9 $1,711.4 $1,544.6 Operating costs and expenses: Cost of sales 242.6 285.2 838.3 863.4 Research and development 112.0 90.7 327.8 290.8 Selling, general and administrative 76.3 78.1 255.7 229.2 Special items 12.1 (5.7) 18.5 (35.6) ------------ ------------ ------------ ------------ Total operating costs and expenses 443.0 448.3 1,440.3 1,347.8 ------------ ------------ ------------ ------------ Operating income 32.6 100.6 271.1 196.8 Interest income, net 13.4 4.8 42.7 5.0 Other income, net 3.0 227.7 48.9 284.9 ------------ ------------ ------------ ------------ Income before income taxes and extraordinary item 49.0 333.1 362.7 486.7 Income tax expenses 9.8 5.3 72.6 13.0 ------------ ------------ ------------ ------------ Net income before extraordinary item 39.2 327.8 290.1 473.7 Extraordinary loss on early extinguishment of debt, net of tax benefit of $0.4 million - - - 6.8 ------------ ------------ ------------ ------------ Net income $ 39.2 $ 327.8 $ 290.1 $ 466.9 ============ ============ ============ ============ Earnings per share before extraordinary item: Basic $ 0.23 $ 1.88 $ 1.64 $ 2.75 Diluted $ 0.21 $ 1.68 $ 1.53 $ 2.49 Earnings per share: Basic $ 0.23 $ 1.88 $ 1.64 $ 2.71 Diluted $ 0.21 $ 1.68 $ 1.53 $ 2.46 Weighted-average shares: Basic 174.0 174.7 176.7 172.4 Diluted 183.0 194.8 190.2 189.9 Income used in basic and diluted earnings per share calculation $ 39.2 $ 327.8 $ 290.1 $ 466.9
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in millions)
Three Months Ended Nine Months Ended Feb. 25, Feb. 27, Feb. 25, Feb. 27, 2001 2000 2001 2000 ------------ ------------- ------------ ------------- Net income $ 39.2 $ 327.8 $ 290.1 $ 466.9 Other comprehensive income, net of tax: Reclassification adjustment for net realized gain included in net income (0.1) (195.6) (22.4) (195.6) Unrealized gain (loss) on available-for-sale securities (2.6) 7.5 41.3 193.6 ------------ ------------- ------------ ------------- Comprehensive income $ 36.5 $ 139.7 $ 309.0 $ 464.9 ============ ============= ============ =============
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions)
Feb. 25, May 28, 2001 2000 ------------------------ ----------------------- ASSETS Current assets: Cash and cash equivalents $ 841.8 $ 778.8 Short-term marketable investments 13.0 22.3 Receivables, net 156.0 258.6 Inventories 215.7 192.9 Deferred tax assets 125.7 125.7 Other current assets 39.0 40.5 ------------------------ ----------------------- Total current assets 1,391.2 1418.8 Net property, plant and equipment 814.7 803.7 Long-term cash investments 47.4 48.8 Long-term marketable investments 30.5 12.7 Other assets 218.3 98.2 ------------------------ ----------------------- Total assets $ 2,502.1 $ 2,382.2 ======================== ======================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt $ 31.4 $ 31.4 Accounts payable 123.7 194.5 Accrued expenses 292.2 315.1 Income taxes payable 97.5 86.7 ------------------------ ----------------------- Total current liabilities 544.8 627.7 Long-term debt 33.7 48.6 Other non-current liabilities 89.3 62.6 ------------------------ ----------------------- Total liabilities 667.8 738.9 ------------------------ ----------------------- Commitments and contingencies Shareholders' equity Common stock 86.7 88.8 Additional paid-in capital 1,281.6 1,395.3 Retained earnings 476.8 186.7 Accumulated other comprehensive loss (8.6) (27.5) Treasury stock, at cost (2.2) - ------------------------ ----------------------- Total shareholders' equity 1,834.3 1,643.3 ------------------------ ----------------------- Total liabilities and shareholders' equity $ 2,502.1 $ 2,382.2 ======================== =======================
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)
Nine Months Ended Feb. 25, Feb. 27, 2001 2000 ------------------------ ----------------------- Cash flows from operating activities: Net income $ 290.1 $ 466.9 Adjustments to reconcile net income with net cash provided by operations: Depreciation and amortization 179.0 202.3 Gain on investments (40.8) (272.5) Loss on disposal of equipment 2.7 9.1 Donation of equity securities 20.5 - Special items 18.5 (35.6) Other, net 0.3 3.3 Changes in certain assets and liabilities, net: Receivables 102.6 (75.6) Inventories (22.8) (33.1) Other current assets (0.9) (11.4) Accounts payable and accrued expenses (115.7) (65.9) Current and deferred income taxes 10.8 9.9 Other liabilities 4.5 2.9 ------------------------ ----------------------- Net cash provided by operating activities 448.8 200.3 ------------------------ ----------------------- Cash flows from investing activities: Purchase of property, plant and equipment (168.4) (94.1) Sale of equipment - 8.6 Sale and maturity of marketable investments 39.3 127.7 Purchase of marketable investments (28.0) (106.7) Proceeds from sale of investments 33.3 286.0 Business acquisition, net of cash acquired (98.3) (22.2) Disposition of Cyrix PC microprocessor business - 75.0 Purchase of investments and other, net (23.8) (2.2) ------------------------ ----------------------- Net cash (used by) provided by investing activities (245.9) 272.1 ------------------------ ----------------------- Cash flows from financing activities: Redemption of convertible subordinated notes - (265.8) Repayment of debt (14.9) (33.6) Issuance of common stock, net 48.5 105.8 Purchase and retirement of treasury stock (173.5) - ------------------------ ----------------------- Net cash used by financing activities (139.9) (193.6) ------------------------ ----------------------- Net change in cash and cash equivalents 63.0 278.8 Cash and cash equivalents at beginning of period 778.8 418.7 ------------------------ ----------------------- Cash and cash equivalents at end of period $ 841.8 $ 697.5 ======================== =======================
See accompanying Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies National's management believes the condensed consolidated financial statements presented in this Form 10-Q contain all adjustments that are necessary to present fairly the financial position and results of operations of National Semiconductor Corporation and its subsidiaries. National Semiconductor Corporation and its majority-owned subsidiaries may be referred to as National or the company in these notes to these financial statements. Interim results of operations may not necessarily be indicative of the results that may be expected for the full year. This report should be read in conjunction with the consolidated financial statements and notes thereto included in the annual report on Form 10-K for the fiscal year ended May 28, 2000. Earnings Per Share: A reconciliation of the shares used in the computation for basic and diluted earnings per share follows:
Three Months Ended Nine Months Ended Feb. 25, Feb. 27, Feb. 25, Feb. 27, (in millions) 2001 2000 2001 2000 ------------ ----------- ----------- ----------- Net income used for basic and diluted earnings per share $ 39.2 $327.8 $290.1 $466.9 ============ =========== =========== =========== Number of shares: Weighted average common shares outstanding used for basic earnings per share 174.0 174.7 176.7 172.4 Effective of dilutive securities: Stock options 9.0 20.1 13.5 17.5 ------------ ----------- ----------- ----------- Weighted average common and potential common shares outstanding used for diluted earnings per share 183.0 194.8 190.2 189.9 ============ =========== =========== ===========
As of February 25, 2001, the company had options outstanding to purchase 13.3 million shares of common stock with a weighted-average exercise price of $47.32, which were excluded from the fiscal 2001 computation of diluted earnings per share because their effect was antidilutive. These options could potentially dilute the computation of basic earnings per share in the future. As of February 27, 2000, all options outstanding to purchase shares of the company's common stock were considered dilutive and were included in the computation of diluted earnings per share. Note 2. Consolidated Financial Statement Details The components of inventories were:
Feb. 25, May 28, (in millions) 2001 2000 --------------------------- --------------------------- Raw materials $ 14.5 $ 16.6 Work in process 113.0 112.0 Finished goods 88.2 64.3 --------------------------- --------------------------- Total inventories $ 215.7 $ 192.9 =========================== =========================== The components of accumulated other comprehensive loss, net of tax, were: Feb. 25, May 28, (in millions) 2001 2000 --------------------------- --------------------------- Unrealized gain on available-for-sale securities $ 22.6 $ 3.7 Minimum pension liability (31.2) (31.2) --------------------------- --------------------------- Accumulated other comprehensive loss $ (8.6) $ (27.5) =========================== =========================== The components of special items were: Three Months Ended Nine Months Ended Feb. 25, Feb. 27, Feb. 25, Feb. 27, (in millions) 2001 2000 2001 2000 ------------ ----------- ----------- ----------- In-process research and development charge $ 12.1 $ 4.2 $ 16.2 $ 4.2 Restructuring of operations - (9.9) 2.3 (13.0) Gain on disposition of Cyrix PC microprocessor business - - - (26.8) ------------ ----------- ----------- ----------- Total special items $ 12.1 $ (5.7) $ 18.5 $ (35.6) ============ =========== =========== ===========
