-----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, Bfk0QHvEHUj1D+Cm/7E6kxdVnhPsjSiLWaMX2TEm0XU7bsO7gErCvq9PtLQW3Oic 1D4fsyMDCgXgG53Ss0VeAQ== 0001021408-02-001877.txt : 20020414 0001021408-02-001877.hdr.sgml : 20020414 ACCESSION NUMBER: 0001021408-02-001877 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011229 FILED AS OF DATE: 20020212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED CIRCUIT SYSTEMS INC CENTRAL INDEX KEY: 0000874689 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 232000174 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19299 FILM NUMBER: 02536339 BUSINESS ADDRESS: STREET 1: 2435 BLVD OF THE GENERALS CITY: NORRISTOWN STATE: PA ZIP: 19403 BUSINESS PHONE: 6106305300 MAIL ADDRESS: STREET 1: 2435 BLVD OF THE GENERALS CITY: NORRISTOWN STATE: PA ZIP: 19403 10-Q 1 d10q.txt FORM 10Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ Form 10-Q __________________ (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------ EXCHANGE ACT OF 1934 For the Quarter ended December 29, 2001 ___ 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: 0-19299 ________________________________ Integrated Circuit Systems, Inc. (Exact name of registrant as specified in its charter) Pennsylvania 23-2000174 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2435 Boulevard of the Generals Norristown, Pennsylvania 19403 (Address of principal executive offices) (610) 630-5300 (Registrant's telephone number including area code) ________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ----- As of February 7, 2002, there were 66,560,306 shares of Common Stock; $0.01 par value, outstanding. ================================================================================ 1 INTEGRATED CIRCUIT SYSTEMS, INC. -------------------------------- INDEX ----- Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets: December 29, 2001 (Unaudited) and June 30, 2001 3 Consolidated Statements of Operations (Unaudited): Three and Six Months Ended December 29, 2001 and December 30, 2000 4 Consolidated Statements of Cash Flows (Unaudited): Six Months Ended December 29, 2001 and December 30, 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About 15 Market Risk PART II. OTHER INFORMATION Item 4. Submission of matters to a vote of security holders Item 6. Exhibits and Reports on Form 8-K 2 Item 1. Consolidated Financial Statements INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
December 29, June 30, 2001 2001 --------------- --------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 87,868 $ 91,400 Marketable securities 27,253 3,000 Accounts receivable, net 22,502 27,359 Inventory, net 11,810 10,097 Deferred taxes 3,446 4,053 Prepaid income taxes 2,189 -- Prepaid assets 5,969 5,411 Current portion of deposit on purchase contracts -- 596 ---------- ---------- Total current assets 161,037 141,916 ---------- ---------- Property and equipment, net 10,246 11,215 Other assets 1,279 986 ---------- ---------- Total assets $ 172,562 $ 154,117 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term obligations $ 423 $ 429 Accounts payable 9,683 8,579 Accrued expenses and other current liabilities 3,450 3,566 Income tax payable -- 1,306 ---------- ---------- Total current liabilities 13,556 13,880 ---------- ---------- Long-term debt, less current portion 71 280 Other liabilities 954 904 ---------- ---------- Total liabilities 14,581 15,064 ---------- ---------- Shareholders' equity: Common stock, $0.01 par, authorized 300,000; Issued and outstanding 67,010 and 66,128 shares as of December 29, 2001 and June 30, 2001, respectively. 670 661 Additional paid in capital 218,290 211,524 Accumulated deficit (51,230) (70,229) Deferred compensation (2,194) (2,722) Notes receivable -- (181) Treasury stock, at cost, 655 shares (7,799) -- Other comprehensive income 244 -- ---------- ---------- Total shareholders' equity 157,981 139,053 ---------- ---------- Total liabilities and shareholders' equity $ 172,562 $ 154,117 ========== ==========
See accompanying notes to consolidated financial statements. 3
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands) (Unaudited) Three Months Ended Six Months Ended ------------------ ---------------- December 29, 2001 December 30, 2000 December 29, 2001 December 30, 2000 ----------------- ----------------- ----------------- ----------------- Revenue: $ 38,560 $ 56,484 $ 74,267 $ 107,835 Cost and expenses: Cost of sales 16,014 21,362 31,160 40,831 Research and development 5,846 7,503 12,494 14,643 Selling, general and administrative 5,526 4,301 9,974 10,418 Goodwill amortization -- 58 -- 117 ------------ -------------- ---------------- --------------- Operating income 11,174 23,260 20,639 41,826 ------------ -------------- ---------------- --------------- Interest and other income 666 865 1,591 1,466 Interest expense (23) (22) (45) (175) ------------ -------------- ---------------- --------------- Income before income taxes 11,817 24,103 22,185 43,117 Income taxes 1,683 5,221 3,186 8,684 ------------ -------------- ---------------- --------------- Net income $ 10,134 $ 18,882 $ 18,999 $ 34,433 ============ ============== ================ =============== Basic income per share: Net income $ 0.15 $ 0.29 $ 0.29 $ 0.53 Diluted income per share: Net income $ 0.15 $ 0.27 $ 0.27 $ 0.50 Weighted average share outstanding - basic 66,180 64,597 66,314 64,486 Weighted average share outstanding - diluted 69,535 69,404 69,796 69,451
See accompanying notes to consolidated financial statements. 4 INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Six Months Ended ---------------- December 29, December 30, 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 18,999 $ 34,433 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,578 2,583 Amortization of bond premiums 6 (4) Deferred financing charge 7 5 Amortization of deferred compensation 489 535 (Gain) loss on sale of assets (105) (1) Tax benefit of stock options 5,402 2,857 Deferred income taxes 710 (726) Changes in assets and liabilities: Accounts receivable 4,857 (6,671) Inventory (1,713) 192 Other assets, net (224) 567 Accounts payable, accrued expenses and other current liabilities 987 1,422 Income taxes (3,496) 8,858 ---------- ---------- Net cash provided by operating activities 28,497 44,050 ---------- ---------- Cash flows from investing activities: Purchase of marketable securities (38,019) -- Sales/maturities of marketable securities 14,062 -- Capital expenditures (1,621) (2,056) Refunds of deposits on purchase contracts -- 9,877 Other 192 49 ---------- ---------- Net cash (used in) provided by investing activities (25,386) 7,870 ---------- ---------- Cash flows from financing activities: Net repayments under line of credit agreement -- (10,000) Exercise of stock options 1,098 210 Shares purchased through stock purchase plan 314 351 Initial public offering expenses -- (194) Purchase of treasury stock (7,799) -- Repayments of long-term debt (256) (329) ---------- ---------- Net cash used in financing activities (6,643) (9,962) ---------- ---------- Net (decrease) increase in cash and cash equivalents (3,532) 41,958 Cash and cash equivalents: Beginning of period 91,400 28,940 ---------- ---------- End of period $ 87,868 $ 70,898 ========== ==========
