UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 2:00
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 period ending MARCH 31, 1998
--------------------
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: 0-15213
WEBSTER FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1187536
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Webster Plaza, Waterbury, Connecticut 06720
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(203) 753-2921
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding for the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (par value $ .01) 38,045,122 SHARES
- ------------------------------ --------------------------------------
(Class) Issued and Outstanding at May 12, 1998
<PAGE>
Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Consolidated Statements of Condition at March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Consolidated Financial
Statements 11
Quantitative and Qualitative Disclosures about Market Risk 18
PART II - OTHER INFORMATION 19
SIGNATURES 21
EXHIBIT INDEX 22
<PAGE>
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
----------- --------------
(UNAUDITED)
<S> <C> <C>
Cash and Due from Depository Institutions $ 105,645 $ 122,267
Interest-bearing Deposits 7,564 30,504
Securities: (Note 2)
Trading at Fair Value 82,713 84,749
Available for Sale, at Fair Value 2,830,625 2,290,254
Held to Maturity, (Market Value: $411,302 in 1998;
$412,061 in 1997) 410,785 412,237
Loans Receivable, Net 3,815,377 3,865,358
Accrued Interest Receivable 44,965 40,755
Premises and Equipment, Net 62,066 58,640
Foreclosed Properties, Net 7,654 8,471
Intangible Assets 47,350 48,919
Prepaid Expenses and Other Assets 144,071 57,467
----------- -----------
TOTAL ASSETS $ 7,558,815 $ 7,019,621
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 4,444,483 $ 4,365,756
Federal Home Loan Bank Advances 1,338,620 1,071,620
Reverse Repurchase Agreements and Other Borrowings (Note 6) 1,124,122 956,554
Advance Payments by Borrowers for Taxes and Insurance 13,745 23,335
Accrued Expenses and Other Liabilities 88,440 70,593
----------- -----------
Total Liabilities 7,009,410 6,487,858
----------- -----------
Corporation-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust 100,000 100,000
Preferred Stock of Subsidiary Corporation 49,577 49,577
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value:
Authorized - 50,000,000 shares;
Issued - 27,411,298 shares at March 31, 1998 and
27,352,272 shares at December 31, 1997 (1) 274 274
Paid-in Capital 173,020 171,659
Retained Earnings 205,931 193,130
Less Treasury Stock at cost, no shares at March 31, 1998
and 45,916 shares at December 31, 1997 (1) -- (1,116)
Less Employee Stock Ownership Plan Shares Purchased with Debt (1,340) (1,971)
Accumulated Other Comprehensive Income 21,943 20,210
----------- -----------
Total Shareholders' Equity 399,828 382,186
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,558,815 $ 7,019,621
=========== ===========
</TABLE>
(1) The number of common shares issued and treasury shares have been adjusted
to reflect a two-for-one stock split effective for shareholders of record
as of April 6, 1998.
See accompanying condensed notes to consolidated financial statements.
3
<PAGE>
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- -------
<S> <C> <C>
INTEREST INCOME:
Loans $ 76,162 $ 72,458
Securities and Interest-bearing Deposits 45,427 28,084
-------- --------
Total Interest Income 121,589 100,542
-------- --------
INTEREST EXPENSE:
Interest on Deposits 43,401 42,956
Interest on Borrowings 30,388 12,353
-------- --------
Total Interest Expense 73,789 55,309
-------- --------
Net Interest Income 47,800 45,233
Provision for Loan Losses 1,600 7,265
-------- --------
Net Interest Income After Provision for Loan Losses 46,200 37,968
-------- --------
NONINTEREST INCOME:
Fees and Service Charges 7,910 6,258
Gain on Sale of Loans and Loan Servicing, Net 112 134
Gain on Sale of Securities, Net 3,098 408
Other Noninterest Income 2,218 1,246
-------- --------
Total Noninterest Income 13,338 8,046
-------- --------
NONINTEREST EXPENSES:
Salaries and Employee Benefits 15,748 15,891
Occupancy Expense of Premises 3,065 3,224
Furniture and Equipment Expenses 3,438 2,955
Foreclosed Property Expenses and Provisions, Net (Note 5) 169 472
Intangible Amortization 1,569 1,567
Marketing Expenses 1,837 1,564
Merger and Acquisition Expenses (Note 7) -- 19,858
Capital Securities Expense 2,400 1,648
Dividends on Preferred Stock of Subsidiary Corporation 1,038 --
Other Operating Expenses 5,893 6,292
-------- --------
Total Noninterest Expenses 35,157 53,471
-------- --------
Income (Loss) Before Income Taxes 24,381 (7,457)
Income Tax Expense (Benefit) 8,848 (3,573)
-------- --------
NET INCOME (LOSS) $ 15,533 ($ 3,884)
======== ========
Net Income (Loss) Per Common Share (1):
Basic $0.57 ($0.14)
Diluted $0.55 ($0.14)
Dividends Declared Per Common Share (1) $0.10 $0.10
</TABLE>
(1) Per share amounts have been adjusted to reflect a two-for-one stock split
effective for shareholders of record as of April 6, 1998.