Components of interest income, net and other income, net were:
Three Months Ended Nine Months Ended Feb. 25, Feb. 27, Feb. 25, Feb. 27, (in millons) 2001 2000 2001 2000 ------------ ----------- ------------ ----------- Interest income, net - -------------------- Interest income $ 14.6 $ 8.1 $ 46.4 $ 21.6 Interest expense (1.2) (3.3) (3.7) (16.6) ------------ ----------- ------------ ----------- Interest income, net $ 13.4 $ 4.8 $ 42.7 $ 5.0 ============ =========== ============ =========== Other income, net - ----------------- Net intellectual property income $ 0.9 $ 3.7 $ 5.4 $ 10.6 Gain on investments, net 2.0 224.0 40.8 272.5 Other 0.1 - 2.7 1.8 ------------ ---------- ----------- ------------ Total other income, net $ 3.0 $ 227.7 $ 48.9 $ 284.9 ============ =========== =========== ============
Included in the gain on investments for the first nine months of fiscal 2001 is a gain of $20.5 million resulting from the distribution of equity securities relating to the company's investment portfolio. The securities were subsequently donated to establish the National Semiconductor Foundation. The expense associated with the donation also totaled $20.5 million and this amount is included in selling, general and administrative expenses for the first nine months of fiscal 2001. Note 3. Statement of Cash Flows Information
Nine Months Ended Feb. 25, Feb. 27, (in millions) 2001 2000 ---------------------- ----------------------- Supplemental Disclosure of Cash Flows Information: Cash paid for: Interest $ 3.6 $ 19.4 Income taxes $ 61.8 $ 2.7 Supplemental Schedule of Non-cash Investing and Financing Activities: Issuance of common stock for employee benefit plans $ 4.1 $ 2.6 Issuance of common stock to directors $ 0.3 $ 0.3 Issuance of restricted common stock $ 7.5 $ 8.2 Issuance of common stock in connection with the settlement of promissory note $ - $ 5.0 Issuance of common stock in connection with the conversion of subordinated notes $ - $ 0.1 Change in unrealized gain on available-for-sale securities $ 18.9 $ 1.9
NOTE 4. RESTRUCTURING OF OPERATIONS During the first nine months of fiscal 2001, the company recorded a $2.3 million restructuring charge in connection with its consolidation of the wafer manufacturing operations in Greenock, Scotland. This charge represented additional severance costs associated with the termination of certain remaining employees who were scheduled to depart the company in fiscal 2001, at the time of the final closure of the 4-inch wafer fabrication facility. During the first quarter of fiscal 2001, the terminating employees earned higher than expected salaries because of unanticipated overtime hours. The actual salaries earned directly impacted the amount of severance these employees had a right to receive at termination. The closure of the 4-inch wafer fabrication facility and the transfer of products and processes to the 6-inch wafer fabrication facility on the same site were substantially completed by the end of September 2000. During the first nine months of fiscal 2001, the company paid $4.4 million in severance to 96 employees terminated in connection with the facility closure. During the first nine months of fiscal 2001, the company also paid $4.4 million for other exit-related costs that were primarily related to restructuring actions originally announced in May 1999. Included in accrued liabilities at February 25, 2001, is $12.6 million related to costs for restructuring actions discussed in Note 3 to the consolidated financial statements for fiscal 2000 that were not yet completed as of February 25, 2001. These restructuring costs primarily represent facility dismantling costs related to the closure of the Greenock 4-inch wafer fabrication facility and lease obligations related to other restructuring actions. Note 5. Acquisitions In February 2001, the company acquired innoCOMM Wireless, a developer of chipsets for wireless networking applications based in San Diego, California. InnoCOMM's expertise ranges from short-range wireless technologies, such as Bluetooth and HomeRF, to full wireless local area networking based on the IEEE 802.11 standards, which allow interoperability for wireless LANs similar to how ethernet allows interoperability of wired LANs. The acquisition is expected to complement National's existing base of design and product expertise. The acquisition was accounted for using the purchase method with a purchase price of $118.8 million. Of the total purchase price, $74.3 million was paid in cash upon the closing of the transaction. A liability of $44.5 million was recorded, primarily representing two installments to be paid twelve and twenty-four months after the closing date. In connection with the acquisition, the company recorded a $12.1 million in-process research and development charge, which is included as a component of special items in the condensed consolidated statement of operations for the third quarter and first nine months of fiscal 2001. The remainder of the purchase price was allocated to net assets of $0.2 million and intangible assets of $106.5 million based on fair values. The intangible assets primarily consist of goodwill, which is to be amortized over a useful life of 7 years. Under terms of employee retention arrangements, the company also expects to pay a total of approximately $18.3 million to innoCOMM employees upon the completion of their first and second year service anniversaries. These amounts will be charged ratably to operations over the related service periods. In July 2000, the company acquired the business and assets of Vivid Semiconductor, Inc. a semiconductor company based in Chandler, Arizona. The company expects the addition of Vivid's technologies and analog engineering resources to expand its strengths in creating silicon solutions for the flat-panel display market. The acquisition was accounted for using the purchase method with a purchase price of $25.1 million in cash. In connection with the acquisition, the company recorded a $4.1 million in-process research and development charge, which is included as a component of special items in the condensed consolidated statement of operations for the first nine months of fiscal 2001. The remainder of the purchase price was allocated to net assets of $1.3 million and intangible assets of $19.7 million based on fair values. The intangible assets primarily consist of goodwill, which is to be amortized over a useful life of 5 years. The amount allocated to the in-process research and development charge in each of these acquisitions was determined through an established valuation technique used in the high technology industry. The research and development charge was expensed upon acquisition because technological feasibility had not been established and no alternative uses exist. The costs of research and development to bring the products to technological feasibility are not expected to have a material impact on future operating results. Note 6. Segment Information The following table presents information related to the company's reportable segments:
Information Analog Appliance All Total (in millions) Segment Segment Others Eliminations Consolidated ------- ------- ------ ------------ ------------ Three months ended February 25, 2001: Sales to unaffiliated customers $ 346.2 $ 49.4 $ 80.0 $ - $ 475.6 ============= =============== =============== =============== ==================== Segment income (loss) before income taxes $ 60.4 $ (25.6) $ 14.2 $ - $ 49.0 ============= =============== =============== =============== ==================== Three months ended February 27, 2000: Sales to unaffiliated customers $ 386.5 $ 59.8 $ 102.6 $ - $ 548.9 ============= =============== =============== =============== ==================== Segment income (loss) before income taxes $ 120.3 $ (23.8) $ 236.6 $ - $ 333.1 ============= =============== =============== =============== ====================