See accompanying notes to consolidated financial statements. 5 INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) INTERIM ACCOUNTING POLICY The accompanying financial statements have not been audited. In the opinion of our management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly our financial position at December 29, 2001 and results of operations and cash flows for the interim periods presented. Certain items have been reclassified to conform to current period presentation. Certain footnote information has been condensed or omitted from these financial statements. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended June 30, 2001. Results of operations for the six months ended December 29, 2001 are not necessarily indicative of results to be expected for the full year. (2) CONSOLIDATION POLICY The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. (3) ACCOUNTING FOR GOODWILL Our adoption of Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Intangible Assets" eliminates the amortization of goodwill in our current quarter. Our goodwill amortization expense in the first six months of fiscal year 2001 totaled $117,000 pretax. Had we continued to amortize goodwill, our amortization expense in the first six months of fiscal year 2002 would have been $117,000 pretax. This transition had no impact on diluted EPS in either period. (4) INVENTORY Inventory is valued at the lower of cost or market. Cost is determined by the first in, first out (FIFO) method. The components of inventories are as follows (in thousands): December 29, June 30, 2001 2001 ------------ ------------ Work-in-process $ 6,240 $ 6,513 Finished parts 8,735 7,178 Less: Obsolescence reserve (3,165) (3,594) ------------ ------------ $ 11,810 $ 10,097 ============ ============ (5) DEBT In June 2000, we obtained a $30.0 million revolving credit facility with a commercial bank to expire in June 2002, with an option to extend the facility for an additional period subject to certain covenants, including maintenance of certain financial ratios. As of December 29, 2001, we had no outstanding balances under this agreement, and we were in compliance with the revolving credit facility covenants. Subsequent to quarter end, we terminated this credit facility and entered into a new facility as discussed below. In connection with the acquisition of Micro Networks, we entered into a new revolving credit and term loan facility dated December 31, 2001, which expire December 31, 2004. The new facility enables us to draw down $45.0 million under the term loan and $10.0 million under the revolving credit facility. At our option, the interest rates under the term loan will be either (1) a base rate, which is the higher of (i) a rate of interest announced from time to time by the lenders' 6 administrative agent as the base rate ("Base Rate") or (ii) the sum of 0.5% per annum plus the federal funds rate or (2) London Interbank Offer Rate ("LIBOR") plus 1.75%. At our option, the interest rates under the Revolving Credit Loan, will be either (1) the Base Rate or (2) the LIBOR Rate plus a pre-formulated margin. (6) CAPITAL STOCK In September 2001, we announced a stock repurchase program, which authorized the purchase, from time to time, of 2.0 million shares of our common stock on the market. As of December 29, 2001, we had purchased 655,000 shares for $7.8 million. (7) NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations", which supersedes Accounting Principles Board Opinion No. 16 ("APB No. 16"), "Business Combinations". The most significant changes made by SFAS No. 141 is the requirement of the usage of the purchase method of accounting for all business combinations initiated after June 30, 2001 and established specific criteria for the recognition of intangible assets separately from goodwill. We adopted this statement during the first quarter of fiscal year 2002. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which supercedes APB No. 17, "Intangible Assets". SFAS No. 142 provides guidance on accounting for goodwill and other intangible assets subsequent to acquisition. These provisions are effective for fiscal years beginning after December 15, 2001. We adopted this statement during the first quarter of fiscal year 2002. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies". SFAS No. 143 provides guidance on accounting for the retirement of tangible long-lived assets and the associated asset retirement costs. These provisions are effective for fiscal year beginning after June 15, 2002. We do not believe that adoption of this statement will have a material impact on our operating results. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 established a single accounting model for the disposition of long-lived assets by sale. These provisions are effective for fiscal years beginning after December 15, 2001. We do not believe that adoption of this statement will have a material impact on our operating results. (8) NET INCOME PER SHARE Basic net income per share is based on the weighted average number of common shares outstanding excluding contingently issuable or returnable shares that contingently convert into Common Stock upon certain events. Diluted net income per share is based on the weighted average number of common shares outstanding and diluted potential common shares outstanding. 7 The following table set forth the computation of net income (numerator) and shares (denominator) for earnings per share:
Three Months Ended Six Months Ended December 29, December 30, December 29, December 30, 2001 2000 2001 2000 ------------------------------------------------------------------ Numerator (in thousands): Net income $ 10,134 $ 18,882 $ 18,999 $ 34,433 ------------------------------------------------------------------ Denominator (in thousands): Weighted average shares outstanding used for basic income per share 66,180 64,597 66,314 64,486 Common stock options 3,355 4,807 3,482 4,965 ------------------------------------------------------------------ Weighted average shares outstanding used for diluted income per share 69,535 69,404 69,796 69,451 ==================================================================
(9) INCOME TAXES Our effective income tax rate was 14.4% for the first six months of fiscal year 2002 as compared to 20.1% in the prior year period. The effective tax rate for fiscal years 2002 and 2001 reflects the tax-exempt status of our Singapore operation, which has been given pioneer status, or exemption of taxes on non- passive income for five years. We do not currently calculate deferred taxes on our investment in our Singapore operations, as all undistributed earnings are permanently reinvested back into the Singapore facility. If we were to record deferred taxes on our investment, the amount would be a $30.5 million liability as of December 29, 2001. (10) COMPREHENSIVE INCOME Total comprehensive income represents net income plus the results of certain equity changes not reflected in the condensed consolidated and combined statements of operations. The components of accumulated other comprehensive income are shown below.
