<PAGE>
1
Index to Exhibits at Page 21
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0 - 1653
GENESEE CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF NEW YORK 16-0445920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
445 St. Paul Street, Rochester, New York 14605
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 546-1030
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 the date of this report, the Registrant had the following
shares of common stock outstanding:
Number of Shares
Class Outstanding
Class A Common Stock (voting), 209,885
par value $.50 per share
Class B Common Stock (non-voting), 1,410,312
par value $.50 per share
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2
GENESEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1999 and May 1, 1999
<TABLE>
<S> <C> <C>
UNAUDITED AUDITED
(Dollars in Thousands) July 31, 1999 May 1, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 3,550 $ 5,836
Marketable securities available for sale 7,905 7,964
Trade accounts receivable, less allowance for doubtful receivables
of $492 at July 31, 1999 and $478 at May 1, 1999 11,128 10,222
Inventories, at lower of cost (first-in, first-out) or market 16,657 16,414
Deferred income tax assets 397 397
Other current assets 784 751
--------- --------
Total current assets 40,421 41,584
Net property, plant and equipment 37,678 37,040
Investment in and notes receivable from unconsolidated real estate partnerships 5,351 5,343
Investments in direct financing and leveraged leases 28,121 28,285
Goodwill and other intangibles net of accumulated amortization of $2,085 at 27,972 28,280
July 31, 1999 and $1,747 at May 1, 1999
Other assets 3,430 3,421
========= ========
Total assets 142,973 143,953
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit 3,000 3,000
Notes payable, current portion 82 82
Accounts payable 7,119 8,421
Income taxes payable 1,211 1,215
Federal and state beer taxes payable 1,520 1,354
Accrued compensation 2,625 3,505
Accrued postretirement benefits, current portion 731 731
Accrued expenses and other 4,897 5,374
--------- --------
Total current liabilities 21,185 23,682
Notes payable, noncurrent portion 6,205 4,679
Deferred income tax liabilities 8,176 8,251
Accrued postretirement benefits, noncurrent portion 15,332 15,332
Other liabilities 591 493
--------- --------
Total liabilities 51,489 52,437
Minority interests in consolidated subsidiaries 2,582 2,479
Shareholders' equity:
Class A common stock 105 105
Class B common stock 753 753
Additional paid-in capital 5,847 5,856
Retained earnings 85,651 85,692
Accumulated other comprehensive (loss)/income (53) 77
Less: Class B treasury stock, at cost 3,401 3,446
--------- --------
--------- --------
Total shareholders' equity 88,902 89,037
--------- --------
Total liabilities and shareholders' equity $ 142,973 $ 143,953
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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3
GENESEE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF EARNINGS AND COMPREHENSIVE INCOME
Thirteen Weeks Ended July 31, 1999 and August 1, 1998
(Dollars in Thousands,
Except Per Share Data)
<TABLE>
<S> <C> <C>
UNAUDITED
1999 1998
Revenues $ 46,935 $ 48,595
Federal and state beer taxes 7,833 9,204
----------- -----------
Net revenues 39,102 39,391
Cost of goods sold 29,725 29,709
----------- -----------
Gross profit 9,377 9,682
Selling, general and administrative expenses 8,381 9,088
----------- -----------
Operating income 996 594
Investment income 272 1,199
Other income 83 166
Interest expense (142) -
Interest of minority partners in earnings of
subsidiaries (235) (197)
----------- -----------
Earnings before income taxes 974 1,762
Income taxes 448 630
----------- -----------
Net earnings 526 1,132
Other comprehensive income, net of income taxes:
Unrealized holding losses arising during the period (130) (562)
----------- -----------
Comprehensive income 396 570
=========== ===========
Basic and Diluted earnings per share 0.32 0.70
Weighted average common shares outstanding 1,619,461 1,618,444
Weighted average and common equivalent shares 1,619,461 1,619,350
See accompanying notes to consolidated financial statements.
Weighted average shares outstanding for the quarter 1,619,461 1,618,444
Net earnings per weighted average shares $ 0.325 $ 0.699
</TABLE>
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4
GENESEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen Weeks Ended July 31, 1999 and August 1, 1998
<TABLE>
<S> <C> <C>
UNAUDITED
(Dollars in thousands) 1999 1998
Cash flows from operating activities:
Net earnings $ 526 $ 1,132
Adjustments to reconcile net earnings to net
cash (used in)/provided by operating activities:
Depreciation and amortization 1,660 1,590
Other 394 251
Changes in non-cash assets and liabilities:
Trade accounts receivable (920) (1,461)
Inventories (243) (663)
Other assets (42) (417)
Accounts payable (1,302) (556)
Accrued expenses and other (1,357) 411
Income taxes payable (4) 456
Federal and state beer taxes 166 (31)
Other liabilities 98 (59)
------------------------------------------------------------------------------
Net cash (used in)/provided by operating activities (1,024) 653
------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,097) (1,006)
Proceeds from sale of marketable securities 1,313 9,304
Purchases of marketable securities and other investments (1,461) (447)
Investments in and advances to unconsolidated
real estate investments, net of distributions (8) 40
Net investment in direct financing and leveraged leases 164 522
Withdrawals by minority interest (132) (214)
------------------------------------------------------------------------------
Net cash (used in)/provided by investing activities (2,221) 8,199
------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from acquisition of debt 1,546 -
Principal payments on debt (20) -
Payment of dividends (567) (567)
------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 959 (567)
------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (2,286) 8,285
Cash and cash equivalents at beginning of the period 5,836 2,692
====================================================================================
Cash and cash equivalents at end of the period $ 3,550 $ 10,977
====================================================================================
</TABLE>
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5
GENESEE CORPORATION
Notes to Consolidated Financial Statements
NOTE (A) The Corporation's consolidated financial statements enclosed herein are
unaudited with the exception of the Consolidated Balance Sheet at May 1,
1999 and, because of the seasonal nature of the business and the varying
schedule of its special sales efforts, these results are not necessarily
indicative of the results to be expected for the entire year. In the
opinion of management, the interim financial statements reflect all
adjustments, consisting of only normal recurring items, which are necessary
for a fair presentation of the results for the periods presented. The
accompanying financial statements have been prepared in accordance with
GAAP and SEC guidelines applicable to interim financial information. These
statements should be reviewed in conjunction with the annual report to
shareholders for the year ended May 1, 1999.