Information Cyrix Analog Appliance Business All Total (in millions) Segment Segment Unit Others Eliminations Consolidated ----------- -------------- ----------- ---------- ---------------- ---------------- Nine months ended February 25, 2001: Sales to unaffiliated Customers $1,223.8 $ 180.5 $ - $ 307.1 $ - $1,711.4 Inter-segment sales - 0.1 - - (0.1) - ----------- -------------- ----------- ---------- ---------------- ---------------- Net sales $1,223.8 $ 180.6 $ - $ 307.1 $ (0.1) $1,711.4 =========== ============== =========== ========== ================ ================ Segment income (loss) before income taxes $ 344.4 $ (63.7) $ - $ 82.0 $ - $ 362.7 =========== ============== =========== ========== ================ ================ Nine months ended February 27, 2000: Sales to unaffiliated customers $1,088.7 $ 171.3 $ 18.6 $ 266.0 $ - $1,544.6 Inter-segment sales - 0.2 - - (0.2) - ----------- -------------- ----------- ---------- ---------------- ---------------- Net sales $1,088.7 $ 171.5 $ 18.6 $ 266.0 $ (0.2) $1,544.6 =========== ============== =========== ========== ================ ================ Segment income (loss) before income taxes and extraordinary item $ 309.6 $ (77.6) $ (22.6) $ 277.3 $ - $ 486.7 =========== ============== =========== ========== ================ ================
Note 7. Put Warrants In November 2000, the company sold put warrants on 300,000 shares of its common stock. The warrants, which matured in February 2001, gave the holders the right at maturity to require the company to repurchase shares of National common stock at $17.50. The company had the option to settle the warrants in cash or shares of common stock. The amount related to the company's potential repurchase obligation had been reclassified from shareholders' equity to put warrants. In February 2001, all of the outstanding warrants expired unexercised and the company was not required to settle them, either in cash or stock. The potential repurchase obligation was reclassified back to shareholders' equity in February 2001. Item 2. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The company recorded net sales of $475.6 million and $1,711.4 million for the third quarter and first nine months of fiscal 2001, respectively. Net sales for the quarter represented a 13 percent decline from net sales of $548.9 million for the third quarter of fiscal 2000, while net sales for the first nine-month period represented an 11 percent increase over net sales of $1,544.6 million for the same period of fiscal 2000. Strong sales in the first half of fiscal 2001 contributed to the growth in sales for the first nine months of fiscal 2001 over the comparable period of fiscal 2000. Meanwhile recent weakness in semiconductor industry business conditions contributed to the decline in sales for the third quarter of fiscal 2001. Net income was $39.2 million and $290.1 million for the third quarter and first nine months of fiscal 2001, respectively, compared to net income of $327.8 million and $466.9 million for the corresponding periods of fiscal 2000. Lower operating results were caused by a significant slowdown in orders seen since the latter part of calendar 2000. Net income for the third quarter of fiscal 2001 included a special item of $12.1 million for an in-process R&D charge related to the acquisition of innoCOMM Wireless (See Note 5). In addition to this charge, special items reported in net income for the first nine months of fiscal 2001 included a $4.1 million in-process R&D charge related to the acquisition of Vivid Semiconductor (See Note 5) and a $2.3 million restructuring charge related to the consolidation of the manufacturing facility in Greenock, Scotland (See Note 4). Net income for the third quarter and first nine months of fiscal 2000 included special items of $5.7 million and $35.6 million, respectively. For the third quarter of fiscal 2000, special items included a $9.9 million credit related to restructuring of operations and a $4.2 million in-process R&D charge. For the first nine months of fiscal 2000, special items included an additional $3.1 million credit related to restructuring of operations and a $26.8 million gain from the sale of the assets of the Cyrix PC microprocessor business. Net income for the first nine months of fiscal 2000 also included a $6.8 million extraordinary loss (net of tax benefit of $0.4 million) that the company recorded in connection with the early redemption of its 6.5 percent convertible subordinated notes. SALES The following discussion is based on the company's operating segments described in Note 12 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended May 28, 2000. The increase in overall sales for the first nine months of fiscal 2001 was a result of higher volumes that were primarily shipped in the first half of the fiscal year, as sales in the third quarter declined significantly. Average selling prices remained unchanged for most of the company's products. The Analog segment, whose sales now represent 72 percent of the company's total sales, led the growth in sales for the first nine months. Analog product sales for the first nine months of fiscal 2001 grew 12 percent over sales for the comparable period of fiscal 2000, but declined 10 percent for the third quarter from sales for the comparable period of fiscal 2000. The growth for the first nine months of fiscal 2001 was primarily attributable to higher unit volume with slightly increased average selling prices. A significant decline in unit volume caused the decrease in the current third quarter sales, while average selling prices were fairly stable. Sales of application specific wireless products, including radio frequency building blocks, grew 5 percent and 17 percent for the third quarter and first nine months of fiscal 2001 over the comparable periods of fiscal 2000. Interface, amplifiers and power management products also contributed to the growth in sales for the first nine months of fiscal 2001 with increases of 23 percent, 22 percent and 16 percent, respectively, over the comparable period of fiscal 2000. However, these product areas experienced a noticeably different trend in the third quarter of fiscal 2001 with decreases of 11 percent, 7 percent and 10 percent, respectively, compared to the same quarter of fiscal 2000. Sales in the third quarter of fiscal 2001 for the Information Appliance segment decreased 17 percent from sales for the comparable quarter of fiscal 2000 due to decreases in both unit shipments and average selling prices. The slowdown in demand for personal computers and PC-related products contributed to the decline in sales for the Information Appliance segment because a large part of the portfolio of information appliance products is still focused on the traditional PC marketplace. For the first nine months of fiscal 2001, information appliance product sales increased 5 percent over sales for the comparable period of fiscal 2000. This increase was primarily due to higher unit volume, as average selling prices remained relatively flat. The nine-month period comparison excludes sales from the Cyrix PC microprocessor unit, which the company sold in September 1999. Network product sales declined 24 percent in the third quarter and 20 percent year to year from sales in the comparable periods of fiscal 2000. Although the company has introduced network products employing new digital signal processing technology primarily focused on higher bandwidth gigabit applications, minimal shipments of these new products and decreasing demand for mature ethernet products contributed to the network product sales decline. Unit volume and average selling prices were both lower for network products compared to last year. GROSS MARGIN Gross margin as a percentage of sales increased to 49 percent and 51 percent for the third quarter and first nine months of fiscal 2001, respectively, from gross margin of 48 percent and 44 percent for the same periods of fiscal 2000. The increase in gross margin for fiscal 2001 was primarily driven by improved product mix, as the company shipped more high contribution analog and wireless products, combined with improved factory utilization during the first half of fiscal 2001. Wafer capacity utilization over the first nine months of fiscal 2001 ran at 78 percent, reflecting high utilization in the earlier part of the fiscal 2001, offset by substantially reduced utilization in the latter part of the fiscal 2001. Utilization in the same period of fiscal 2000 was 71 percent, which reflected the effect of lower capacity utilization in Maine caused by the company's decision made at the end of fiscal 1999 to exit the Cyrix PC microprocessor business. RESEARCH AND DEVELOPMENT Total research and development expenses for the third quarter and first nine months of fiscal 2001 increased 31 percent and 17 percent, respectively, over R&D expenses for the comparable periods of fiscal 2000. Total R&D expenses for the third quarter include the effect of a $12.1 million in-process R&D charge related to the acquisition of innoCOMM Wireless in February 2001 and for the first nine months of fiscal 2001 also include the effect of a $4.1 million in-process R&D charge related to the acquisition of Vivid Semiconductor in July 2000. The comparable periods of fiscal 2000 include the effect of a $4.2 million