See accompanying condensed notes to consolidated financial statements.
4
<PAGE>
Webster Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ 15,533 $ (3,884)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Provision for Loan Losses 1,600 7,265
Provision for Foreclosed Property Losses 108 63
Provision for Depreciation and Amortization 2,441 2,299
Amortization of Securities Premiums, Net (342) (14)
Amortization of Hedging Costs, Net 1,119 652
Amortization and Write-down of Intangibles 1,569 1,567
Amortization of Mortgage Servicing Rights 367 97
Gains on Sale of Foreclosed Properties, Net (355) (150)
Loans and Securities Gains, Net (3,057) (350)
Gains on Trading Securities, Net (153) (197)
Decrease (Increase) in Trading Securities 24,831 (5,579)
Loans Originated for Sale (1,852) (10,514)
Sale of Loans, Originated for Sale 5,790 11,469
(Increase) Decrease in Interest Receivable (4,210) 4
(Decrease) Increase in Interest Payable (4,660) 724
(Decrease) Increase in Accrued Expenses and Other Liabilities, Net (135) 3,267
(Increase) Decrease in Prepaid Expenses and Other Assets, Net (88,226) 1,646
---------- ----------
Net Cash (Used) Provided by Operating Activitie (49,632) 8,365
---------- ----------
INVESTING ACTIVITIES:
Purchases of Securities, Available for Sale (960,766) (507,101)
Purchases of Securities, Held to Maturity (34,830) (5,949)
Maturities of Securities 34,271 24,320
Proceeds from Sale of Securities, Available for Sale 316,871 28,784
Net Decrease (Increase) in Interest-bearing Deposits 22,940 (24,100)
Purchase of Loans -- (65,000)
Net Decrease in Loans 43,276 9,375
Proceeds from Sale of Foreclosed Properties 2,343 1,646
Principal Collected on Mortgage-backed Securities 110,691 65,126
Purchases of Premises and Equipment, Net (5,867) (1,767)
---------- ----------
Net Cash Used by Investing Activities (471,071) (474,666)
---------- ----------
FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits 78,727 (44,567)
Repayment of FHLB Advances (978,271) (1,000,887)
Proceeds from FHLB Advances 1,245,271 1,147,997
Repayment of Other Borrowings (2,290,270) (710,057)
Proceeds from Other Borrowings 2,458,881 986,334
Net Decrease in Advance Payments for Taxes and Insurance (9,590) (16,494)
Net Proceeds from Issuance of Capital Securities -- 97,700
Cash Dividends to Common and Preferred Shareholders (2,733) (2,146)
Common Stock Repurchased -- (1,660)
Exercise of Stock Options 2,066 514
---------- ----------
Net Cash Provided by Financing Activities 504,081 456,734
---------- ----------
Decrease in Cash and Cash Equivalents (16,622) (9,567)
Cash and Cash Equivalents at Beginning of Period 122,267 105,226
---------- ----------
Cash and Cash Equivalents at End of Period $ 105,645 $ 95,659
========== ==========
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid $ 2,300 $ 1,920
Interest Paid 78,439 54,088
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of Loans to Foreclosed Properties 3,401 8,272
</TABLE>
See accompanying condensed notes to consolidated financial statements.