Three Months Ended Six Months Ended December 29, December 30, December 29, December 30, 2001 2000 2001 2000 ----------------------------------------------------------------------------- Net income $ 10,134 $ 18,882 $ 18,999 $ 34,433 ----------------------------------------------------------------------------- Other comprehensive income: Unrealized Gain on Investments 28 -- 243 --- ----------------------------------------------------------------------------- Total comprehensive income $ 10,162 $ 18,882 $ 19,242 $ 34,433 =============================================================================
(11) LEGAL PROCEEDINGS From time to time, various inquiries, potential claims and charges and litigation are made, asserted or commenced by or against us, principally arising from or related to contractual relations and possible patent infringement. We believe that any of these claims currently pending, individually and in the aggregate, have been adequately reserved and will not have any material adverse effect on our consolidated financial position or results of operations, although no assurance can be made in this regard. On or about March 28, 2001, Cypress Semiconductor Corporation, ("Cypress"), and International Microcircuits Inc. filed a suit against us in the U.S. District Court in Delaware, alleging that we infringed on three patents and induced others to infringe on them as well. Plaintiffs seek injunctive relief, unspecified damages and enhanced damages for willful 8 infringement. We denied the allegations and filed a counterclaim seeking to invalidate the patents. We filed a patent infringement lawsuit in the U.S. District Court, Northern District of California against Cypress, alleging that Cypress infringes upon one of our patents, and we seek injunctive relief and damages against Cypress. Cypress denied the allegations and filed a counterclaim seeking to invalidate our patent. On or about July 20, 2001, Cypress filed a complaint with the U.S. International Trade Commission, ("ITC"), to commence an investigation of us for patent infringement. A notice of investigation was issued, and we denied the allegations of Cypress in this ITC complaint. Litigation in the Delaware lawsuit about a patent that is subject of Cypress' ITC complaint is stayed, until the ITC's determination under the Cypress complaint becomes final. On or about November 5, 2001, we filed a complaint with the ITC to commence an investigation of Cypress for patent infringement. A notice of investigation was issued, and Cypress denied the allegations in our complaint. We will continue to vigorously pursue our rights and defenses in all litigation with Cypress. Although we believe that all the litigation will not have a material adverse effect on our results of operations and financial condition, no assurance can be made in this regard. (12) CUSTOMERS In fiscal year 2001, we entered into an Investment and Stock Trade Agreement (the "agreement") with Maxtek Technology Co. Ltd ("Maxtek"), a distributor in Taiwan. We advanced $4.0 million dollars as a prepayment for acquiring 4.0 million shares, or approximately 10%, of Maxtek. The agreement states that if Maxtek fails to successfully complete a public offering by December 5, 2005, we, at our sole option, have the right to demand immediate repurchase of all 4.0 million shares, at the original purchase price plus accrued annual interest (commercial rate set by the bank of China) during the said period. Maxtek is one of our distributors and represented approximately 18% of our sales for the first six months of fiscal year 2002, and 12% in the prior year period. Additionally, sales to Maxtech Corporation Limited ("Maxtech"), a company controlled by the primary shareholder of Maxtek, were 20% of our sales in the first six months of fiscal year 2002 and 8% in the prior year period. (13) SUBSEQUENT EVENTS On December 20, 2001, we announced that we signed a definitive agreement to acquire Micro Networks Corporation ("Micro Networks"), a leading supplier of precision timing devices for optical networking, wireless infrastructure and high-end network servers using surface acoustic wave (SAW) technology. Subsequent to quarter end, we announced our completion of the acquisition. This agreement provides for all outstanding equity interests of Micro Networks to be exchanged for $65.0 million in cash, net of certain adjustments including Micro Networks' severance and benefit plan payments, obligations arising upon a change of control and changes in Micro Networks' working capital since September 30, 2001, and an assumption of approximately $12.0 million of debt. The acquisition was funded through cash on hand as well as through term bank financing obtained subsequent to quarter end. On or about January 22, 2002, the presiding judge in the 2 ITC investigations involving Cypress and us ordered the investigations consolidated. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Except for the historical statements and discussions contained herein, statements contained in this Report on Form 10-Q constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as when we describe what we believe, expect or anticipate will occur, and other similar statements, you must remember that our expectations may not be correct. While we believe these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including, among other things: . Our dependence on continuous introduction of new products based on the latest technology . The intensely competitive semiconductor and personal computer component industries . The importance of frequency timing generator products to total revenue . Our dependence on the personal computer industry and third-party silicon wafer fabricators and assemblers of semiconductors . Risks associated with international business activities and acquisitions and integration of acquired companies or product lines . Our dependence on proprietary information and technology and on key personnel . Our product liability exposure and the potential unavailability of insurance . General economic conditions, including economic conditions related to the semiconductor and personal computer industries We do not guarantee that the transactions and events described in this Form 10-Q will happen as described or that they will happen at all. You should read this Form 10-Q completely and with the understanding that actual future results may be materially different from what we expect. We disclaim any intention or obligation to update these forward-looking statements, even though our situation will change in the future. Results of Operations The following table sets forth, for the periods indicated, the percentage relationship to revenue of certain cost, expense and income items. The table and the subsequent discussion should be read in conjunction with the financial statements and the notes thereto:
Three Months Ended Six Months Ended ------------------ ---------------- December December December December 29, 30, 29, 30, 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues 100.0% 100.0% 100.0% 100.0% Gross margin 58.5 62.2 58.1 62.1 Research and development 15.2 13.3 16.8 13.6 Selling, general and administrative 14.3 7.6 13.5 9.6 Goodwill amortization -- 0.1 -- 0.1 ---------- ---------- ---------- ---------- Operating income 29.0 41.2 27.8 38.8 ---------- ---------- ---------- ---------- Interest and other income 1.7 1.5 2.1 1.4 Interest expense (0.1) (0.0) (0.0) (0.2) ---------- ---------- ---------- ---------- Income before income taxes 30.6 42.7 29.9 40.0 Income taxes 4.3 9.3 4.3 8.1 ---------- ---------- ---------- ---------- Net income 26.3% 33.4% 25.6% 31.9% ========== ========== ========== ==========
10 SECOND QUARTER FISCAL YEAR 2002 AS COMPARED TO SECOND QUARTER FISCAL YEAR 2001 Revenue. Revenue decreased by $17.9 million to $38.6 million for the second quarter ended December 29, 2001 as compared to the prior year quarter. The 31.7% decrease is primarily due to macroeconomic factors, which affected overall revenue and was slightly offset by shipments to new end markets such as game machines and DDR memory modules. Although we have experienced stabilization in our average selling prices this quarter, the average selling price declined 21.1% from the prior year quarter, while the volume decrease 13.5%. Foreign revenue (which includes shipments of integrated circuits ("ICs") to foreign companies as well as offshore subsidiaries of US multinational companies) was 78.9% of total revenue for the second quarter of fiscal year 2002 as compared to 65.1% of total revenue in the prior year quarter. This increase is attributable to strong demand in the Asian PC market. While the percentage increase reflected growing sales to the Pacific Rim markets, certain of our international sales were to customers in the Pacific Rim, which in turn sold some of their products to North America, Europe and other non-Asian markets. Our sales are denominated in U.S. dollars and minimize foreign currency risk. Gross Margin. Cost of sales decreased $5.4 million to $16.0 million for the second quarter of fiscal year 2002, as compared to the prior year quarter. Cost of sales as a percentage of total revenue was 41.5% for the second quarter of fiscal year 2002 as compared to 37.8% in the prior year quarter. The overall decrease in margin is due to product mix as well as a general decline in average selling prices. Research and Development Expense. Research and development ("R&D") expense decreased $1.7 million to $5.8 million for the second quarter of fiscal year 2002 from $7.5 million in the prior year quarter. As a percentage of revenue, research and development increased to 15.2% in the second quarter of fiscal year 2002 as compared to 13.3% in the prior year period. Our continued emphasis on R&D includes greater spending in research and development for our silicon timing