NOTE (B) Inventories are summarized as follows:
<TABLE>
<S> <C> <C>
Dollars in thousands
July 31, 1999 May 1, 1999
Finished goods $ 5,841 $ 6,292
Goods in process 1,678 1,445
Raw materials, containers and packaging supplies 9,138 8,677
Total inventories $ 16,657 $ 16,414
</TABLE>
NOTE (C) The Corporation's consolidated balance sheet includes a mortgage
payable with a remaining principal amount due of $4.7 million,
collateralized by certain land, buildings and equipment. The mortgage
payable bears interest at a fixed rate of 6.49% per annum and requires
payments of principal and interest through 2008. The maturities of the
mortgage payable for each fiscal year through the year ending May 1, 2004
are, respectively, $82,000, $88,000, $93,000, $100,000 and $106,000.
In addition, the Corporation has a $10 million line of credit, which bears
interest at LIBOR plus 70 basis points for an effective rate of 5.95% in
effect through September 27, 1999. This line of credit expires in April
2000. At July 31, 1999, $7 million was available for use under this
instrument.
In addition, the Corporation has a $1.7 million term note payable, which
bears interest at LIBOR plus 100 basis points for an effective rate of
6.25%. Maturity of this note is eight years from draw down of funds. At
July 31, 1999, $154,000 was available for use under this instrument.
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6
GENESEE CORPORATION
Notes to Consolidated Financial Statements
NOTE (D) On August 31, 1999 the Corporation announced employment reductions at
its Genesee Brewing Company subsidiary. Approximately fifty positions from
its total workforce of 520 employees will be eliminated. These reductions,
plus twenty-seven positions already eliminated through attrition since the
beginning of fiscal 2000, are expected to reduce payroll expense by
approximately $5 million annually. The Corporation expects to record a
restructuring charge of approximately $1.7 million in its second fiscal
quarter ending October 30, 1999 to cover estimated expenses associated with
the workforce reduction.
NOTE (E) Segment Reporting
The Corporation has four reportable segments: brewing, food processing,
leasing and real estate, and corporate. The brewing segment produces beers
and ales for wholesale and retail distribution throughout the United
States, primarily in the northeast region of the country. The food
processing segment produces dry side dish, bouillon, soup, drink mix and
instant iced tea products under private label for many of the country's
largest supermarket chains. The leasing and real estate segment leases
construction, transportation, and other high-value equipment and machinery,
and partners with experienced real estate developers to invest in certain
properties. The corporate segment retains the Corporation's investments in
marketable securities generating investment income as well as supporting
corporate costs.
The Corporation evaluates performance based on operating income or loss and
earnings before income taxes.
Intersegment sales and transfers are not material and are eliminated in
consolidation. No single customer accounted for more than 10% of revenues
and the Corporation's international revenues are not significant.
The Corporation's reportable segments, other than corporate, are strategic
business units that offer different products and services. They are managed
separately because each business requires different technology and
marketing strategies.
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7
GENESEE CORPORATION
Notes to Consolidated Financial Statements
NOTE (E) Segment Reporting (continued)
Financial information for the Corporation's reportable segments is as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
Leasing
Food And
For the thirteen Brewing Processing Real Estate Corporate Eliminations Consolidated
week period
Ended July 31, 1999
----------------------------------------------------------------------------------------------------------------------------
Net revenues from external
customers $ 28,420 $ 9,918 $ 764 $ - $ - $ 39,102
Depreciation and
amortization 961 699 - - - 1,660
Operating
income/(loss) 746 (325) 751 (176) - 996
Investment income 35 - 76 577 (416) 272
Earnings/(loss)
before income taxes 800 (783) 778 974 (795) 974
Identifiable assets 50,198 55,139 36,022 1,614 - 142,973
Capital expenditures 36 2,061 - - - 2,097
---------------------------------------------------------------------------------------------------------------------------
For the thirteen
week period
Ended August 1, 1998
---------------------------------------------------------------------------------------------------------------------------
Net revenues from external
customers $ 32,382 $ 6,207 $ 802 $ - $ - $ 39,391
Depreciation and
amortization 1,305 285 - - - 1,590
Operating
income/(loss) 473 (265) 787 (401) - 594
Investment income 23 - 83 1,578 (485) 1,199
Earnings/(loss)
before income taxes 620 (328) 503 1,762 (795) 1,762
Identifiable assets 56,249 24,998 43,331 10,928 - 135,506
Capital expenditures 913 93 - - - 1,006
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
</TABLE>
NOTE (F) Supplemental Cash Flow Information
Cash paid for taxes was $451,000 and $174,000 for the thirteen week period
ended July 31, 1999 and August 31, 1998, respectively; cash paid for
interest was $142,000 and $0 for the thirteen week period ended July 31,
1999 and August 1, 1998, respectively.
<PAGE>
8
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison of 13 weeks ended July 31, 1999 to 13 weeks ended August 1, 1998
Consolidated net revenues for the thirteen weeks ended July 31, 1999 were
$39.1 million, a decrease of $289,000 from consolidated net revenues reported
for the same period last year. The lower revenues were due to lower sales volume
at Genesee Brewing Company, which were partially offset by increased sales by
the Corporation's Foods Division.
On a consolidated basis, the Corporation reported an operating profit of
$996,000, which was a $402,000 improvement from the same period last year. The
improvement in operating performance was primarily due to reduced selling,
general and administrative expenses at Genesee Brewing Company.
Earnings before income taxes were $974,000, which was $788,000 less than
the same period last year. The lower earnings were the result of $883,000 of
capital gains that were recorded in the first quarter of fiscal 1999 when the
corporation sold marketable securities in order to finance the acquisitions of
TKI Foods, Inc. and Spectrum Foods, Inc.
On a consolidated basis, the Corporation reported net earnings of $526,000,
or $.32 basic and diluted earnings per share, in the first quarter this year,
compared to a net earnings of $1.1 million, or $.70 basic and diluted earnings
per share, for the same period last year.
Genesee Brewing Company
Genesee Brewing Company's net sales in the first quarter were $28.4
million, a decrease of $4.0 million from last year's first quarter net sales of
$32.4 million. Barrel sales for the first quarter this year were down 8.8% from
the prior year period due to an 8.9% decrease in Genesee Brewing Company's core
brands and a 25.5% decrease in the HighFalls brands. The decline in core and
HighFalls brand volume was partially offset by a 33.1% increase in volume under
the production contract with Boston Beer Company.
Within the Genesee core brands, higher-margin returnable glass packages,
draft packages and 24-can packages showed the largest volume declines. These
declines were partially offset by higher unit sales of lower margin,
value-priced 30 and 36 can "Multipaks".
The decline in HighFalls volume, which represents 21% of total barrel
volume, was primarily the result of decreased Honey Brown Lager sales. The
Company believes that the decline in Honey Brown Lager sales is the result of
the overall slowdown of the specialty category, due in part to the growing
popularity of imported beers, and the volatility of specialty brand loyalty.