5
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results for the interim periods presented. All adjustments were of a normal
recurring nature. The results of operations for the three month period ended
March 31, 1998 are not necessarily indicative of the results which may be
expected for the year as a whole. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Webster Financial Corporation 1997 Annual Report to shareholders. The
consolidated financial statements include the accounts of Webster Financial
Corporation ("Webster") and its subsidiaries.
NOTE 2 - SECURITIES
Securities with fixed maturities that are classified as Held to Maturity
are carried at cost, adjusted for amortization of premiums and accretion of
discounts over the estimated terms of the securities utilizing a method which
approximates the level yield method. Securities that management intends to hold
for indefinite periods of time (including securities that management intends to
use as part of its asset/liability strategy, or that may be sold in response to
changes in interest rates, changes in prepayment risk, the need to increase
regulatory capital or other similar factors) are classified as Available for
Sale. All Equity Securities are classified as Available for Sale. Securities
Available for Sale are carried at fair value with unrealized gains and losses
included in Other Comprehensive Income. Securities classified as Trading
Securities are carried at fair value with unrealized gains and losses included
in Gains on Sale of Securities on the Statement of Operations. Gains and losses
on the sales of securities are recorded using the specific identification
method.
A summary of securities follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
------------------------------------------------- ----------------------------------------------
Amortized Gross Unrealized Market Amortized Gross Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
----------- -------- --------- ----------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRADING SECURITIES:
Mortgage-Backed Securities $ 82,713(a) $ -- $ -- $ 82,713 $ 84,749(a) $ -- $ -- $ 84,749
----------- -------- --------- ----------- ----------- -------- --------- -----------
AVAILABLE FOR SALE PORTFOLIO:
U.S. Treasury Notes 6,506 24 (1) 6,529 6,507 31 (3) 6,535
U.S. Government Agency 35,228 161 (31) 35,358 42,229 201 (24) 42,406
Corporate Bonds and Notes 4,080 2 (200) 3,882 6,662 4 (201) 6,465
Equity Securities 207,241 23,467 (262) 230,446 183,560 21,914 (609) 204,865
Mortgage-Backed Securities 2,520,826 32,082 (7,149) 2,545,759 2,001,372 27,339 (6,545) 2,022,166
Purchased Interest-Rate Contracts 18,911 -- (10,260) 8,651 15,079 -- (7,262) 7,817
----------- -------- --------- ----------- ----------- -------- --------- -----------
2,792,792 55,736 (17,903) 2,830,625 2,255,409 49,489 (14,644) 2,290,254
----------- -------- --------- ----------- ----------- -------- --------- -----------
HELD TO MATURITY PORTFOLIO:
U.S. Treasury Notes 2,452 14 -- 2,466 2,447 28 -- 2,475
U.S. Government Agency 26,253 13 (28) 26,238 32,274 14 (65) 32,223
Municipal Bonds & Notes 12,500 52 (13) 12,539 12,500 93 (1) 12,592
Corporate Bonds and Notes 35,186 199 (420) 34,965 1,199 3 -- 1,202
Money Market Preferred Stock -- -- -- -- 1,000 -- -- 1,000
Mortgage-Backed Securities 334,394 2,681 (1,981) 335,094 362,817 2,533 (2,781) 362,569
----------- -------- --------- ----------- ----------- -------- --------- -----------
410,785 2,959 (2,442) 411,302 412,237 2,671 (2,847) 412,061
----------- -------- --------- ----------- ----------- -------- --------- -----------
Total $ 3,286,290 $ 58,695 $ (20,345) $ 3,324,640 $ 2,752,395 $ 52,160 $ (17,491) $ 2,787,064
=========== ======== ========= =========== =========== ======== ========= ===========
</TABLE>
(a) Stated at fair market value.