in-process R&D charge related to the acquisition of Algorex, Inc. in December 1999. Excluding these charges, R&D expenses for the third quarter and first nine months of fiscal 2001 increased 23 percent and 13 percent, respectively, over expenses for the corresponding fiscal 2000 periods. Higher R&D expenses for the third quarter and first nine months of fiscal 2001 reflect increased investment in the development of new analog and mixed-signal technology-based products for applications in the wireless communications, personal systems and consumer markets, as well as in the process technologies needed to support these products. It also reflects increased resource investment to develop new cores and integrate those cores with other technological capabilities to create system-on-a-chip products. Beginning in the second quarter of fiscal 2001, the company also began recording expense associated with a licensing agreement with Taiwan Semiconductor Manufacturing Company. The agreement allows National to gain access to a variety of TSMC's advanced sub-micron processes for use in its Maine facility as desired, if and when those processes are developed by TSMC. The advanced process technologies are expected to accelerate the development of high performance digital and mixed-signal products for the information appliances, wireless and networking markets. The start of this expense also contributed to the increase in R&D expense over the comparable fiscal 2000 periods. Through the first nine months of fiscal 2001, the company devoted approximately 79 percent of its R&D effort towards new product development and 21 percent towards the development of process technology. Compared to the corresponding period of fiscal 2000, this represents a 19 percent increase in spending for new product development and a 9 percent increase in spending for process technology. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses for the third quarter of fiscal 2001 decreased 2 percent from the third quarter of fiscal 2000, while for the first nine months of fiscal 2001 they increased 12 percent over the corresponding period of fiscal 2000. Included in SG&A expenses for the first nine months of fiscal 2001 is an expense of $20.5 million associated with the charitable donation of equity securities that were part of the company's investment portfolio which were donated to establish the National Semiconductor Foundation. Excluding this expense, SG&A expenses for the first nine months of fiscal 2001 increased 3 percent over SG&A expenses for the same period of fiscal 2000. Actions implemented by the company to reduce spending in response to the recent weakness in business conditions resulted in a decline in these expenses for the third quarter of fiscal 2001. These cost reduction actions had a lesser effect on overall SG&A expenses for the first nine months of fiscal 2001 and the increase in these expenses for the first nine months of fiscal 2001 over the comparable fiscal 2000 period is primarily attributable to increases in payroll and employee benefit expenses. RESTRUCTURING OF OPERATIONS In connection with its consolidation of the wafer manufacturing operations in Greenock, Scotland, the company recorded a $2.3 million restructuring charge, which is included as a special item for the first nine months of fiscal 2001. The charge represented additional severance costs associated with the termination of certain remaining employees concurrent with the closure of the 4-inch fabrication facility, which was substantially completed by the end of September 2000. Further detail and discussion of other activity for the third quarter and first nine months of fiscal 2001 related to restructuring actions are described in Note 4. INTEREST INCOME AND INTEREST EXPENSE Net interest income was $13.4 million and $42.7 million for the third quarter and first nine months of fiscal 2001, respectively, compared to $4.8 million and $5.0 million for the same periods of fiscal 2000. Both higher average cash balances and higher interest rates in fiscal 2001 contributed to an increase in interest income while offsetting interest expense for fiscal 2001 was significantly lower than fiscal 2000. Lower interest expense was due to the redemption of $258.8 million of the company's convertible subordinated notes, which were repaid in November 1999. OTHER INCOME, NET Other income, net was $3.0 million and $48.9 million for the third quarter and first nine months of fiscal 2001, respectively, compared to $227.7 million and $284.9 million for the same periods of fiscal 2000. The components of other income, net for the third quarter of fiscal 2001 included a net gain of $2.0 million from the sale of equity investments, $0.9 million of net intellectual property income and $0.1 million of non-operating income associated with an investment partnership. Other income, net for the first nine months of fiscal 2001 included a net gain of $40.8 million from the sale of equity investments, $5.4 million of net intellectual property income and $2.7 million of non-operating income associated with an investment partnership. The net gain from equity investments in fiscal 2001 included a gain of $20.5 million resulting from the distribution of equity securities relating to the company's investment portfolio which were subsequently donated to establish the National Semiconductor Foundation. An expense for the same amount associated with the donation is included in SG&A expenses for the first nine months of fiscal 2001. This compares to other income, net, for the third quarter of fiscal 2000, which included a net gain of $224.0 million from the sale of equity investments. This included a gain of $222.3 million attributable to the sale of the remaining investment in Fairchild Semiconductor stock acquired in conjunction with the disposition of the company's Fairchild Semiconductor Group in fiscal 1997. The third quarter of fiscal 2000 also included net intellectual property income of $3.7 million. Other income, net for the first nine months of fiscal 2000 included a gain of $272.5 million from the sale of equity investments, of which $270.7 million was attributable to the sale of the investment in Fairchild Semiconductor stock. The first nine months of fiscal 2000 also included $10.6 million of net intellectual property income and other miscellaneous income of $1.8 million. INCOME TAX EXPENSE The company recorded income tax expense of $9.8 million and $72.6 million for the third quarter and first nine months of fiscal 2001, respectively. This compares to income tax expense before extraordinary item of $5.3 million and $13.0 million for the corresponding periods of fiscal 2000. This is based on the company's expected effective tax rate of 20 percent for fiscal 2001, which is a combination of U.S. alternative minimum tax and foreign tax expense. This compares to a 2 percent effective tax rate for fiscal 2000, which primarily represented foreign income tax expense, as U.S. taxable income was offset by net operating loss carryforwards. FINANCIAL CONDITION During the first nine months of fiscal 2001, cash and cash equivalents increased by $63.0 million compared to an increase of $278.8 million for the first nine months of fiscal 2000. The primary factors contributing to these amounts are described below. For the first nine months of fiscal 2001, operating activities generated cash of $448.8 million compared to $200.3 million for the first nine months of fiscal 2000. The increase in net income adjusted for non-cash items contributed to the improvement. For fiscal 2000, changes in working capital items had minimal impact as the decrease in accounts payable was substantially offset by a decrease in receivables as sales declined and spending was reduced beginning in the second half of fiscal 2001. For fiscal 2000, cash flow from changes in working capital was negatively impacted by increases in receivables and inventories combined with a decrease in accounts payable. The company's investing activities used cash of $245.9 million in the first nine months of fiscal 2001, while generating cash of $272.1 million in the first nine months of fiscal 2000. Use of cash during fiscal 2001 primarily related to the company's investment in property, plant and equipment of $168.4 million and the acquisitions of innoCOMM and Vivid for a total of $98.3 million (See Note 5). In comparison, the company's investment in property, plant and equipment for the same period in fiscal 2000 was $94.1 million, offset by proceeds of $270.7 million from the sale of Fairchild stock and $75.0 million from the sale of the Cyrix PC microprocessor business. The company's financing activities used cash of $139.9 million in the first nine months of fiscal 2001, compared to $193.6 million in the first nine months of fiscal 2000. The primary use of cash in fiscal 2001 was for the company's