Specialty brand consumers have shown a tendency to switch brand loyalty more
readily. Genesee Brewing Company recently extended its High Falls specialty
brand line with the introduction in July 1999 of Dundee's Classic Lager.
The increase in contract brewing volume in the first quarter was due to the
production of a new package configuration for Boston Beer Company that commenced
in December 1998.
<PAGE>
9
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Genesee Brewing Company's gross profit decreased $791,000 to $7.6 million
in the first quarter of fiscal 2000, compared to $8.4 million in the first
quarter of fiscal 1999. The negative volume trends for both the Genesee core
brands and the HighFalls specialty brands, the shift in product mix towards
lower margin Multipak can packages and the shift in mix towards lower margin
contract business contributed to the decline in gross profit in the first
quarter this year.
Selling, general and administrative expenses were down $1.1 million in the
first quarter of fiscal 2000 compared to the same period last year. This
decrease is primarily the result of planned reductions in sales and promotional
budgets.
Genesee Brewing Company's first quarter operating profit was $746,000, a
$273,000 increase over the first quarter of the prior year. This improvement was
primarily due to lower selling, general and administrative spending this fiscal
year versus last.
The beer industry in the United States continues to be highly competitive.
The industry is dominated by Anheuser Busch, Inc., Miller Brewing Company and
Coors Brewing Company, which together account for more than 80% of domestic
production. In comparison, malt beverages produced by Genesee Brewing Company
represent less than 1% of annual domestic production. In recent years, per
capita consumption of malt beverages in the United States has declined and total
consumption has grown very little. However, consumption of domestically produced
malt beverages has remained basically flat during this period, with the increase
in overall consumption coming largely from the increasing popularity of imported
malt beverages.
During the past ten years, demand for many established domestic brands has
declined as consumers have increasingly turned to certain nationally advertised
light beer brands, imported malt beverages and domestic specialty beers.
However, growth of the domestic specialty beer segment of the industry began to
slow down in 1997 and the segment has seen little or no growth during the past
eighteen months.
As a result of these trends and the excess capacity that exists in the
industry, brewers are attempting to gain market share through reduced pricing,
intensive marketing and promotional programs and innovative packaging. The
industry has seen increased levels of price discounting and price promotions and
a growth in popularity of value priced 30 and 36 can Multipaks. This intensely
competitive environment has prevented Genesee Brewing Company from implementing
any meaningful price increases during the past several years, which has had an
adverse impact on Genesee Brewing Company's overall profitability.
<PAGE>
10
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The competitive position of smaller brewers like Genesee Brewing Company
has also been adversely affected by the consolidation that is occurring within
the distribution tier of the brewing industry. The effects of this consolidation
have been aggravated by the aggressive efforts of the large national brewers to
ensure that an increasing share of the distributor's time and attention is
devoted to their brands. During the past several years, the large national
brewers have utilized a variety of inducements, incentives and contractual terms
to cause their distributors to make a greater commitment to their brands,
largely at the expense of the brands of smaller brewers, like Genesee, that are
also sold by these distributors. These developments have made it increasingly
difficult for Genesee Brewing Company to effectively promote and sell its brands
in its core markets and to expand sales of its products in new or lower share
markets.
The competitive conditions in the brewing industry that are impacting the
performance of Genesee Brewing Company are not expected to abate materially in
the near term.
In response to these conditions, Genesee Brewing Company reduced its Fiscal
2000 sales and marketing budgets and on August 31, 1999 announced a work force
reduction of fifty positions which, coupled with the twenty-seven positions
already eliminated through attrition during fiscal 2000, is expected to reduce
annual payroll expense by approximately $5.0 million. In addition, Genesee
Brewing Company has postponed plans to expand distribution into additional
states and is proceeding more slowly with plans to add new brands to its product
line. Genesee Brewing Company is focusing its resources on stabilizing sales and
improving trends for its current brand portfolio in existing markets.
The challenges facing Genesee Brewing Company have caused the Corporation
to consider strategic alternatives to maximize the value of the Corporation's
brewing business. Management is exploring further opportunities to reduce costs,
improve efficiencies and rationalize the Corporation's brewing business. Genesee
Brewing Company is also seeking to attract additional contract brewing volume.
The Corporation is also exploring long-term strategic alternatives for its
brewing business, including the possible divestiture of the business,
acknowledging that the brewing industry has undergone fundamental change during
the past ten years and is now dominated by large, global players whose resources
dwarf those of regional brewers like Genesee Brewing Company.
Foods Division
Net sales for the Foods Division were $9.9 million in the first quarter of
fiscal 2000, compared to $6.2 million for the first quarter last year. The
increase in net sales was primarily attributable to $4.2 million in first
quarter sales of artificial sweeteners and other private label food products of
TKI Foods, Inc. and Spectrum Foods, Inc., which were acquired by the Corporation
during the second quarter of fiscal 1999.
<PAGE>
11
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Partially offsetting the increase in net sales was lower than expected
sales of iced tea mix and side dishes. Although summer is typically a slow time
of the year for side dishes, sales continue to be adversely affected by heavy
promotional activity by the major branded side dish producer. This promotional
pricing has reduced the price spread between the branded side dish line and the
Foods Division's private label side dishes, making the private label product
less attractive to consumers. In addition, another major branded food producer
recently introduced a new line of side dish products that will compete with both
the existing brand leader and the Foods Division's private label side dish line.
This new side dish brand is being introduced with heavy promotional support and
is expected to increase the competitive pressure on the Foods Division's private
label business. Revenues and profit margins from iced tea mix sales declined,
largely as a result of previously reported efforts by a large Canadian sugar
refiner to displace the Foods Division's private label iced tea mix in key chain
accounts. Although the Foods Division has not lost any key accounts, it had to
reduce iced tea pricing to retain them. In addition, the overall decline of this
mature category resulted in lower unit sales in the first quarter. The
challenges facing the Foods Division's iced tea and side dish business are
normal competitive pressures that affect products in the mature stage of their
life cycle.
The addition of bouillon and artificial sweeteners to the Foods Division's
product line has helped to offset lower iced tea mix and side dish sales.
However, the Foods Division's sweetener business faces a potential competitive
threat from the decision by the major producer of branded artificial sweeteners
to introduce a line of private label artificial sweeteners, targeting many of
the Foods Division's key chain accounts. The Foods Division reduced its
sweetener prices to counter this potential threat, which is expected to reduce
revenues and profit margins from the sweetener business. It is not clear what
long term impact this new private label sweetener line will have on the Foods
Division's sweetener business because the producer recently announced that it is
seeking buyers for its sweetener business, which could interfere with efforts to
displace the Foods Division from key accounts.