6
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - NET INCOME PER SHARE
Basic net income per share is calculated by dividing net income available
to common shareholders by the weighted-average number of shares of common stock
outstanding. Diluted net income per share is calculated by dividing adjusted net
income by the weighted-average number of diluted common shares, including the
effect of common stock equivalents. The common stock equivalents consist of
common stock options and warrants. The weighted-average shares used in the
calculation of net income per share have been adjusted to reflect the
two-for-one stock split which was effective for shareholders of record as of
April 6, 1998. The weighted-average number of shares used in the computation of
basic earnings per share the for three months ended March 31, 1998 and 1997 were
27,246,312 and 26,894,716, respectively, and shares used in the computation of
diluted earnings per share were 28,107,926 and 27,712,796 for the same periods,
respectively.
NOTE 4 - COMPREHENSIVE INCOME
The provisions of Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" were adopted as of January 1, 1998. SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components (such as changes in net unrealized investment gains
and losses). Comprehensive income includes net income and any changes in equity
from non-owner sources that bypass the income statement. The purpose of
reporting comprehensive income is to report a measure of all changes in equity
of an enterprise that result from recognized transactions and other economic
events of the period other than transactions with owners in their capacity as
owners. Application of SFAS No. 130 will not impact amounts previously reported
for net income or affect the comparability of previously issued financial
statements.
The following table summarizes comprehensive income for the three months
ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Net income $ 15,533 ($ 3,884)
Other comprehensive income, net of tax
Unrealized gains (losses) on investments:
Unrealized holding gains arising during period
(net of income tax expense of $2,492 and $237
for 1998 and 1997, respectively) 3,441 327
Less reclassification adjustment for gains included
in net income (net of income tax expense of $1,237
and $89 for 1998 and 1997) 1,708 122
-------- --------
Other comprehensive income 1,733 205
-------- --------
Comprehensive income $ 17,266 ($ 3,679)
======== ========
</TABLE>
7
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FORECLOSED PROPERTY EXPENSES AND PROVISIONS, NET
Foreclosed property expenses and provisions, net are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------
1998 1997
------ --------
<S> <C> <C>
Gain on Sale of Foreclosed Property, Net $ (355) $ (150)
Provision for Losses on Foreclosed Property 108 63
Rental Income (23) (27)
Foreclosed Property Expenses 439 586
------ -------
Foreclosed Property Expenses and Provisions, Net $ 169 $ 472
====== =======
</TABLE>
NOTE 6 - REVERSE REPURCHASE AGREEMENTS
At March 31, 1998, Webster had short term borrowings through reverse
repurchase agreements outstanding. Information concerning borrowings under
reverse repurchase agreements is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
BALANCE AT WEIGHTED MATURITY BOOK VALUE MARKET VALUE
MARCH 31, 1998 TERM AVERAGE RATE DATE OF COLLATERAL OF COLLATERAL
- -------------- -------------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$1,032,499 1 to 17 months 5.82% Less than 2 mon $1,032,609 $1,048,630
</TABLE>
The securities underlying the reverse repurchase agreements are all U.S.
Agency collateral and have been delivered to the broker-dealers who arrange the
transactions. Webster uses reverse repurchase agreements when the cost of such
borrowings is less than other funding sources. The average balance and the
maximum amount of outstanding reverse repurchase agreements at any month-end
during the 1998 first quarter was $946.1 million and $1.033 billion,
respectively. The outstanding balance of reverse repurchase agreements at March
31, 1997 was $380.2 million.
8
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - 1997 ACQUISITION COSTS
In connection with the acquisitions of DS Bancor, Inc. ("Derby") and
People's Savings Financial Corp. ("People's"), that were completed on January
31, 1997 and July 31, 1997, respectively, Webster recorded approximately $27.1
million of merger-related charges, of which $19.9 million was recorded in the
three month period ended March 31, 1997. Additionally, Webster recorded an
increase of $7.1 million to the provision for loan losses related to the
acquisition of Derby and People's, of which $5.6 million was recorded in the
three month period ended March 31, 1997, for conformity to Webster's credit
policies. In connection with the acquisition of Sachem Trust National
Association on August 1, 1997, Webster recorded costs that did not impact the
statements of income as that transaction was recorded as a purchase transaction.