business. The decreased expense represented a greater percentage of revenue due to the significant decrease in sales during the second quarter of fiscal year 2002. Selling, General, Administrative and Other. Selling, general, administrative and other expense increased $1.1 million to $5.5 million for the second quarter of fiscal year 2002 as compared to the prior year quarter. As a percentage of total revenue, selling, general, administrative and other expenses increased to 14.3% in the second quarter of fiscal year 2002 as compared to 7.7% in the prior year period. Selling, general, administrative and other expense for the second quarter of fiscal year 2001 is net of $2.0 million in insurance proceeds received in relation to litigation. Excluding this event, selling, general, administrative and other expense has decreased by $0.9 million. Operating Income. In dollar terms, operating income was $11.2 million in the second quarter of fiscal year 2002 compared to $23.3 million in the second quarter of fiscal year 2001. Expressed as a percentage of revenue, operating income was 29.0% and 41.2% in the second quarter of fiscal year 2002 and the prior year period, respectively. Interest Expense. Interest expense was $23,000 in the second quarter of fiscal year 2002 and $22,000 in the second quarter of fiscal year 2001. Interest and Other Income. Interest and other income was $0.7 million for the quarter ended December 29, 2001 and $0.9 million in the prior year quarter. Although we have a greater cash balance available for investing, the overall decrease in federal rates over the past year has affected our investment income. Income Tax Expense. Our effective income tax rate was 14.2% for the second quarter of fiscal year 2002 as compared to 21.7% in the prior year period. The effective tax rate for fiscal years 2002 and 2001 reflects the tax-exempt status of our Singapore operation, which has been given pioneer status, or exemption of taxes on non-passive income for five years. The decrease in overall tax rate was directly attributable to increased revenue and income in our Singapore operations relative to our domestic operations. We do not currently calculate deferred taxes on our investment in our Singapore 11 operations, as all undistributed earnings are permanently reinvested back into the Singapore facility. If we were to record deferred taxes on our investment, the amount would be a $30.5 million liability as of December 29, 2001. SIX MONTHS ENDED DECEMBER 29, 2001 AS COMPARED TO SIX MONTHS ENDED DECEMBER 30, 2000 Revenue. Consolidated revenue for the first half of fiscal year 2002 decreased by $33.5 million to $74.3 million, compared to the corresponding prior year period. The 31.1% decrease is primarily due to macroeconomic factors, which affected overall revenue. Strength in the personal computer and gaming machines markets has offset some of this decrease. The average selling price declined 21.1%, while the volume decreased 12.7%. Foreign revenue (which includes shipments of integrated circuits ("ICs") to foreign companies as well as offshore subsidiaries of US multinational companies) was 78.6% of total revenue for the first six months of fiscal year 2002 as compared to 68.5% of total revenue in the prior year quarter. This increase is attributable to strong demand in the Asian PC market. While the percentage increase reflected growing sales to the Pacific Rim markets, certain of our international sales were to customers in the Pacific Rim, which in turn sold some of their products to North America, Europe and other non-Asian markets. Our sales are denominated in U.S. dollars and minimize foreign currency risk. Gross Margin. Cost of sales for the first half of fiscal year 2002 decreased $9.6 million to $31.2 million, compared to the corresponding prior year period. Cost of sales as a percentage of total revenue was 41.9% for the first six months of fiscal year 2002 as compared to 37.9% in the prior year period. The overall decrease in margin is due to product mix as well as a decline in average selling prices. Research and Development Expense. Research and development expense for the first half of fiscal year 2002 decreased $2.1 million to $12.5 million, compared to the corresponding prior year period. As a percentage of revenue, research and development increased to 16.8% in the first six months of fiscal year 2002 as compared to 13.6% in the prior year period. Our continued emphasis on R&D includes greater spending in research and development of our silicon timing business. The decreased expense represented a greater percentage of revenue due to the significant decrease in sales during the first six months of fiscal year 2002. Selling, General, Administrative and Other. Selling, general, administrative and other expense for the first half of fiscal year 2002 decreased by $0.5 million to $10.0 million, compared to the corresponding prior year period. As a percentage of total revenue, selling, general, administrative and other expenses increased to 13.5% in the first half of fiscal year 2002, compared to 9.7% in the prior year period. The increase is partly attributable to the inclusion in the selling, general, administrative and other expense for the first half of fiscal year 2001 of $2.0 million in insurance proceeds received in relation to litigation. Excluding this litigation related item, selling, general, administrative and other expense has decreased by $2.5 million. Operating Income. Operating income decreased by $21.2 million to $20.6 million, compared to the corresponding prior year period. Expressed as a percentage of revenue, operating income was 27.8% and 38.8% in the first six months of fiscal year 2002 and the prior year period, respectively. Interest Expense. Interest expense decreased by $0.1 million to $45,000, compared to the corresponding prior year period. Interest and Other Income. Interest and other income was $1.6 million in the first six months of fiscal year 2002 and $1.5 million in the prior year period. Although an increase in cash flows from operations has contributed to greater cash balance available for investing, reductions by the Federal Reserve over the past year have impacted rates available for investing. 12 Income Tax Expense. Our effective income tax rate for the first six months of fiscal year 2002 was 14.4% as compared to 20.1% in the corresponding prior year period. The effective tax rate for fiscal years 2002 and 2001 reflects the tax- exempt status of our Singapore operation, which has been given pioneer status, or exemption of taxes on non-passive income for five years. The decrease in overall tax rate was directly attributable to increased revenue and income in our Singapore operations relative to our domestic operations. We do not currently calculate deferred taxes on our investment in our Singapore operations, as all undistributed earnings are permanently reinvested back into the Singapore facility. If we were to record deferred taxes on our investment, the amount would be a $30.5 million liability as of December 29, 2001. INDUSTRY FACTORS Our strategy has been to develop new products and introduce them ahead of the competition in order to have them selected for design into products of leading OEMs. Our newer components, which include advanced motherboard frequency timing generator components, and silicon timing devices for digital consumer and communication applications, are examples of this strategy. However, there can be no assurance that we will continue to be successful in these efforts or that further competitive pressures would not have a material impact on revenue growth or profitability. We include customer released orders in our backlog, which may be canceled generally with 30 days advance notice without significant penalty to the customers. Accordingly, we believe that our backlog, at any time, should not be used as a measure of future revenues. The semiconductor, personal computer and communication industries, in which we participate, are generally characterized by rapid technological change, intense competitive pressure, and, as a result, products price erosion. Our operating results can be impacted significantly by the introduction of new products, new manufacturing technologies, rapid changes in the demand for products, decreases in the average selling price over the life of a product and our dependence on third-party wafer suppliers. Our operating results are subject to quarterly fluctuations as a result of a number of factors, including competitive pressures on selling prices, availability of wafer supply, fluctuation in yields, changes in the mix of products sold, the timing and success of new product introductions and the scheduling of orders by customers. We believe that our future quarterly operating results may also fluctuate as a result of Company-specific factors, including pricing pressures on our more mature FTG components as well as the competitive pressure, and acceptance of our newly introduced ICs, and market acceptance of our customers' products. Due to the effect of these factors on future operations, past performance may be a limited indicator in assessing potential future performance. LIQUIDITY AND CAPITAL RESOURCES At December 29, 2001, our principal sources of liquidity included cash and investments of $115.1 million as compared to of $94.4 million at June 30, 2001. Net cash provided by operating activities was $28.5 million in the first six months of fiscal year 2002, as compared to $44.1 million in the prior year period. This decrease is primarily attributable to the decrease in revenue. Our days sales outstanding decreased from 71 days as of the fourth quarter of fiscal year 2001 to 53 days in the second quarter of fiscal year 2002, while inventory turns increased from 5.2 times in fiscal year 2001 to 5.5 times in the second quarter of fiscal