Gross profit for the Foods Division increased $526,000 to $1.0 million in
the first quarter of fiscal 2000, compared to $491,000 for the first quarter
last year. The increase in gross profit was attributable to the acquisition of
TKI Foods and Spectrum Foods. Partially offsetting the increase in gross profit
from TKI Foods and Spectrum Foods was $250,000 of expenses incurred by the Foods
Division in transitioning production to the Medina, New York facility that the
Foods Division acquired in October 1998. The consolidation of all operations at
a single location, which is scheduled to be completed during fiscal 2000, is
expected to generate significant cost savings for the Foods Division going
forward.
Selling, general and administrative expenses increased $586,000 in the
first quarter of fiscal 2000 compared to the same period last year. This
increase is primarily the result of additional costs incurred in connection with
to the acquisition of TKI Foods and Spectrum Foods.
The Foods Division recorded an operating loss of $325,000 in the first
quarter of fiscal 2000, which was $60,000 more than the operating loss reported
in the first quarter last year.
<PAGE>
12
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Genesee Ventures
Genesee Ventures, Inc., the Corporation's equipment leasing and real estate
investment subsidiary, reported operating income of $751,000 for the first
quarter of fiscal 2000, compared to $787,000 for the first quarter of fiscal
1999. The lower operating income was primarily due to a decrease in equipment
lease revenue.
In August 1999, the Corporation approved a plan to wind down its equipment
leasing business in light of changes in many of the factors that influenced the
Corporation's decision to invest in equipment leasing, including changes in the
Corporation's capital requirements, changes in the competitive conditions in the
equipment leasing business, a reduction in the tax advantages generated by
Cheyenne Leasing Company as a result of lower operating income from the
Corporation's brewing business, and a decision by the Corporation's co-venturer
in Cheyenne Leasing Company to phase out its involvement in the equipment
leasing business.
Under the wind down plan, Cheyenne Leasing Company will not fund any new
leases after December 31, 1999 and will then manage its existing lease portfolio
to maximize lease revenues and residual income. Based on current projections,
Cheyenne Leasing Company's operating income is expected to remain fairly steady
in the current fiscal year, but will then decline as the remaining leases in
Cheyenne's portfolio mature.
Genesee Ventures, Inc. earnings before taxes increased $275,000 to $778,000
as compared to $503,000 for the same period last year. The increase in earnings
was primarily due to $195,000 held in escrow that was earned and received in the
first quarter of fiscal 2000 associated with the sale in the third quarter of
fiscal 1999 of Genesee Ventures' investment in Lloyd's Food Products, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $3.6 million at July 31, 1999 and $5.8
million at May 1, 1999. The decline in cash and cash equivalents was primarily
the result of a $1.3 million decrease in accounts payable and a $880,000
decrease in accrued compensation. The decrease in accounts payable was due to
timing of payments and the decrease in accrued compensation was due to severance
payments made to employees at the Foods Division's Springfield, Illinois
facility.
Trade accounts receivable balances were $906,000 higher than the balances
reported at May 1, 1999. The increase in accounts receivable is a result of the
seasonality of the brewing business with increased customer transactions
occurring during the summer months.
Net property, plant and equipment balances were $638,000 higher at July 31,
1999 than May 1, 1999. The increase in net property, plant and equipment is
primarily related to the significant capital
<PAGE>
13
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
expenditures made by the Foods Division for improvements at its Medina, New York
facility. These significant capital expenditures are offset by a decrease in net
property, plant and equipment of the Genesee Brewing Company.
Current liabilities were $2.5 million lower at July 31, 1999 compared to
May 1, 1999. This decrease is made up of $1.3 million less in accounts payable
due to timing and $880,000 less in accrued compensation. The Foods Division had
$877,000 in accrued compensation at fiscal 1999 year end pertaining to the
closing of the plant in Springfield, Illinois which was paid out in the first
quarter of fiscal 2000.
Notes payable increased $1.5 million due to the draw down of funds on a
multiple disbursement term note, which is being used for renovation of the
Corporations new production facility in Medina, NY.
The Corporation has had a strategy to search for and develop acquisition
opportunities that will contribute to the future growth of its Foods Division.
The Corporation is re-evaluating its capital resources relative to its brewing,
foods and equipment leasing businesses. The Corporation expects that it will
fund its future capital needs and any future acquisitions by its Foods Division
with a combination of debt and internally generated funds.
Genesee Brewing Company is working on changes to operating procedures,
changes in chemicals and modifications or upgrades of equipment used to store
and handle chemicals used to clean and sanitize brewing equipment, kegs and
refillable bottles (the "System") to achieve compliance with New York chemical
bulk storage regulations that will take effect in December 1999 (the
"Regulations"). The cost to achieve compliance with the Regulations by modifying
and upgrading the existing System was originally estimated to be up to $1.9
million. In January 1999, Genesee Brewing Company received regulatory approval
of a new operating procedure that will exempt a portion of the System from the
Regulations. This exemption should eliminate approximately $500,000 of the
estimated cost to achieve compliance with the Regulations. Genesee Brewing
Company is exploring further changes to the System, its operating procedures and
the chemicals used within the System to further reduce the cost to achieve
compliance with, or to exempt the System from coverage under, the Regulations.
It is anticipated that the cost of any System upgrades and modifications will be
funded internally and depreciated over their useful life.
In connection with the decision to review strategic alternatives for the
Corporation's brewing business and the wind down of its equipment leasing
business the Corporation is evaluating its projected cash flows, capital
resources and liquidity requirements. As part of this assessment, the
Corporation's Board of Directors is reviewing the Corporation's dividend policy
to determine whether shareholder value would be enhanced by a change in the
Corporation's current policy of regular and special dividend payments.
<PAGE>
14
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000
General
The Corporation has formed a task force made up of senior managers that is
directing a project to address potential problems that could affect the business
operations and financial condition of the Corporation and its subsidiaries as a
result of the year 2000 issue. The year 2000 issue is the result of computer
hardware and software systems and other equipment with embedded chips or
processors that use only two digits to represent the year. As the year 2000
approaches, time-sensitive software may recognize a date using '00 ' as the year
1900 rather than 2000. These systems may fail to operate or be unable to process
data accurately as a result of this flaw. The year 2000 issue could arise at any
point in the supply chain, manufacturing process, distribution channels or
information systems of the Corporation, its subsidiaries and third parties with
which it does business.
The actions that are included in the Corporation 's Year 2000 project
include identification of critical and non-critical systems, determining
appropriate remediation measures, assigning responsibility and scheduling of
planned remediation, documentation and certification of task completion,
assessing third party relationships for compliance, cost estimation and
monitoring, and contingency planning for the Corporation and each of its
subsidiaries.