repurchase of 7.4 million shares of common stock on the open market for $173.5 million. Of these shares of treasury stock, 7.3 million were retired during the same period. The cash outlay was partially offset by proceeds of $48.5 million from the issuance of common stock under employee benefit plans. For fiscal 2000 the primary use of cash during the comparable period was for the company's redemption of the 6.5 percent convertible subordinated notes for $265.8 million, which was partially offset by proceeds of $105.8 million from the issuance of common stock under employee benefit plans. Management foresees substantial cash outlays for plant and equipment throughout the remainder of fiscal 2001, with primary focus on new process capabilities, as well as improvements to provide better manufacturing efficiency and productivity. While management has reduced its capital expenditure plan in response to the recent slowdown in market demand, the fiscal 2001 capital expenditure level is still expected to be higher than the fiscal 2000 level. Existing cash and investment balances, together with existing lines of credit, are expected to be sufficient to finance the remaining capital investments planned for fiscal 2001. OUTLOOK The statements contained in this outlook section and within certain sections of management's discussion and analysis are forward-looking based on current expectations and management's estimates. Actual results may differ materially from those set forth in these forward-looking statements. In addition to the risk factors discussed in the Financial Condition and Results of Operations on pages 21 through 24 of the company's 2000 Annual Report on Form 10-K for the fiscal year ended May 28, 2000 filed with the Securities and Exchange Commission, the following factors may also affect the company's operating results for fiscal 2001: As semiconductor industry market conditions continued to weaken through the third quarter of fiscal 2001, the company experienced a very significant slowdown in new orders. New orders, particularly from the distribution channel, fell significantly as distributors reduced inventory levels in response to resale growth rates that were lower than previously anticipated. Continued inventory corrections by major customers in the wireless handset market and slower than expected unit growth for wireless handsets also contributed to the order slowdown. The slower than expected demand in the PC market further added to the slowdown in new orders. Contract manufacturers, who are faced with excess inventories, are also making inventory corrections, which is negatively impacting the company. The company does expect new orders to improve once customers work through inventory corrections. However, there has been no current evidence that this process will be resolved in the near term and therefore the slowdown in new orders may be further prolonged. Fill orders, which are orders received and shippable in the same quarter, were unusually low in the recent third quarter and there has been no evidence of improvement to date. Combining this trend with the overall weakness in the U.S. economy, the company anticipates a decline in sales for the fourth quarter of fiscal 2001 from the sales level achieved in the recent third quarter. The level of sales for the fourth quarter is very dependent upon the amount of fill orders received. If the company does not receive a sufficient level of fill orders, the expected level of sales for the fourth quarter of fiscal 2001 will further decline. The company faces a risk that declining order rates will continue to reduce wafer fabrication capacity utilization. As a result, future gross margin and future operating results would be unfavorably impacted. While the company has implemented some short-term actions in the fourth quarter of fiscal 2001 to reduce costs and partially mitigate the decline in gross margins and operating results, these actions may not be sustainable over a longer period of time. The company is currently reviewing alternative cost reduction actions that would positively impact the company's operating results on a more sustainable basis. If the company decides to implement any such alternatives during the fourth quarter of fiscal 2001, such action may have a negative impact on results for the fourth quarter of fiscal 2001. The wireless handset market continues to be an important to the company's future growth plans. New integrated chipsets are being developed to provide added dollar content in targeted entry level handsets. Due to high levels of competition, as well as complex technological requirement, there is no assurance that the company will ultimately be successful in this targeted market. Although end market unit growth for wireless handsets was very high for calendar 2000 as a whole, near-term growth expectations are highly uncertain. Delayed introduction of next-generation wireless base stations also negatively impacts potential growth in the wireless handset market. There is also uncertainty related to the standards that ultimately will be adopted for the next-generation wireless base stations. As a result, the company remains cautious on near-term trends in its wireless-related business. The company continues to hold numerous design wins in the information appliance market, but end user adoption has been slower than anticipated. It is not yet clear which form factors, specific customers' products or customers' business models will ultimately be successful in this new emerging market. Revenue for the company's information appliance products is dependent on the outcome and the timing of product acceptance trends. The forward-looking statements discussed or incorporated by reference in this outlook section involve a number of risks and uncertainties. Other risks and uncertainties include, but are not limited to, the general economy, regulatory and international economic conditions, the changing environment of the semiconductor industry, competitive products and pricing, growth in the PC and communications industries, the effects of legal and administrative cases and proceedings, and such other risks and uncertainties as may be detailed from time to time in the company's SEC reports and filings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the company's Annual Report on Form 10-K for the year ended May 28, 2000 and to the subheading "Financial Market Risks" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 21 of the company's Annual Report on Form 10-K for the year ended May 28, 2000 and in Note 1, "Summary of Significant Accounting Policies," and Note 2, "Financial Instruments," in the Notes to the Consolidated Financial Statements included in Item 8 of Form 10-K. There have been no material changes from the information reported in these sections. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On March 28, 2001, the U.S. Environmental Protection Agency served the company with an administrative complaint, compliance order and notice of opportunity for hearing. The complaint alleges that the EPA found certain violations of the Resource Conservation and Recovery Act in an inspection conducted in August 1999 at the Maine facility. The compliance order requires the company to institute and perform certain procedures and training in connection with the company's handling of hazardous wastes at the facility. The order also seeks payment of a penalty of $302,990. The company is evaluating a response to be presented in the administrative proceedings but believes that any deficiencies found in the 1999 audit were corrected at or soon after the time of the audit. The settlement reported in the Form 10-K for the first quarter of fiscal year 2001 involving the duty drawback claims and the U.S. Customs Service is only a partial settlement of the duty drawback claims that have been at issue since 1988. The company is continuing to pursue settlement of the duty drawback claims that remain open. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Second Restated Certificate of Incorporation of the Company as amended (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-52775, which became effective March 22, 1994); Certificate of Amendment of Certificate of Incorporation dated September 30, 1994 (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-8 Registration No. 333-09957, which became effective August 12, 1996). Certificate of Amendment of Certificate of Incorporation dated September 22, 2000. (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-8 Registration No. 333-48424, which became effective October 23, 2000). 3.2 By Laws of the Company, as amended effective January 24, 2001. 4.1 Form of Common Stock Certificate (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-48935, which became effective October 5, 1992). 