The following table presents a summary of the merger-related accrued
liabilities (in thousands):
<TABLE>
<CAPTION>
Derby People's
---------- --------
<S> <C> <C>
Balance of merger-related accrued liabilities
at December 31, 1996 $ -- $ --
Additions: 19,900 7,200
Payments/Writedowns:
Compensation (severance and related costs) (6,700) (1,400)
Data processing contract termination (1,600) --
Write down of fixed assets (1,200) --
Transaction costs (including investment bankers,
attorneys and accountants) (2,200) (1,300)
Merger related and miscellaneous expenses (2,800) (2,100)
------ ------
Balance of merger-related accrued liabilities
at December 31, 1997 5,400 2,400
------ ------
Payments/Writedowns:
Compensation (severance and related costs) -- (100)
Data processing contract termination (200) --
Merger related and miscellaneous expenses -- (100)
------ ------
Balance of merger-related accrued liabilities
at March 31, 1998 $ 5,200 $ 2,200
======= =======
</TABLE>
The remaining accrued liability of $7.4 million represents, for the most
part, an accrual for data processing contract termination costs payable over a
future period and the estimated loss on sale of excess fixed assets due to
consolidation of overlapping branch locations.
9
<PAGE>
Webster Financial Corporation and Subsidiaries
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits." This statement
amends the disclosure requirements of Statements No. 87, "Employer's Accounting
for Pensions", No. 88 "Employer's Accounting for Settlements and Curtailments of
Defined Benefit Pensions Plans and for Termination Benefits" and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." This
statement standardizes the disclosure requirements of Statements No. 87 and No.
106 to the extent practicable and recommends a parallel format for presenting
information about pensions and other postretirement benefits. This statement
addresses disclosure only and does not change any measurement or recognition
provisions provided in previous statements. Disclosure requirements affecting
amounts related to a company's result of operations should be provided for each
period an income statement is presented and similarly disclosure requirements
affecting amounts related to a company's statement of financial position should
be presented for each period a statement of financial condition is presented.
This statement is effective for fiscal years beginning after December 15, 1997
and will be adopted in connection with the 1998 annual financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
the method in which public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
reports issued to shareholders. This statement requires that public business
enterprises report quantitative and qualitative information about its reportable
segments, including profit or loss, certain specific revenue and expense items
and segment assets. Webster plans to report segment information along its four
business lines: consumer, business, mortgage banking and trust and investment
management services. This statement also requires reconciliations of total
segment revenues, total segment profit or loss, total segment assets and other
amounts disclosed for segments to corresponding amounts in the Consolidated
Financial Statements. This statement is effective for financial statements for
periods beginning after December 15, 1997 and in the initial year of
application, comparative information for earlier years is required. Comparative
interim information is required in the year subsequent to adoption. This
statement will be adopted in connection with the 1998 annual financial
statements.
NOTE 9 - SUBSEQUENT EVENTS
Eagle Financial Corp. Acquisition Completion
On February 13, 1998, Webster received approval from its primary regulator,
the Office of Thrift Supervision ("OTS"), to acquire Eagle Financial Corp.
("Eagle") the holding company of Eagle Bank. The transaction was approved by
shareholders at a special meeting held on April 2, 1998 and the transaction was
closed on April 15, 1998.
Stock Split Transaction
Webster completed a two-for-one stock split effected in the form of a stock
dividend for common shareholders of record as of April 6, 1998 with distribution
to shareholders on April 14, 1998.
10
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GENERAL
Webster Financial Corporation ("Webster"), through its subsidiary, Webster
Bank (the "Bank"), delivers financial services to individuals, families and
businesses located throughout Connecticut. Webster Bank is organized along four
business lines: consumer, business, mortgage banking and trust and investment
management services, each supported by centralized administration and
operations. The Corporation has grown significantly in recent years, primarily
through a series of acquisitions which have expanded and strengthened its
franchise.
CHANGES IN FINANCIAL CONDITION
Total assets were $7.6 billion at March 31, 1998, an increase of $539.2
million from $7.0 billion at December 31, 1997. The change in total assets is
due primarily to a net increase in securities of $536.9 million, offset by a
decrease in Loans Receivable, net of $50.0 million. The increase was funded, in
part, by new borrowings of $434.6 million.