State of Readiness
The task force has identified critical and non-critical information and
other technology systems at its Genesee Brewing Company subsidiary, its Foods
Division and its equipment leasing and real estate investment businesses. In
November 1998, the Corporation implemented a major hardware and software upgrade
to bring the software and hardware for its primary manufacturing, information
and financial consolidation system (the "MIS System") into year 2000 compliance.
Each component of the MIS System is warranted by the applicable vendor to be
year 2000 compliant. Programming to resolve minor issues relating to the
operation of this new system has been completed and all functional components of
the system are fully operational. Testing of the MIS system to simulate
operations in the year 2000 was recently completed and the system did not
experience any significant year 2000 malfunctions.
The task force has identified critical third party relationships for each
of its businesses. The Corporation's partner in Cheyenne Leasing Company has
provided assurances that its internal systems for administering the equipment
leasing business are year 2000 ready. The Corporation has determined that
<PAGE>
15
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
there are no other third parties whose failure to achieve year 2000 readiness
would materially impact its equipment leasing business. The Corporation has
determined that its real estate investments are not dependent on any third
parties whose failure to achieve year 2000 readiness would materially impact
those investments.
During the second quarter of fiscal 1999, Genesee Brewing Company contacted
all customers, mission critical vendors and other material third parties to
assess the extent of their year 2000 readiness. All 75 critical vendors of
Genesee Brewing Company have responded that they are in the process of
addressing the year 2000 issue or are already in compliance. Genesee Brewing
Company has a program to monitor the progress of critical vendors who responded
that they are addressing the year 2000 issue but are not yet in compliance. To
date, Genesee Brewing Company's Monroe County Branch distribution business and
almost two hundred independent distributors, representing in the aggregate
approximately 93% of barrel volume for Genesee Brewing Company, have reported
that they are year 2000 ready or that they are addressing the year 2000 issue.
Genesee Brewing Company has a program to monitor the progress of significant
distributors who responded that they are addressing the year 2000 issue but are
not yet in compliance.
Boston Beer Company, whose contract brewing business represents 15% of
Genesee Brewing Company's barrel volume, reported in its most recent Form 10-Q
filed with the Securities Exchange Commission on August 10, 1999 that it
believes that all of its internal computer systems are year 2000 compliant, with
the exception of its depletions tracking system, which it now expects to be
compliant by September 30, 1999. Boston Beer Company also reported that it has
contacted vendors that it believes present a possible critical risk to its
business; that all 37 critical vendors have reported that they are year 2000
compliant or are addressing the year 2000 problem; that it will monitor progress
of critical vendors who are addressing the year 2000 problem; and that it will
develop contingency plans for all services and supplies.
During fourth quarter of fiscal 1999, the Corporation's Foods Division
contacted all of its customers, critical vendors, and material third parties to
assess the extent of their year 2000 readiness. To date, all 54 critical vendors
of the Foods Division have responded that they are in the process of addressing
the year 2000 issue or are already in compliance. The Foods Division has a
program to monitor the progress of critical vendors who responded that they are
addressing the year 2000 issue but are not yet in compliance. To date, customers
representing 83% of Foods Division net sales have responded that they are in the
process of addressing the year 2000 issue or are already in compliance. To date,
no customers have responded that they will not be year 2000 ready. The Foods
Division has a program to follow up with significant customers who have not yet
responded and to monitor the progress of customers who responded that they are
addressing the year 2000 issue but are not yet in compliance.
<PAGE>
16
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 Costs
The Corporation is committed to making the investments required to ensure
year 2000 readiness of the information and other technology systems of each of
its business units. These investments include hardware and software upgrades and
replacement. The cost to achieve year 2000 readiness for the internal
information and other technology systems of the Corporation and its subsidiaries
is currently estimated to be approximately $1.7 million, with $1.6 million spent
to date.
Year 2000 Risks
The Corporation expects that it will achieve year 2000 readiness with its
internal systems on a timely basis, but at this time is unable to assure year
2000 readiness by all third parties in the same time frame. The failure to
achieve year 2000 readiness by any third party with which the Corporation or any
of its subsidiaries has a material business relationship could result in the
disruption of normal business activities. Risks inherent with the year 2000
problem could occur if there is an interruption of needed supplies and services,
including energy, telecommunications and information exchange suppliers. In a
worst case scenario, this could interrupt or prevent the Corporation's
businesses from producing and selling their products or receiving payment from
customers. Such failures could materially affect the Corporation's results of
operations, liquidity and financial condition. The Corporation is currently
unable to estimate the impact on its results of operations, liquidity or
financial condition from the failure to achieve year 2000 readiness by the
Corporation's critical venders, customers or other third parties.
Year 2000 Contingency Plans
Genesee Brewing Company and the Corporation's Foods Division are developing
contingency plans to address the failure of any critical vendors or a
significant number of customers to achieve year 2000 readiness. These
contingency plans are being designed to prevent or mitigate the impact on the
Corporation's brewing and foods businesses from the failure by such third
parties to achieve year 2000 readiness. Due to the seasonality of the brewing
industry, the winter months of December and January are two of Genesee Brewing
Company's lowest sales and production volume months. Genesee Brewing Company's
distributors are required to maintain inventory of packaged malt beverage
products sufficient to meet projected demand in their markets for eighteen days
and inventory of draft products sufficient to meet projected demand for fifteen
days. Because malt beverage products have limited shelf life, Genesee Brewing
Company has decided that it will not require distributors to increase inventory
levels on hand at January 1, 2000. Instead, Genesee Brewing Company will
carefully monitor distributor inventory levels in December 1999 to ensure that
required levels are maintained for all brands and package types. In addition,
Genesee Brewing Company will increase its production during December 1999 to
build inventories of finished case goods, draft and bulk storage beer. Genesee
Brewing Company also will build its inventories of brewing ingredients and
packaging materials during December 1999 to have on hand on December 31, 1999
sufficient inventories to support production scheduled for January 2000. For
certain ingredients and packaging materials that cannot be stored on site in
quantities sufficient to support
<PAGE>
17
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
January 2000 production requirements, Genesee Brewing Company has received
written assurances from the suppliers of such materials that they will have
inventory available to Genesee Brewing Company on December 31, 1999 sufficient
to meet Genesee Brewing Company's January 2000 production requirements.