year 2002. Purchases for property and equipment were $1.6 million in the first six months of fiscal year 2002 as compared to $2.1 million in the prior year period. In September, we announced a repurchase program, which authorized the purchase, from time to time, of 2.0 million shares of our common stock on the market. As of December 29, 2001, we had purchased 655,000 shares for $7.8 million. In June 2000, we obtained a $30.0 million revolving credit facility with a commercial bank to expire in June 2002, with an option to extend the facility for an additional period subject to certain covenants, including maintenance of certain 13 financial ratios. As of December 29, 2001, we had no outstanding balances under this agreement, and we were in compliance with the revolving credit facility covenants. Subsequent to quarter end, we terminated this credit facility and entered into a new facility as discussed below. In connection with the acquisition of Micro Networks, we entered into a new revolving credit and term loan facility dated December 31, 2001, which expire December 31, 2004. The new facility enables us to draw down $45.0 million under the term loan and $10.0 million under the revolving credit facility. At our option, the interest rates under the term loan will be either (1) a base rate, which is the higher of (i) a rate of interest announced from time to time by the lenders' administrative agent as the base rate ("Base Rate") or (ii) the sum of 0.5% per annum plus the federal funds rate or (2) London Interbank Offer Rate ("LIBOR") plus 1.75%. At our option, the interest rates under the Revolving Credit Loan, will be either (1) the Base Rate or (2) the LIBOR Rate plus a pre- formulated margin. On December 20, 2001, we announced that we signed a definitive agreement to acquire Micro Networks Corporation ("Micro Networks"), a leading supplier of precision timing devices for optical networking, wireless infrastructure and high-end network servers using surface acoustic wave (SAW) technology. Subsequent to quarter end, we announced our completion of the acquisition. This agreement provides for all outstanding equity interests of Micro Networks to be exchanged for $65.0 million in cash, net of certain adjustments including Micro Networks' severance and benefit plan payments, obligations arising upon a change of control and changes in Micro Networks' working capital since September 30, 2001, and an assumption of approximately $12.0 million of debt. The acquisition was funded through cash on hand as well as through term bank financing obtained subsequent to quarter end. We believe that the funds on hand together with funds expected to be generated from our operations as well as borrowings under our bank revolving credit facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. Thereafter, we may need to raise additional funds in future periods to fund our operations and potential acquisitions if any. We may also consider conducting future equity or debt financings if we perceive an opportunity to access the capital markets on a favorable basis, within the next twelve months or thereafter. Any such additional financing, if needed, might not be available on reasonable terms or at all. Failure to raise capital when needed could seriously harm our business and results of operations. If additional funds were raised through the issuance of equity securities or convertible debt securities, the percentage of ownership of our shareholders would be reduced. Furthermore, such equity securities or convertible debt securities might have rights, preferences or privileges senior to our common stock. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations", which supersedes Accounting Principles Board Opinion No. 16 ("APB No. 16"), "Business Combinations". The most significant changes made by SFAS No. 141 is the requirement of the usage of the purchase method of accounting for all business combinations initiated after June 30, 2001 and established specific criteria for the recognition of intangible assets separately from goodwill. We adopted this statement during the first quarter of fiscal year 2002. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which supercedes APB No. 17, "Intangible Assets". SFAS No. 142 provides guidance on accounting for goodwill and other intangible assets subsequent to acquisition. These provisions are effective for fiscal years beginning after December 15, 2001. We adopted this statement during the first quarter of fiscal year 2002. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies". SFAS No. 143 provides guidance on accounting for the retirement of tangible long-lived assets and the associated asset retirement costs. These provisions are 14 effective for fiscal year beginning after June 15, 2002. We do not believe that adoption of this statement will have a material impact on our operating results. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 established a single accounting model for the disposition of long-lived assets by sale. These provisions are effective for fiscal years beginning after December 15, 2001. We do not believe that adoption of this statement will have a material impact on our operating results. Item 3. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Exposures Our sales are denominated in U.S. dollars, accordingly, we do not use forward exchange contracts to hedge exposures denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes. The effect of an immediate 10% change in exchange rates would not have a material impact on our future operating results or cash flows. Interest Rate Risk As of December 29, 2001 we did not have obligations under the bank credit and, therefore, we currently do not engage in interest rate hedging activities. 15 Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of stockholders held on October 30, 2001, the stockholders of the Company elected three directors of the Company. Mr. Henry I. Boreen, Mr. David Dominik and Mr. Prescott Ashe were elected to serve as directors at the meeting. The voting results were 55,474,783 shares in favor and 1,287,055 shares withheld for Mr. Boreen, 56,662,736 shares in favor and 99,102 shares withheld for Mr. Dominik and 56,660,536 shares in favor and 101,302 shares withheld for Mr. Ashe. 16 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description ------ ----------- 3.2 Amended and Restated By-laws of the Company (as amended effective August 3, 2001). (b) Reports on Form 8-K: None. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTEGRATED CIRCUIT SYSTEMS, INC. Date: February 12, 2002 By: /s/ Hock E Tan ----------------------------------------- Hock E. Tan President and Chief Executive Officer Date: February 12, 2002 By: /s/ Justine F. Lien ----------------------------------------- Justine F. Lien Vice President, Finance and Chief Financial Officer (Principal financial & accounting officer) 18 EX-3.2 3 dex32.txt AMENDMENT RESTATED BY-LAWS Exhibit 3.2 BY-LAWS OF INTEGRATED CIRCUIT SYSTEMS, INC. a Pennsylvania corporation (Adopted as of August 3, 2001) ARTICLE I - OFFICES Section 1. Registered Office. The registered office of Integrated Circuit ----------------- Systems, Inc. (the "Corporation") in the Commonwealth of Pennsylvania shall be located at 2435 Boulevard of the Generals, City of Valley Forge, County of Montgomery, Commonwealth of Pennsylvania. The name of the Corporation's registered agent at such address shall be Hock E. Tan. The registered office and/or registered agent of the Corporation may be changed from time to time by action of the Board of Directors. Section 2. Other Offices. The Corporation may also have offices at such ------------- other places, both within and without the Commonwealth of Pennsylvania, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II - MEETINGS OF STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders shall be -------------- held each year within 150 days after the close of the immediately preceding fiscal year of the Corporation or at such other time specified by the Board of Directors for the purpose of electing Directors and conducting such other proper business as may come before the annual meeting. At the annual meeting, stockholders shall elect directors and transact such other business as properly may be brought before the annual meeting pursuant to Section 11 of ARTICLE II hereof. Section 2. Special Meetings. Special meetings of the stockholders may ---------------- only be called in the manner provided in the Amended and Restated Articles of Incorporation. Section 3. Place of Meetings. The Board of Directors may designate any ----------------- place, either within or without the Commonwealth of Pennsylvania, as the place of meeting for any annual meeting or for any special meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive office of the Corporation. If for any reason any annual meeting shall not be held during any year, the business thereof may be transacted at any special meeting of the stockholders. Section 4. Notice. Whenever stockholders are required or permitted to ------ take action at a meeting, written or printed notice stating the place, date, time and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the Board of Directors, the chairman of the board, the president or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the Corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Stockholders List. The officer having charge of the stock ----------------- ledger of the Corporation shall make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 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 6. Quorum. The holders of a majority of the outstanding shares of ------ capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by the Business Corporation Law of the Commonwealth of Pennsylvania or by the Amended and Restated Articles of Incorporation. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. When a specified item of business requires a vote by a class or series (if the Corporation shall then have outstanding shares of more than one class or series) voting as a class or series, the holders of a majority of the shares of such class or series shall constitute a quorum (as to such class or series) for the transaction of such item of business. Section 7. Adjourned Meetings. When a meeting is adjourned to another ------------------ time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if 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 at the meeting. Section 8. Vote Required. When a quorum is present, the affirmative vote ------------- of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless (i) by express provisions of an applicable law or of the Amended and Restated Articles of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question, or (ii) the subject matter is the election of Directors, in which case Section 2 of ARTICLE III hereof shall govern and control the approval of such subject matter. Section 9. Voting Rights. Except as otherwise provided by the Business ------------- Corporation Law of the Commonwealth of Pennsylvania, the Amended and Restated Articles of Incorporation of the Corporation or any amendments thereto or these By-laws, every stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of capital stock held by such stockholder. Section 10. Proxies. Each stockholder entitled to vote at a meeting of ------- stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall -2- be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Any proxy is suspended when the person executing the proxy is present at a meeting of stockholders and elects to vote, except that when such proxy is coupled with an interest and the fact of the interest appears on the face of the proxy, the agent named in the proxy shall have all voting and other rights referred to in the proxy, notwithstanding the presence of the person executing the proxy. At each meeting of the stockholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the secretary or a person designated by the secretary, and no shares may be represented or voted under a proxy that has been found to be invalid or irregular. Section 11. Business Brought Before an Annual Meeting. At an annual ----------------------------------------- meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) brought before the meeting by or at the direction of the Board of Directors or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public announcement of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the annual meeting was mailed or such public announcement was made. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this section. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this section; if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. For purposes of this section, "public announcement" shall mean disclosure in a press release reported by Dow Jones News Service, Associated Press or a comparable national news service. Nothing in this section shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Section 12. Consent of Shareholders in Lieu of Meeting. The shareholders ------------------------------------------ of the Corporation may not take any action by written consent in lieu of a meeting and must take -3- any actions at a duly called annual or special meeting of shareholders, and the power of shareholders to consent in writing without a meeting is specifically denied. ARTICLE III - Directors Section 1. General Powers. The business and affairs of the Corporation -------------- shall be managed by or under the direction of the Board of Directors. In addition to such powers as are herein and in the Amended and Restated Articles of Incorporation expressly conferred upon it, the Board of Directors shall have and may exercise all the powers of the Corporation, subject to the provisions of the laws of Pennsylvania, the Amended and Restated Articles of Incorporation and these By-laws. Section 2. Number, Election and Term of Office. Subject to any rights of ----------------------------------- the holders of any series of Preferred Stock to elect additional Directors under specified circumstances, the number of Directors which shall constitute the Board of Directors shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the total number of Directors then in office. The Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of Directors; provided that, whenever the holders of any class or series of capital stock of the Corporation are entitled to elect one or more Directors pursuant to the provisions of the Amended and Restated Articles of Incorporation of the Corporation (including, but not limited to, for purposes of these By-laws, pursuant to any duly authorized certificate of designation), such Directors shall be elected by a plurality of the votes of such class or series present in person or represented by proxy at the meeting and entitled to vote in the election of such Directors. The Directors shall be elected and shall hold office only in the manner provided in the Amended and Restated Articles of Incorporation. Section 3. Removal and Resignation. No Director may be removed from ----------------------- office without cause and without the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of capital stock entitled to vote generally in the election of Directors voting together as a single class; provided, however, that if the holders of any class or series of capital stock are entitled by the provisions of the Amended and Restated Articles of Incorporation (it being understood that any references to the Amended and Restated Articles of Incorporation shall include any duly authorized certificate of designation) to elect one or more Directors, such Director or Directors so elected may be removed without cause only by the vote of the holders of a majority of the outstanding shares of that class or series entitled to vote. Any Director may resign at any time upon written notice to the Corporation. Section 4. Vacancies. Vacancies and newly created directorships resulting --------- from any increase in the total number of Directors may be filled only in the manner provided in the Amended and Restated Articles of Incorporation. Section 5. Nominations. ----------- (a) Only persons who are nominated in accordance with the procedures set forth in these By-laws shall be eligible to serve as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of -4- stockholders (i) by or at the direction of the Board of Directors or (ii) 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 generally in the election of Directors at the meeting and who shall have complied with the notice procedures set forth below in Section 5(b). (b) In order for a stockholder to nominate a person for election to the Board of Directors of the Corporation at a meeting of stockholders, such stockholder shall have delivered timely notice of such stockholder's intent to make such nomination in writing to the secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation (i) in the case of an annual meeting, not less than 60 nor more than 90 days 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 changed by more than 30 days from such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting was made, and (ii) in the case of a special meeting at which Directors are to be elected, not later than the close of business on the 10th day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting was made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election as a Director at such meeting all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the Corporation's books, of such stockholder and (B) the class and number of shares of the Corporation which are beneficially owned by such stockholder and also which are owned of record by such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf the nomination is made, (A) the name and address of such person and (B) the class and number of shares of the Corporation which are beneficially owned by such person. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. (c) No person shall be eligible to serve as a Director of the Corporation unless nominated in accordance with the procedures set forth in this section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this section, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. A stockholder seeking to nominate a person to serve as a Director must 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 section. Section 6. Annual Meetings. The annual meeting of the Board of Directors --------------- shall be held without other notice than this By-law immediately after, and at the same place as, the annual meeting of stockholders. -5- Section 7. Other Meetings and Notice. Regular meetings, other than the ------------------------- annual meeting, of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the Board of Directors. Special meetings of the Board of Directors may be called by the chairman of the board, the president (if the president is a Director) or, upon the written request of at least a majority of the Directors then in office, the secretary of the Corporation on at least 24 hours notice to each Director, either personally, by telephone, by mail or by telecopy. Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment. ------------------------------------------------------------ The Board of Directors shall elect, by the affirmative vote of a majority of the total number of Directors then in office, a chairman of the board, who shall preside at all meetings of the stockholders and Board of Directors at which he or she is present and shall have such powers and perform such duties as the Board of Directors may from time to time prescribe. If the chairman of the board is not present at a meeting of the stockholders or the Board of Directors, the president (if the president is a Director and is not also the chairman of the board) shall preside at such meeting, and, if the president is not present at such meeting, a majority of the Directors present at such meeting shall elect one of their members to so preside. A majority of the total number of Directors then in office shall constitute a quorum for the transaction of business. Unless by express provision of an applicable law, the Amended and Restated Articles of Incorporation or these By-laws a different vote is required, the vote of a majority of Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed ---------- by a majority of the total number of Directors then in office, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation, which to the extent provided in such resolution or these By- laws shall have, and may exercise, the powers of the Board of Directors in the management and affairs of the Corporation, except as otherwise limited by law. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 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 upon request. Section 10. Committee Rules. Each committee of the Board of Directors may --------------- fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. Unless otherwise provided in such a resolution, in the event that a member and that member's alternate, if alternates are designated by the Board of Directors, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. -6- Section 11. Communications Equipment. Members of the Board of Directors or ------------------------ any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear and speak with each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 12. Waiver of Notice and Presumption of Assent. Any member of the ------------------------------------------ Board of Directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. Section 13. Action by Written Consent. Unless otherwise restricted by the ------------------------- Amended and Restated Articles of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of such board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. ARTICLE IV - OFFICERS Section 1. Number. The officers of the Corporation shall be elected by ------ the Board of Directors and shall consist of a chairman of the board, a chief executive officer, a president, one or more vice-presidents, a secretary, a chief financial officer and such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person, except that neither the chief executive officer nor the president shall also hold the office of secretary. In its discretion, the Board of Directors may choose not to fill any office for any period as it may deem advisable, except that the offices of president and secretary shall be filled as expeditiously as possible. Section 2. Election and Term of Office. The officers of the Corporation --------------------------- shall be elected annually by the Board of Directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as convenient. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal. Any officer or agent elected by the Board of ------- Directors may be removed by the Board of Directors at its discretion, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. -7- Section 4. Vacancies. Any vacancy occurring in any office because of --------- death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors. Section 5. Compensation. Compensation of all executive officers shall be ------------ approved by the Board of Directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a Director of the Corporation; provided however, that compensation of all executive officers may be determined by a committee established for that purpose if so authorized by the unanimous vote of the Board of Directors. Section 6. Chairman of the Board. The chairman of the board shall preside --------------------- at all meetings of the stockholders and of the Board of Directors and shall have such other powers and perform such other duties as may be prescribed to him or her by the Board of Directors or provided in these By-laws. Section 7. Vice-Chairman of the Board. Whenever the chairman of the board -------------------------- in unable to serve, by reason of sickness, absence, or otherwise, the vice- chairman shall have the powers and perform the duties of the chairman of the board. The vice-chairman shall have such other powers and perform such other duties as may be prescribed by the chairman of the board, the board of directors or these By-laws. Section 8. Chief Executive Officer. The chief executive officer shall ----------------------- have the powers and perform the duties incident to that position. Subject to the powers of the Board of Directors and the chairman of the board, the chief executive officer shall be in the general and active charge of the entire business and affairs of the Corporation, and shall be its chief policy making officer. The chief executive officer shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or provided in these By-laws. The chief executive officer is authorized to 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 expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Whenever the president is unable to serve, by reason of sickness, absence or otherwise, the chief executive officer shall perform all the duties and responsibilities and exercise all the powers of the president. Section 9. The President. The president of the Corporation shall, subject ------------- to the powers of the Board of Directors, the chairman of the board and the chief executive officer, have general charge of the business, affairs and property of the Corporation, and control over its officers, agents and employees. The president shall see that all orders and resolutions of the Board of Directors are carried into effect. The president is authorized to 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 expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The president shall have such other powers and perform such other duties as may be prescribed by the chairman of the board, the chief executive officer, the Board of Directors or as may be provided in these By- laws. -8- Section 10. Vice-Presidents. The vice-president, or if there shall be --------------- more than one, the vice-presidents in the order determined by the Board of Directors or the chairman of the board, shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the Board of Directors, the chairman of the board, the chief executive officer, the president or these By-laws may, from time to time, prescribe. The vice-presidents may also be designated as executive vice- presidents or senior vice-presidents, as the Board of Directors may from time to time prescribe. Section 11. The Secretary and Assistant Secretaries. The secretary --------------------------------------- shall attend all meetings of the Board of Directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose or shall ensure that his or her designee attends each such meeting to act in such capacity. Under the chairman of the board's supervision, the secretary shall give, or cause to be given, all notices required to be given by these By-laws or by law; shall have such powers and perform such duties as the Board of Directors, the chairman of the board, the chief executive officer, the president or these By-laws may, from time to time, prescribe; and shall have custody of the corporate seal of the Corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The assistant secretary, or if there be more than one, any of the assistant secretaries, shall in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors, the chairman of the board, the chief executive officer, the president, or secretary may, from time to time, prescribe. Section 12. The Chief Financial Officer. The chief financial officer --------------------------- shall have the custody of the corporate funds and securities; shall keep full and accurate all books and accounts of the Corporation as shall be necessary or desirable in accordance with applicable law or generally accepted accounting principles; shall deposit all monies and other valuable effects in the name and to the credit of the Corporation as may be ordered by the chairman of the board or the Board of Directors; shall cause the funds of the Corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of the Corporation; shall have such powers and perform such duties as the Board of Directors, the chairman of the board, the chief executive officer, the president or these By-laws may, from time to time, prescribe. If required by the Board of Directors, the chief financial officer shall give the Corporation a bond (which shall be rendered every six years) in such sums and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of chief financial officer and for the restoration to the Corporation, in case of death, resignation, retirement or removal from office of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the chief financial officer belonging to the Corporation. Section 13. Other Officers, Assistant Officers and Agents. Officers, --------------------------------------------- assistant officers and agents, if any, other than those whose duties are provided for in these By-laws, shall -9- have such authority and perform such duties as may from time to time be prescribed by resolution of the Board of Directors. Section 14. Absence or Disability of Officers. In the case of the --------------------------------- absence or disability of any officer of the Corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the Board of Directors may by resolution delegate the powers and duties of such officer to any other officer or to any Director, or to any other person selected by it. ARTICLE V - CERTIFICATES OF STOCK Section 1. Form. Every holder of stock in the Corporation shall be ---- entitled to have a certificate, signed by, or in the name of the Corporation by the chairman of the board, the chief executive officer or the president and the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. If such a certificate is countersigned (i) by a transfer agent or an assistant transfer agent other than the Corporation or its employee or (ii) by a registrar, other than the Corporation or its employee, the signature of any such chairman of the board, chief executive officer, president, secretary or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the Corporation. Shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates and record the transaction on its books. The Board of Directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the Corporation. Section 2. Lost Certificates. The Board of Directors may direct a new ------------------ certificate or certificates to be issued in place of any certificate or certificates previously 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 Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the -10- Corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Fixing a Record Date for Stockholder Meetings. 