Other Assets increased by $86.6 million from $57.5 million at December 31,
1997 to $144.1 million at March 31, 1998. The increase is due primarily to the
purchase of Bank Owned Life Insurance, which increased to $101.3 million at
March 31, 1998 from $12.8 million at December 31, 1997. The Bank Owned Life
Insurance is a single premium life insurance contract of which the Bank is the
beneficiary.
Total liabilities were $7.0 billion at March 31, 1998, an increase of
$521.6 million from $6.5 billion at December 31, 1997. The increase in total
liabilities is due primarily to net increases in deposits of $78.7 million,
Federal Home Loan Bank Advances of $267.0 million and Reverse Repurchase
Agreements and Other Borrowings of $167.6 million, respectively.
Shareholders' equity was $399.8 million at March 31, 1998 and $382.2
million at December 31, 1997. At March 31, 1998, the Bank had Tier 1 leveraged,
Tier 1 risk-based, and total risk-based capital ratios of 5.30%, 11.71% and
12.96% , respectively. The Bank met the regulatory capital requirements to be
categorized as a "well capitalized" institution at March 31, 1998.
ASSET QUALITY
Webster devotes significant attention to maintaining high asset quality
through conservative underwriting standards, active servicing of loans,
aggressively managing nonperforming assets and maintaining adequate reserve
coverage on nonaccrual assets. At March 31, 1998, residential and consumer loans
comprised approximately 86% of the loan portfolio. All fixed income securities
must have an investment rating in the top two rating categories by a major
rating service at time of purchase.
11
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A breakdown of loans receivable, net by type as of March 31, 1998 and
December 31, 1997 follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Residential Mortgage Loans $2,898,989 $2,925,591
Commercial Real Estate Loans 309,174 313,263
Commercial Loans 216,604 223,926
Consumer Loans (Including Home Equity) 442,217 454,954
-------------- -----------------
Total Loans 3,866,984 3,917,734
Allowance for Loan Losses (51,607) (52,376)
-------------- -----------------
Loans Receivable, Net $3,815,377 $3,865,358
============== =================
</TABLE>
Included above at March 31, 1998 and December 31, 1997 were loans held for
sale of $3.0 million and $1.7 million, respectively.
The following table details the nonaccrual assets at March 31, 1998 and
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Loans Accounted For on a Nonaccrual Basis:
Residential Real Estate $22,370 $23,651
Commercial 12,736 11,563
Consumer 2,205 2,451
------- -------
Total Nonaccrual Loans 37,311 37,665
Foreclosed Properties:
Residential and Consumer 4,672 5,091
Commercial 2,982 3,098
------- -------
Total Nonaccrual Assets $44,965 $45,854
======= =======
</TABLE>
The net decrease in nonaccrual assets of $889,000 at March 31, 1998 as
compared to the December 31, 1997 balance is due primarily to payoffs,
foreclosed property sales and charge-offs.
At March 31, 1998, Webster's allowance for losses on loans of $51.6 million
represented 138.3% of nonaccrual loans and its total allowances for losses on
nonaccrual assets of $52.1 million amounted to 114.6% of nonaccrual assets. A
detail of the changes in the allowances for losses on loans and foreclosed
property for the three months ended March 31, 1998 follows (in thousands):
<TABLE>
<CAPTION>
Allowances For Losses On
----------------------------------
Impaired Foreclosed Total
Loans Loans Properties Allowance for Losses
-------- -------- ---------- --------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 51,520 $ 856 $ 574 $52,950
Provisions for Losses 1,600 - 108 1,708
Losses Charged to Allowances (2,880) - (148) (3,028)
Recoveries Credited to Allowances 511 - - 511
-------- -------- -------- -------
Balance at March 31, 1998 $ 50,751 $ 856 $ 534 $ 52,141
======== ======== ======== ========
</TABLE>
12
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Segregated Assets, Net
Segregated Assets consisted of all commercial real estate, commercial, and
multi-family loans acquired from the Federal Deposit Insurance Corporation
("FDIC") in the First Constitution Bank ("First Constitution") acquisition.