The Corporation's Foods Division is developing contingency plans to address
the failure of any critical vendors or a significant number of customers to
achieve year 2000 readiness. These contingency plans will be designed to prevent
or mitigate the impact on the Foods Division's business from the failure by such
third parties to achieve year 2000 readiness. These contingency plans may
include establishing alternative sources of supply; stockpiling of certain
critical supplies; implementing stand-by manual order entry, delivery and
billing systems. The Foods Division plans to identify specific third party
relationships that may require contingency planning by September 30, 1999 and to
develop an appropriate contingency plan for each such situation by October 31,
1999.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements may include statements
about the operations and prospects for the Corporation and its subsidiary
businesses, and statements about industry trends and conditions that may affect
the performance or financial condition of the Corporation and its subsidiary
businesses. These forward-looking statements involve significant risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements. The most important factors that could
cause actual results to differ from the expectations stated in these
forward-looking statements include, among others, the inability to implement
strategic alternatives which successfully address the declining sales and
operating losses reported by the Genesee Brewing Company; the inability of
Genesee Brewing Company and its distributors to develop and execute effective
marketing and sales strategies for Genesee Brewing Company's products; the
potential erosion of sales revenues and profit margins through continued price
stagnation, increased discounting or a higher proportion of sales in lower
margin Multipaks; the continuation of declining sales for the specialty beer
category; the continuing shift in consumer preference away from Honey Brown
Lager; uncertainties due to the intensely competitive, stagnant nature of the
beer industry; demographic trends and social attitudes that can reduce beer
sales; the continued growth in the popularity of import and nationally
advertised beers; increases in the cost of aluminum, paper packaging and other
raw materials; the Corporation's inability to reduce manufacturing and overhead
costs of its brewing and foods businesses to more competitive levels; changes in
significant laws and government regulations affecting sales, advertising and
marketing of malt beverage products; significant increases in federal, state or
local beer or other excise taxes; the potential impact of beer industry
consolidation at both the brewer and distributor levels; a shift in consumer
preferences away from store-brand, private label food products; increased
competition from branded food product producers that might adversely affect
sales of private label products; continued price promotion by the major side
dish brand which is adversely impacting sales of the Foods Division's private
label side dish products; continued price competition from low cost imported
iced tea producers and the possibility that the Foods Division may not be able
to source sufficient supply of low price sugar to produce a price competitive
<PAGE>
18
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
private label iced tea product; the possibility that the Corporation's Foods
Division might experience delays, difficulties or unanticipated expenses in
integrating TKI Foods and Spectrum Foods; the possibility that the Foods
Division might experience delays, difficulties or unanticipated expenses in the
relocation of its operations to Medina, New York; the possibility that the Foods
Division might not achieve the expected synergies from the integration and
relocation of all operations into a single facility; interest rate fluctuations
that could reduce demand for or the rate of return on new equipment lease
business; the possibility that Cheyenne Leasing Company may not achieve the
residual value projected for equipment coming off leases as Cheyenne's lease
portfolio matures; increases in the estimated costs to achieve year 2000
readiness; and the risk that computer systems of the Corporation, its
subsidiaries and their significant suppliers or customers may not be year 2000
compliant.
<PAGE>
19
GENESEE CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibit is attached to this report:
Exhibit 3 - By-Laws as amended on June 17, 1999
(b) Reports on Form 8-K. The Corporation filed a report on Form 8-K
on June 25, 1999 to report the election of a new President and
Chief Operating Officer. The Corporation filed a report on Form
8-K on September 3, 1999 to report the election of a new Senior
Vice President and Chief Financial Officer and a workforce
reduction at Genesee Brewing Company.
<PAGE>
20
GENESEE CORPORATION
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.
GENESEE CORPORATION
Date: 9/13/99 /s /Samuel T. Hubbard, Jr.
Samuel T. Hubbard, Jr.
President and Chief Operating Officer
Date: 9/13/99
/s / Michael C. Atseff
Michael C. Atseff
Vice President and Controller
<PAGE>
21
GENESEE CORPORATION
EXHIBIT INDEX
Exhibit Number Exhibit Page
3 By-Laws as amended on June 17, 1999 22
<PAGE>
22
BY-LAWS
OF
GENESEE CORPORATION
Approved March 12, 1968 and amended October 20, 1969,
March 10, 1971, March 10, 1975, September 4, 1975, October
21, 1976, August 31, 1977, March 6, 1986, October 23,
1986, June 4, 1987, September 11, 1987, September 13, 1997
and June 17, 1999.
Certified to be a true and correct
copy of the By-laws in effect as of
September 16, 1997.
Mark W. Leunig
Secretary
Dated: June 17, 1999
<PAGE>
23
GENESEE CORPORATION
BY-LAWS
Article I
Shareholders
Section 1. Annual Meeting: An annual meeting of shareholders for the
election of directors and the transaction of other business shall be held on
such day in the month of October in each year and at such time on such day as
shall be fixed by the Board of Directors of the Corporation not later than 10
days before the meeting.
Section 2. Special Meetings: Special meetings of the shareholders may be
called by the Board of Directors. Such meetings shall be held at such time as
may be fixed in the call and stated in the notice of meeting.
Section 3. Place of Meetings: Meetings of shareholders shall be held at
such place, within or without the State of New York, as may be fixed in the
notice of meeting. Unless otherwise provided by action of the Board of
Directors, all meetings of shareholders shall be held at the office of the
Corporation in Rochester, New York.
Section 4. Notice of Meetings: Notice of each meeting of shareholders shall
be in writing and shall state the place, date, and hour of the meeting and the
purpose or purposes for which the meeting is called. A copy of the notice of any
meeting shall be given, personally, or by mail, not less than ten or more than
fifty days before the date of the meeting, to each shareholder entitled to vote
at such meeting. If mailed, such notice is given when deposited in the United
States mail, with postage thereon prepaid, directed to the shareholder at his
address as it appears on the record of shareholders, or, if he shall have filed
with the Secretary of the Corporation a written request that notices to him be
mailed to some other address, then directed to him at such other address.
Section 5. Inspectors of Election: The Board of Directors, in advance of
any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
<PAGE>
24
shareholder entitled to vote thereat shall, appoint two inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
Section 6. List of Shareholders at Meetings: A list of shareholders as of
the record date, certified by the Secretary or any Assistant Secretary or by the
transfer agent, if any, shall be produced at any meeting of shareholders upon
the request therat or prior thereto of any shareholder. If the right to vote at
any meeting is challenged, the inspectors of election, or person presiding
thereat, shall require such list of shareholders to be produced as evidence of
the right of the persons challenged to vote at such meeting, and all persons who
appear from such list to be shareholders entitled to vote thereat may vote at
such meeting.
Section 7. Qualification of Voters: Every shareholder of record of Common
Stock of the Corporation shall be entitled at every meeting of shareholders to
one vote for every share of Class A Common Stock standing in his name on the
record of shareholders.
Section 8. Quorum of Shareholders: The holders of a majority of the shares
entitled to vote thereat shall constitute a quorum at a meeting of shareholders
for the transaction of any business.
The shareholders present, in person or by proxy, and entitled to vote may,
by a majority of votes cast, adjourn the meeting despite the absence of a
quorum.