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, 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 record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given. 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 4. Fixing a Record Date for Other Purposes. In order that the --------------------------------------- Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, 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, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 5. Registered Stockholders. Prior to the surrender to the ----------------------- Corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the Corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner. The Corporation 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. Section 6. Subscriptions for Stock. Unless otherwise provided for in ----------------------- the subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the Board of Directors. Any call made by the Board of Directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the Corporation may proceed to collect the amount due in the same manner as any debt due the Corporation. ARTICLE VI - INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS Section 1. Nature of Indemnity. Each person who was or is made a ------------------- party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer, of the -11- corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the corporation to the fullest extent which it is empowered to do so unless prohibited from doing so by the Business Corporation Law of the Commonwealth of Pennsylvania, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding) and such indemnification shall inure to the benefit of his heirs, executors and administrators; provided, however, that, except as provided in Section 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article VI shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corporation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 2. Procedure for Indemnification of Directors and Officers. ------------------------------------------------------- Any indemnification of a director or officer of the corporation under Section 1 of this Article VI or advance of expenses under Section 5 of this Article VI shall be made promptly, and in any event within thirty (30) days, upon the written request of the director or officer. If a determination by the corporation that the director or officer is entitled to indemnification pursuant to this Article VI is required, and the corporation fails to respond within sixty (60) days to a written request for indemnity, the corporation shall be deemed to have approved the request. If the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within thirty (30) days, the right to indemnification or advances as granted by this Article VI shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Business Corporation Law of the Commonwealth of Pennsylvania for the corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel or it stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Business Corporation Law of the Commonwealth of Pennsylvania, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. -12- Section 3. Article Not Exclusive. The rights to indemnification and the --------------------- payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 4. Insurance. The corporation may purchase and maintain insurance --------- on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary or agent of the corporation 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 or her and incurred by him or her in any such capacity, whether or not the corporation would have the power to indemnify such person against such liability under this Article VI. Section 5. Expenses. Expenses incurred by any person described in Section -------- 1 of this Article VI in defending a proceeding shall be paid by the corporation in advance of such proceeding's final disposition unless otherwise determined by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 6. Employees and Agents. Persons who are not covered by the -------------------- foregoing provisions of this Article VI and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. Section 7. Contract Rights. The provisions of this Article VI shall be --------------- deemed to be a contract right between the corporation and each director or officer who serves in any such capacity at any time while this Article VI and the relevant provisions of the Business Corporation Law of the Commonwealth of Pennsylvania or other applicable law are in effect, and any repeal or modification of this Article VI or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing. Section 8. Merger or Consolidation. For purposes of this Article VI, ----------------------- references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article VI with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. -13- ARTICLE VII - GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the --------- Corporation, subject to the provisions of the Amended and Restated Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, in accordance with applicable law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Amended and Restated Articles of Incorporation. 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 any other purpose and the Directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Checks, Drafts or Orders. All checks, drafts or other orders ------------------------ for the payment of money by or to the Corporation and all notes and other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner, as shall be determined by resolution of the Board of Directors or a duly authorized committee thereof. Section 3. Contracts. In addition to the powers otherwise granted to --------- officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any officer or officers, or any agent or agents, of the Corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 4. Loans. The Corporation may lend money to, or guarantee any ----- obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed ----------- by resolution of the Board of Directors. Section 6. Corporate Seal. The Board of Directors may provide a corporate -------------- seal which shall be in the form of a circle and shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Pennsylvania." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 7. Voting Securities Owned By Corporation. Voting securities in -------------------------------------- any other Corporation held by the Corporation shall be voted by the chief executive officer, the president or a vice-president, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon -14- some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 8. Inspection of Books and Records. The Board of Directors shall ------------------------------- have power from time to time to determine to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the Commonwealth of Pennsylvania, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the Corporation. Section 9. Section Headings. Section headings in these By-laws are for ---------------- convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provision of ----------------------- these By-laws is or becomes inconsistent with any provision of the Amended and Restated Articles of Incorporation, the Business Corporation Law of the Commonwealth of Pennsylvania or any other applicable law, the provision of these By-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. ARTICLE VIII - AMENDMENTS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, alter, amend, change, add to or repeal these By-laws by the affirmative vote of a majority of the total number of Directors then in office. Any alteration or repeal of these By-laws by the stockholders of the Corporation shall require the affirmative vote of a majority of the outstanding shares of the Corporation entitled to vote on such alteration or repeal; provided, however, that Section 11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VIII of these By-laws shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least two thirds (2/3) of the combined voting power of all of the then outstanding shares of the Corporation entitled to vote on such alteration or repeal unless such amendment shall be approved by a majority of the directors of the Corporation not affiliated or associated with any person or entity holding (or which has announced an intention to obtain) twenty percent (20%) or more of the voting power of the Corporation's outstanding capital stock (other than the Bain Group). -15- -----END PRIVACY-ENHANCED MESSAGE-----