Segregated Assets were subject to a loss-sharing arrangement with the FDIC. The
FDIC was required to reimburse the Bank quarterly for 80% of the total net
charge-offs and certain related expenses on Segregated Assets through December
1997, with such reimbursement increasing to 95% (less recoveries in years six
and seven) as to such charge-offs and expenses in excess of $49.2 million (with
payment at the end of the seventh year as to such excess). Effective January 1,
1998, the balance of all remaining Segregated Assets was transferred to the loan
portfolio. During 1998 and 1999, the Bank is required to pay quarterly to the
FDIC an amount equal to 80% of the recoveries during such years on Segregated
Assets which were previously charged-off after deducting certain permitted
expenses related to those assets. The Bank is entitled to retain 20% of such
recoveries during the sixth and seventh years following the First Constitution
acquisition and 100% thereafter.
ASSET/LIABILITY MANAGEMENT
The goal of Webster's asset/liability policy is to manage interest-rate
risk so as to maximize net interest income over time in changing interest-rate
environments while maintaining acceptable levels of risk. Webster must provide
for sufficient liquidity for daily operations while maintaining mandated
regulatory liquidity levels. To this end, Webster's strategies for managing
interest-rate risk are responsive to changes in the interest-rate environment
and market demands for particular types of deposit and loan products. Management
measures interest-rate risk using duration, GAP and simulation analysis with
particular emphasis on measuring changes in the market value of equity and
changes in net interest income in different interest-rate environments. The
simulation analyses incorporate assumptions about balance sheet changes such as
asset and liability growth, loan and deposit pricing and changes due to the mix
and maturity of such assets and liabilities. From such simulations, interest
rate risk is quantified and appropriate strategies are formulated.
As part of its asset/liability management strategy, Webster utilizes
various interest rate instruments including short futures positions, interest
rate swaps, interest rate caps and interest rate floors. Webster holds short
futures positions to minimize the price volatility of certain adjustable rate
assets held as Trading Securities. Changes in the market value of the short
futures positions and trading securities are recognized as a gain or loss in the
consolidated statements of income in the period for which the change occurred.
Interest rate caps, interest rate floors and interest rate swaps are
entered into as hedges against future interest rate fluctuations. Webster does
not trade in speculative interest rate contracts. Those agreements meeting the
criteria for hedge accounting treatment are designated as hedges and are
accounted for as such. If a contract is terminated, any unrecognized gain or
loss is deferred and amortized as an adjustment to the yield of the related
asset or liability over the remainder of the period that was being hedged. If
the linked asset or liability is disposed of prior to the end of the period
being managed, the related interest rate contract is marked to fair value, with
any resulting gain or loss recognized in current period income as an adjustment
to the gain or loss on the disposal of the related asset or liability. Interest
income or expense associated with interest rate caps and swaps is recorded as a
component of net interest income. Interest rate instruments that hedge available
for sale securities are marked to fair value monthly with adjustments to
shareholders' equity on a tax effected basis.
13
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Webster's main sources of liquidity at the holding company level are
dividends from the Bank and net proceeds from capital offerings and borrowings,
while the main outflows are the payment of dividends to preferred and common
stockholders, repurchase of Webster's common stock and the payment of interest
to holders of Webster's 8 3/4% Senior Notes and Webster's 9.36% Capital Trust I
Capital Securities. There are certain restrictions on the payment of dividends
by the Bank to Webster. The Bank is required to maintain minimum levels of
liquid assets as defined by regulations adopted by the Office of Thrift
Supervision ("OTS"). This requirement, which may be varied by the OTS, is based
upon a percentage of net withdrawable deposits and short-term borrowings. The
required liquidity ratio as revised by the OTS is currently 4.00% and the Bank's
liquidity ratio at March 31, 1998 exceeded the requirement. Webster Bank is also
required by regulation to maintain sufficient liquidity to ensure safe and sound
operations. Adequate liquidity as assessed by the OTS may vary from institution
to institution depending on such factors as the institution's overall
asset/liability structure, market conditions, competition and the requirements
of the institution's deposit and loan customers. The OTS considers both an
institution's adherence to the liquidity ratio requirement, as well as safety
and soundness issues, in assessing whether an institution has sufficient
liquidity.