Section 9. Vote of Shareholders: Directors shall, except as otherwise
required by law, be elected by a plurality of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote in the election.
<PAGE>
25
Whenever any corporate action, other than the election of directors, is to
be taken by vote of the shareholders, it shall, except as otherwise required by
law, be authorized by a majority of the votes cast at a meeting of shareholders
by the holders of shares entitled to vote thereon.
Section 10. Proxies: Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy.
Section 11. Fixing Record Date: For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of such meeting,
nor more than fifty days prior to any other action.
Article II
Board of Directors
Section 1. Power of Board and Qualification of Directors: The business of
the Corporation shall be managed by the Board of Directors, each of whom shall
be at least twenty-one years of age. Except as to any person who has at any time
served as the chief executive officer or the chief operating officer of the
Corporation, neither a director who has reached the age of 70 nor a director who
is an employee of the Corporation and whose employment terminates for any
reason, shall be eligible for re-election to the Board of Directors. (Amended by
Board of Directors, 3/6/86)
Section 2. Number of Directors: The number of directors constituting the
entire Board of Directors shall be such number as may be fixed from time to time
by vote of a majority of the entire Board of Directors, and until otherwise
fixed by the Board shall be twelve. No decrease in the number of directors shall
shorten the term of any incumbent director.
(Amended by approval of Shareholders, 10/21/76)
<PAGE>
26
Section 3. Election and Term of Directors: The Board of Directors shall be
classified, with respect to the time for which each class shall hold office,
into three classes, as nearly equal in number as possible as determined by the
Board of Directors. The first class of directors shall be initially elected to
hold office until the annual meeting of shareholders held in the first year
following the year of their election, the second class shall be initially
elected to hold office until the annual meeting of shareholders held in the
second year following the year of their election, and the third class shall be
elected to hold office until the annual meeting of shareholders held in the
third year following the year of their election, with the members of each class
to hold office until their successors are elected and qualified. Thereafter, the
successors of the class of directors whose term expires at each annual meeting
of shareholders shall be elected to hold office until the annual meeting of
shareholders held in the third year following the year of their election and
until their successors are elected and qualified.
(Amended by approval of Board of Directors, 9/11/87)
Section 4. Quorum of the Board; Action by the Board: A one-third of the
entire Board of Directors shall constitute a quorum for the transaction of
business, and the vote of the majority of the directors present at the time of
such vote, if a quorum is then present, shall be the act of the Board.
Section 5. Meeting of the Board: An annual meeting of the Board of
Directors shall be held in each year directly after the adjournment of the
annual shareholders' meeting. Regular meetings of the Board shall be held at
such times as may from time to time be fixed by resolution of the Board. Special
meetings of the Board may be held at any time upon the call of the President or
any two directors.
Meetings of the Board of Directors shall be held at such place, within or
without the State of New York, as from time to time may be fixed by resolution
of the Board for annual and regular meetings and in the notice of meeting for
special meetings. If no place is so fixed, meetings of the Board shall be held
at the office of the Corporation in Rochester, New York.
No notice need be given of annual or regular meetings of the Board of
Directors. Notice of each special meeting of the Board shall be given by oral,
telegraphic, or written notice, duly given or sent or mailed to each director
not less than one day before such meeting.
Section 6. Newly Created Directorships and Vacancies: Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason except the removal
of directors by shareholders without cause may be filled by vote of a majority
<PAGE>
27
of the directors then in office, although less than a quorum exists. A director
elected to fill a vacancy shall be elected to hold office for the unexpired term
of his predecessor.
Section 7. Executive and Other Committees of Directors: The Board of
Directors, by resolution adopted by a majority of the entire Board, may
designate from among its members an Executive Committee consisting of three or
more directors and may designate from among its numbers other committees each
consisting of three or more directors, and each of which, to the extent provided
in the resolution, shall have all the authority of the Board, except that no
such committee shall have authority as to matters vested solely in the Board by
law.
Section 8. Compensation of Directors: The Board of Directors shall have
authority to fix the compensation of directors for services in any capacity.
Section 9. Indemnification of Directors and Officers:
(a) Right to Indemnification. Except as prohibited by law or as
provided in Paragraph (b) below, the Corporation shall indemnify
any person against all reasonable expenses, including attorneys
fees, and all judgments, excise taxes, fines, penalties, amounts
paid in settlement and any other liability paid or incurred by
such person in connection with any actual or threatened claim,
action, suit or proceeding, whether civil, criminal,
administrative, investigative, or other, or whether brought by or
in the right of the Corporation or otherwise, in which such
person may be involved as a party or otherwise, by reason of the
fact that such person or such person's testator or intestate is
or was a director or officer of the Corporation, or serves or
served in any capacity at the request of the Corporation any
other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. To the maximum extent permitted
by law, the Corporation shall make advances of expenses incurred
by such person in connection with any such actual or threatened
claim, action, suit or proceeding prior to final disposition
thereof, provided that the Corporation receives an undertaking by
or on behalf of such person to repay such advances to the extent
such person is ultimately found not to be entitled to
indemnification.
(b) Exclusions. No indemnification shall be made to or on behalf of
any person if a judgment or other final adjudication adverse to
such person establishes that either (i) such person's acts were
committed in bad faith, or were the result of active and
deliberate dishonesty, and were material to the action, or (ii)
such person gained in fact a financial benefit or other economic
advantage to which such person was not legally entitled.
<PAGE>
28
(c) Indemnification Not Exclusive. The right of indemnification under
this Section 9 shall not be deemed exclusive of any other rights
to which persons seeking indemnification hereunder may be
entitled under applicable law, by agreement or otherwise, and the
provisions hereof shall inure to the benefit of the heirs,
beneficiaries and legal representatives of persons entitled to
indemnification hereunder and shall be applicable to actions
arising from acts or omissions occurring before or after the
adoption hereof. Persons who are not directors or officers of the
Corporation may be similarly indemnified and entitled to
advancement or reimbursement of expenses to the extent authorized
at any time by the Board of Directors. The Corporation is
authorized to enter into agreements with any of its directors or
officers extending rights to indemnification and advancement of
expenses to such person to the fullest extent permitted by
applicable law, but the failure to enter into any such agreement
shall not affect or limit the rights of such person pursuant to
this By-Law.
(d) Contract Rights. The right of indemnification under this Section
9 shall be deemed to constitute a contract between the
Corporation and the persons entitled to indemnification and may
not, without the consent of such person, be amended or repealed
with respect to any event, act or emission occurring or allegedly
occurring prior to the end of the term of office such person is
serving when such amendment or repeal is adopted.