4.2 Rights Agreement (incorporated by reference from the Exhibits to the Company's Registration Form 8-A filed August 10, 1988). First Amendment to the Rights Agreement dated as of October 31, 1995 (incorporated by reference from the Exhibits to the Company's Amendment No. 1 to the Registration Statement on Form 8-A filed December 11, 1995). Second Amendment to the Rights Agreement dated as of December 17, 1996 (incorporated by reference from the Exhibits to the Company's Amendment No. 2 to the Registration Statement on Form 8-A filed January 17, 1997). 4.3 Indenture dated as of September 15, 1995 (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-63649, which became effective November 6, 1995). 4.4 Form of Note (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-63649, which became effective November 6, 1995). 4.5 Indenture dated as of May 28, 1996 between Cyrix Corporation ("Cyrix") and Bank of Montreal Trust Company as Trustee (incorporated by reference from the Exhibits to Cyrix's Registration Statement on Form S-3 Registration No. 333-10669, which became effective August 22, 1996). 4.6 Registration Rights Agreements dated as of May 28, 1996 between Cyrix and Goldman, Sachs & Co. (incorporated by reference from the Exhibits to Cyrix's Registration Statement on Form S-3 Registration No. 333-10669, which became effective August 22, 1996). (b) Reports on Form 8-K No reports on form 8-K were filed for the quarter ending February 25, 2001. SIGNATURE - --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL SEMICONDUCTOR CORPORATION Date: April 10, 2001 \s\Lewis Chew ------------- Lewis Chew Vice President and Chief Financial Officer (acting) Vice President and Controller Signing on behalf of the registrant and as principal accounting officer EX-3.(II) 2 bl10q_041101.txt BY-LAWS FOR NSC NLL\SecMtrs\bylaw101 01/24/01 Exhibit 3.2 BY-LAWS OF NATIONAL SEMICONDUCTOR CORPORATION AMENDED AS OF JANUARY 24,2001 ARTICLE I. OFFICES SECTION 1. REGISTERED OFFICE. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II. STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at such place either within or without the State of Delaware as may be designated by the board of directors. SECTION 2. ANNUAL MEETING. An annual meeting of stockholders shall be held on the fourth Friday in September of each year, at 10:30 A.M., or at such other date and time as shall be designated by the board of directors. At the annual meeting the stockholders shall elect a board of directors and transact such other business as may be properly brought before the meeting. SECTION 3. SPECIAL MEETINGS. Subject to the rights of the holders of any series of stock having a preference over the Common Stock of the corporation as to dividends or upon liquidation ("Preferred Stock") with respect to such series of Preferred Stock, special meetings of the stockholders may be called only by the chairman of the board or by the board of directors pursuant to a resolution adopted by a majority of the total number of directors which the corporation would have if there were no vacancies (the "Whole Board"). SECTION 4. NOTICE OF MEETINGS. The secretary or such other officer of the corporation as is designated by the board of directors shall serve personally or send through the mails or by telegraph a written notice of annual or special meetings of stockholders, addressed to each stockholder of record entitled to vote at his address as it appears on the stock transfer books of the corporation, stating the time and place of the meeting and the purpose or purposes for which the meeting is called, not less than ten nor more than sixty days before the date of the meeting. If mailed, notice shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Notice given by telegraph shall be deemed to have been given upon delivery of the message to the telegraph company. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be cancelled, by resolution of the board of directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. SECTION 5. WAIVER OF NOTICE. Notice of a meeting need not be given to any stockholder who signs a waiver of notice, in person or by proxy, whether before or after a meeting. The attendance of any stockholder at a meeting, in person or by proxy, without protesting either prior thereto or at its commencement the lack of notice of such meeting, shall constitute a waiver of notice by him. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. SECTION 6. STOCKHOLDER'S LIST. The officer who has charge of the stock transfer book of the corporation shall prepare and make, at least ten days before every meeting of the stockholders at which directors are to be elected, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to examination by any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 7. QUORUM AND ADJOURNMENT. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the outstanding shares of the corporation entitled to vote generally in the election of directors (the "Voting Stock"), present in person or represented by proxy, shall constitute a quorum at all meetings of stockholders for the transaction of business, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote. SECTION 8. PROXIES. At all meetings of stockholders, each stockholder entitled to vote shall have one vote, to be exercised in person or by proxy, for each share of capital stock having voting power, held by such stockholder. All proxies shall be in writing, shall relate only to a specific meeting (including continuations and adjournments of the same), and shall be filed with the secretary at or before the time of the meeting. Each proxy must be signed by the shareholder or his attorney-in-fact. The person or persons named in a proxy for a specific meeting may vote at any adjournment of the meeting for which the proxy was given. If more than one person is named as proxy, a majority of such persons so named present at the meeting, or if only one shall be present, then that one, shall have and exercise all the powers conferred upon all of the persons unless the proxy shall provide otherwise. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged prior to or at its exercise and the burden of proving invalidity shall rest on the challenger. SECTION 9. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS. a. ANNUAL MEETINGS OF STOCKHOLDERS. ------------------------------------ (1) Nominations of persons for election to the board of directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the corporation's notice of meeting, (b) by or at the direction of the board of directors or (c) by any stockholder of the corporation who was a stockholder 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 complies 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 stockholder pursuant to clause (c) of paragraph (a)(1) of this By-Law, the stockholder must have given timely notice thereof in writing to the secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder'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 120th day nor earlier than the close of business on the 150th 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 120 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 150th day prior to such annual meeting and not later than the close of business on the later of the 120th 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 by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder 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 is 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 stockholder 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 stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder 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 stockholder, 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 stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(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 by the corporation naming all of the nominees for director or specifying the size of the increased board of directors at least 130 days prior to the first anniversary of the preceding year's annual meeting, a stockholder'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. b. SPECIAL MEETINGS OF STOCKHOLDERS. --------------------------------------- Only such business shall be conducted at a special meeting of stockholders 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 stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the board of directors or (b) provided that the board of directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder 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 stockholders for the purpose of electing one or more directors to the board of directors, any such stockholder 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 stockholder's notice required by paragraph (a)(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 90th day prior to such special meeting and not later than the close of business on the later of the 60th 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 stockholder's notice as described above. c. GENERAL. ------- (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 stockholders 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 these By-Laws, 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 of this By-Law, a stockholder 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 (i) of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. SECTION 10. VOTING. When a quorum is present at any meeting, the affirmative vote of the holders of a majority of the capital stock having voting power present in person or represented by proxy and entitled to vote on the matter shall decide any question brought before such meeting, except (i) in respect of elections of directors which shall be decided, subject to the rights of the holders of any series of Preferred Stock, by a plurality of the votes cast, and (ii) when the question is one which by express provision of statute or Certificate of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. No vote need be taken by ballot unless required by statute. SECTION 11. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The board of directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. 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 stockholders will vote at a meeting. SECTION 12. RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, request the board of directors to fix a record date. The board of directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the board of directors pursuant to the first sentence of this Section). If no record date has been fixed by the board of directors pursuant to the first sentence of this Section or otherwise within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or to any officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the board of directors adopts the resolution taking such prior action. SECTION 13. INSPECTORS OF WRITTEN CONSENT. In the event of the delivery, in the manner provided by Section 12 of this Article to the corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the corporation shall engage independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the corporation that the consents delivered to the corporation in accordance with Section 12 of this Article represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this Section shall in any way be construed to suggest or imply that the board of directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). SECTION 14. EFFECTIVENESS OF WRITTEN CONSENT. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated written consent received in accordance with Section 12 of this Article, a written consent or consents signed by a sufficient number of holders to take such action are delivered to the corporation in the manner prescribed in Section 12 of this Article. ARTICLE III. THE BOARD OF DIRECTORS SECTION 1. COMPOSITION. The board of directors shall consist of seven directors subject to such automatic increase as may be required by the corporation's Restated Articles of Incorporation. The board may enlarge or reduce the size of the board in a vote of the majority of the directors in office. No director need be a stockholder. SECTION 2. ELECTION AND TERM. Except as provided in Section 3 of this Article, the directors shall be elected by a plurality vote at the annual meeting of the stockholders. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. SECTION 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy on the board of directors, or any newly created directorships, however occurring, may be filled by a majority of the directors then in office, though less than a quorum or by a sole remaining director. Any vacancy in the board of directors may also be filled by a plurality vote of the stockholders unless such vacancy shall have been previously filled by the board of directors. SECTION 4. POWERS. The business of the corporation shall be managed by its board of directors which shall have and may exercise all such powers of the corporation, including the power to make, alter or repeal the bylaws of the corporation, and do all such lawful acts and things as are not by statute directed or required to be exercised or done by the stockholders. SECTION 5. PLACE OF MEETINGS. The board of directors of the corporation may hold meetings both regular and special, either within or without the State of Delaware. Members of the board of directors or any committee designated by the board, may participate in a meeting of such board or committee by means of a conference telephone by means of which all persons participating in the meeting can hear each other, and participation shall constitute presence in person at such meeting. SECTION 6. REGULAR MEETINGS. Regular meetings of the board of directors may be held without call or notice immediately following the annual meeting of the stockholders and at such time and at such place as shall from time to time be selected by the board of directors, provided that in respect of any director who is absent when such selection is made, the notice, waiver and attendance provisions of Section 7 of this Article shall apply to such regular meetings. SECTION 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the board of directors may be called by the chairman of the board of directors, a majority of the directors or the president on notice given to each director, either personally (including by telephone) or by hand delivery, first-class mail, overnight mail, courier service, telegram or facsimile transmission sent to his business or home address, stating the place, date and hour of the meeting. If mailed by first-class mail, such notice shall be deemed to have been adequately given when deposited in the United States mail, postage prepaid, directed to the director at his business or home address, at least five (5) days before such meeting. Notice given by telegraph, overnight mail or courier service shall be deemed adequately given upon delivery of the message to the telegraph company or to the overnight mail or courier service company at least two days before such meeting. Notice given by facsimile transmission shall be deemed adequately given upon transmission of the message at least twelve (12) hours before such meeting. Notice given by hand delivery or personally shall be deemed adequately given when delivered at least twelve (12) hours before such meeting. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting. The attendance of any director at a meeting, without protesting either prior thereto or at its commencement the lack of notice of such meeting, shall constitute a waiver of notice by him. Any notice or waiver of notice of a meeting of the board of directors need not specify the purposes of the meeting. SECTION 8. QUORUM AND VOTING. At all meetings of the board of directors a majority less one of the total number of directors then in office shall constitute a quorum for the transaction of business, except that in no case shall less than two directors be deemed to constitute a quorum, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, a majority of less than a quorum may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 9. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the board of directors may be taken without a meeting, if all members of the board of directors, then in office, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors. SECTION 10. RESIGNATION. Any director may resign at any time upon written notice delivered to the corporation at its principal office. The resignation shall take effect at the time specified therein, and if no time be specified, at the time of its dispatch to the corporation. SECTION 11. REMOVAL. A director may be removed for cause by the vote of a majority of the stockholders at a special or annual meeting after the director has been given reasonable notice and opportunity to be heard before the stockholders. SECTION 12. COMMITTEES. The board of directors may, by resolution passed by a majority of the whole board of directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. ARTICLE IV. OFFICERS SECTION 1. DESIGNATION. The officers of the corporation shall consist of a president, a treasurer, a secretary, and such other officers including a chairman of the board of directors, one or more group presidents, vice presidents (including group executive vice presidents, corporate vice presidents and senior vice presidents), assistant treasurers and assistant secretaries, as the board of directors or the stockholders may deem warranted. With the exception of the chairman of the board of directors who must be a director, no officer need be a director or a stockholder. Any number of offices may be held by the same person. SECTION 2. ELECTION AND TERM. Except for officers to fill vacancies and newly