(Amended by approval of Board of Directors, 6/4/87)
Section 10. Action Without a Meeting: Any action required or permitted to
be taken by the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or the committee consent in writing to the
adoption of a resolution authorizing the action. The resolution and the written
consents thereto shall be filed with the minutes of the proceedings of the Board
or committee.
(Amended by approval of Board of Directors, 3/10/75)
Section 11. Participation in Board Meeting by Conference Telephone: Any one
or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
(Amended by approval of Board of Directors, 9/4/75)
Section 12. Director Emeritus: The Board of Directors may from time to time
designate one or more persons to serve as a Director Emeritus of the
Corporation, or to hold such other honorary title as the Board may determine.
<PAGE>
29
Each such designee shall serve at the pleasure of the Board and the rights,
privileges, compensation and other terms of service of each such designee shall
be fixed by resolution of the Board, provided that no such designee shall be
entitled to vote on any action taken by the Board or be counted for purposes of
determining the presence of a quorum of the Board. References in these By-Laws
to directors or to the Board of Directors shall not be deemed to include or
refer to any such designee.
(Added by approval of Board of Directors, 9/13/97)
Article III
Officers
Section 1. Officers: The Board of Directors, as soon as may be practicable
after the annual election of directors, shall elect a Chairman of the Board of
Directors, a President, one or more Vice Presidents (one of whom may be
designated Executive Vice President), a Secretary and a Treasurer, and from time
to time may elect or appoint such other officers as it may determine. Any two or
more offices may be held by the same person, except the offices of President and
Secretary.
(Amended 10/20/69)
Section 2. Term of Office and Removal: Each officer shall hold office for
the term for which he is elected or appointed, and until his successor has been
elected or appointed and qualified.
Section 3. Powers and Duties: The officers of the Corporation shall each
have such powers and authority and perform such duties in the management of the
property and affairs of the Corporation, as from time to time may be prescribed
by the Board of Directors and, to the extent not so prescribed, they shall each
have such powers and authority and perform such duties in the management of the
property and affairs of the Corporation, subject to the control of the Board, as
generally pertain to their respective offices. Without limitation of the
foregoing:
(a) Chairman of the Board of Directors: The Chairman shall be the
Chief Executive Officer of the Corporation, shall preside at all
meetings of the Corporation's stockholders and at all meetings of
the Board of Directors and shall be a Director of the
Corporation.
(Amended 6/17/99)
<PAGE>
30
(b) President: The President shall be the Chief Operating Officer of
the Corporation. In the absence of the Chairman of the Board, the
President shall preside at meetings of shareholders and of the
Board of Directors.
(Amended 6/17/99)
(c) Executive Vice President: The Executive Vice President, if any,
shall possess such powers and perform such duties as may be
designated by the Board of Directors.
(Amended 6/17/99)
(d) Vice Presidents: The Board of Directors shall determine the
powers and duties of the respective Vice Presidents and may, in
its discretion, fix such order of seniority among the respective
Vice Presidents as it may deem advisable.
(e) Secretary: The Secretary shall issue notices of all meetings of
shareholders and directors where notices of such meetings are
required by law or these By-Laws, and shall keep the minutes of
such meetings. He shall sign such instruments and attest such
documents as require his signature or attestation and affix the
corporate seal thereto where appropriate.
(f) Treasurer: The Treasurer shall have general charge of, and be
responsible for, the fiscal affairs of the Corporation and shall
sign all instruments and documents as require his signature.
(Amended 10/23/86)
Section 4. Records: The Corporation shall keep (a) correct and complete
books and records of account; (b) minutes of the proceedings of the
shareholders, Board of Directors, and any committees of the Board; and (c) a
current list of the directors and officers and their residence addresses.
The Corporation shall also keep at its office in the State of New York or
at the office of its transfer agent or registrar in the State of New York, if
any, a record containing the names and addresses of all shareholders, the number
and class of shares held by each and the dates when they respectively became the
owners of record thereof.
Section 5. Checks and Similar Instruments: All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes and
all acceptances, obligations, and other instruments, for the payment of money,
shall be signed by facsimile or otherwise on behalf of the Corporation by such
officer or officers or agent or agents as shall be thereunto authorized from
time to time by the Board of Directors.
<PAGE>
31
Section 6. Voting Shares Held by the Corporation: Either the President or
the Secretary may vote shares of stock held by the Corporation in other
corporations and may execute for and on behalf of the Corporation proxies for
such purpose.
Article IV
Share Certificates and Loss Thereof - Transfer of Shares
Section 1. Form of Share Certificates: The shares of the Corporation shall
be represented by certificates, in such forms as the Board of Directors may from
time to time prescribe, signed by the chairman of the Board if such there be, or
the President or a Vice President and the Secretary or an Assistant secretary or
the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the
corporation or a facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles if the certificate is counter-signed by a transfer
agent or registered by a registrar other than the Corporation or its employee.
In case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer at the date of issue.
Section 2. Lost, Stolen, or Destroyed Share Certificates: No certificate or
certificates for shares of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen, or destroyed, except upon
production of such evidence of the loss, theft, or destruction, and upon such
indemnification and payment of costs of the Corporation and its agents to such
extent and in such manner as the Board of Directors may from time to time
prescribe.
Section 3. Transfer of Shares: Shares of the Corporation shall be
transferable on the books of the Corporation by the registered holder thereof in
person or by his duly authorized attorney, by delivery for cancellation of a
certificate or certificates for the same number of shares, with proper
endorsement consisting of either a written assignment of the certificate or a
power of attorney to sell, assign, or transfer the same or the shares
represented thereby, signed by the person appearing by the certificate to be the
owner of the shares represented thereby, either written thereon or attached
thereto, with such proof of the authenticity of the signature as the Corporation
or its agents may reasonably require. Such endorsement may be either in blank or
<PAGE>
32
to a specified person, and shall have affixed thereto all stock transfer stamps
required by law.
Article V
Other Matters
Section 1. Corporate Seal: The corporate seal shall have inscribed thereon
the name of the Corporation and such other appropriate legend as the Board of
Directors may from time to time determine. In lieu of the corporate seal, when
so authorized by the Board, a facsimile thereof may be affixed or impressed or
reproduced in any other manner.
Section 2. Amendments: By-Laws of the Corporation may be amended, repealed
or adopted by vote of the holders of the shares at the time entitled to vote in
the election of any directors. By-Laws may also be amended, repealed, or adopted
by the Board of Directors, but any By-Law adopted by the Board may be amended or
repealed by the shareholders entitled to vote thereon as hereinabove provided.
If any By-Law regulating an impending election of directors is adopted, amended,
or repealed by the Board of Directors, there shall be set forth in the notice of
the next meeting of shareholders for the election of directors the By-Law so
adopted, amended, or repealed, together with a concise statement of the changes
made.
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