created offices provided for in Section 6 of this Article, the officers shall be elected by the board of directors at the first meeting of the board of directors after the annual meeting of the stockholders. All officers shall hold office at the pleasure of the board of directors. SECTION 3. DUTIES OF OFFICERS. In addition to those duties that may from time to time be delegated to them by the board of directors, the officers of the corporation shall have the following duties: (a) CHAIRMAN OF THE BOARD. The chairman of the board shall preside at all meetings of the stockholders and of the board of directors at which he is present, shall be ex-officio a member of all committees formed by the board of directors and shall have such other duties and powers as the board of directors may prescribe. (b) PRESIDENT. The president shall be the chief executive officer of the corporation, shall have general and active management of the business of the corporation, shall see that all orders and resolutions of the board of directors are carried into effect, and, in the absence or nonelection of the chairman of the board of directors, shall preside at all meetings of the stockholders and the board of directors at which he is present if he is also a director. The president also shall execute bonds, mortgages, and other contracts requiring a seal under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated expressly by the board of directors to some other officer or agent of the corporation and shall have such other powers and duties as the board of directors may prescribe. (c) GROUP PRESIDENT. The group president or group presidents, if any, shall have general and active management of the group for which they are designated as president by the board of directors and shall have such other duties and powers as vice-presidents or as the board of directors or the president may prescribe. (d) VICE-PRESIDENT. The vice-president or vice-presidents, if any, shall have such duties and powers as the board of directors or the president may prescribe. In the absence of the president or in the event of his inability or refusal to act, the group president or vice president, if any, or if there be more than one, the group presidents or vice-presidents, in the order designated by the board of directors, or, in the absence of such designation, then in the order of their election, shall perform the duties and exercise the powers of the president. (e) SECRETARIES AND ASSISTANT SECRETARIES. The secretary shall record the proceedings of all meetings of the stockholders and all meetings of the board of directors in books to be kept for that purpose, shall perform like duties for the standing committees when required, and shall give, or cause to be given, call and/or notices of all meetings of the stockholders and meetings of the board of directors in accordance with these by-laws. The secretary also shall have custody of the corporate seal of the corporation, affix the seal to any instrument requiring it and attest thereto when authorized by the board of directors or the president, and shall have such other duties and powers as the board of directors may prescribe. The assistant secretary, if any, or if there be more than one, the assistant secretaries, in the order designated by the board of directors, or, if there be no such designation, then in order of their election, shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall have such other duties and powers as the board of directors may prescribe. In the absence of the secretary or an assistant secretary at a meeting of the stockholders or the board of directors, an acting secretary shall be chosen by the stockholders or directors, as the case may be, to exercise the duties of the secretary at such meeting. In the absence of the secretary or an assistant secretary or in the event of the inability or refusal of the secretary or an assistant secretary to give, or cause to be given, any call and/or notice required by law or these by-laws, any such call and/or notice may be given by any person so directed by the board of directors, the president or stockholders, upon whose requisition the meeting is called in accordance with these by-laws. (f) TREASURER AND ASSISTANT TREASURER. The treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall also disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, shall render to the board of directors, when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation, and shall have such other duties and powers as the board of directors may prescribe. If required by the board of directors, the treasurer shall give the corporation a bond, which shall be renewed every six years, in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. The assistant treasurer, if any, or if there be more than one, the assistant treasurers in the order designated by the board of directors, or, in the absence of such designation, then in the order of their election, shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall have such other duties and powers as the board of directors may prescribe. (g) OTHER OFFICERS. Any other officer shall have such powers and duties as the board of directors may prescribe. SECTION 4. RESIGNATION. Any officer may resign at any time upon written notice delivered to the corporation at its principal office. The resignation shall take effect at the time specified therein, and if no time be specified, at the time of its dispatch to the corporation. SECTION 5. REMOVAL. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. SECTION 6. VACANCIES AND NEWLY CREATED OFFICES. A vacancy in office, however occurring, and newly created offices, shall be filled by the board of directors. ARTICLE V. CAPITAL STOCK SECTION 1. STOCK CERTIFICATES. Each holder of stock in the corporation shall be entitled to have a certificate signed in an officer's official capacity or in the name of the corporation by the chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Where a certificate is countersigned (a) by a transfer agent other than the corporation or its employee, or, (b) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. The board of directors, or at their direction any officer of the company, may direct a new certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors, or at their direction any officer of the company, may, in its (his) discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 3. TRANSFER. Upon surrender to the secretary or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and upon compliance with any provisions respecting restrictions on transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 4. ISSUE OF STOCK. From time to time, the board of directors may, by vote of a majority of the directors, issue any of the authorized capital stock of the corporation for cash, property, services rendered or expenses, or as a stock dividend and on any terms permitted by law. SECTION 5. FIXING RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. SECTION 6. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI. GENERAL PROVISIONS SECTION 1. DIVIDENDS. Dividends upon the capital stock of the corporation may be declared by the board of directors in any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 2. CHECKS. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be fixed by a resolution of the board of directors. SECTION 4. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VII. AMENDMENTS SECTION 1. AMENDMENTS. These by-laws may be amended at any proper meeting of the stockholders or of the board of directors. ARTICLE VIII. INDEMNIFICATION SECTION 1. NON-DERIVATIVE PROCEEDINGS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contenders or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had reasonable cause to believe that his conduct was unlawful. SECTION 2. DERIVATIVE PROCEEDINGS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. AMOUNT OF INDEMNIFICATION. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 or 2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 4. DETERMINATION TO INDEMNIFY. Any indemnification under Sections 1 or 2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in written opinion, or (3) by the stockholders. SECTION 5. ADVANCE PAYMENT. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of a director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section or otherwise pursuant to the law of Delaware. SECTION 6. NON-EXCLUSIVENESS OF BY-LAW. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. SECTION 7. CONTINUATION OF INDEMNIFICATION. The indemnification and advancement of expenses provided by, or granted pursuant to this Article VIII, or permitted by statute or otherwise, shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 8. INDEMNIFICATION INSURANCE. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. -----END PRIVACY-ENHANCED MESSAGE-----