Webster Bank had mortgage commitments outstanding of $131.6 million,
non-mortgage commitments of $22.8 million, unused home equity credit lines of
$377.0 million, available credit card lines of $110.9 million and commercial
lines and letters of credit of $129.7 million at March 31, 1998.
14
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1997
GENERAL
Net income for the three month period ended March 31, 1998 was $15.5
million, or $0.55 per diluted share compared to $11.1 million or $.40 per
diluted share, adjusted for acquisition expenses for the same period in 1997.
Including the merger and acquisition related after tax charges of $15.0 million
related to Webster's acquisition of DS Bancor, Inc. ("Derby") on January 31,
1997, Webster reported a net loss of $3.9 million or $0.14 per diluted share for
the 1997 first quarter. Diluted earnings per share for the 1998 and 1997 periods
have been adjusted to reflect a two-for-one stock split effective for
shareholders of record on April 6, 1998.
NET INTEREST INCOME
Net interest income for the three month period ended March 31, 1998
amounted to $47.8 million compared to $45.2 million for the respective period in
1997. The increase for the current year period is primarily attributable to a
higher volume of average interest-earning assets. The net interest rate spread
for the three month period ended March 31, 1998 was 2.66%, compared to 3.18% for
the same period in 1997. The decrease in interest rate spread for 1998 as
compared to the same period in 1997, reflects a higher cost of funds in addition
to a decrease in the yield on interest-earning assets.
INTEREST INCOME
Interest income for the three month period ended March 31, 1998 amounted to
$121.6 million compared to $100.5 million for the comparable period in 1997. The
increase in the current year is due primarily to a higher volume of average
interest-earning assets, which were $6.8 billion for the 1998 period and $5.5
billion for the 1997 period. The yield on interest-earning assets decreased in
the current year period due to a higher volume of lower yielding securities. The
yield on interest-earning assets for the three months ended March 31, 1998 was
7.18% compared to 7.36% for the same period of the previous year.
INTEREST EXPENSE
Interest expense for the three month period ended March 31, 1998 amounted
to $73.8 million compared to $55.3 million for the same period in 1997. The
increase for the current period is due primarily to an increase in average
borrowings, which were $2.1 billion for the three month current year period
compared to $865.3 million for the 1997 period. The cost of interest-bearing
liabilities increased to 4.52% for the three months ended March 31, 1998 as
compared to 4.18% for the same period in 1997. Interest expense on borrowings
for the three month period ended March 31, 1998 amounted to $30.4 million
compared to $12.4 million for the same period in 1997.
15
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following tables show the major categories of average assets and
average liabilities together with their respective interest income or expense
and the rates earned and paid by Webster.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 1997
- ---------------------------- -------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------- -------- ----- ------- -------- -----
ASSETS:
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Loans $3,895,813 $76,162 7.83% $3,757,030 $72,458 7.73%
Securities 2,881,877 45,427 6.31 1,711,380 28,084 6.57
---------- -------- ----- ---------- ------- ----
TOTAL INTEREST EARNING ASSETS 6,777,690 121,589 7.18 5,468,410 100,542 7.36
------- -------
Noninterest Earning Assets 372,623 279,128
----------- ------------
TOTAL ASSETS $7,150,313 $5,747,538
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST BEARING LIABILITIES:
Deposits $4,396,847 43,401 3.94 $4,423,962 42,956 3.94
Borrowings 2,128,898 30,388 5.71 865,287 12,353 5.71
---------- ------- ---- ------------ ------- ----
TOTAL INTEREST BEARING LIABILITIES 6,525,745 73,789 4.52 5,289,249 55,309 4.18
----------- ------- ----------- -------
Noninterest Bearing Liabilities 87,856 57,453
------------- -------------
TOTAL LIABILITIES 6,613,601 5,346,702
Capital Securities and Preferred Stock of
Subsidiary Corporation 149,577 68,889
SHAREHOLDERS' EQUITY 387,135 331,947
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,150,313 $5,747,538
========== ==========
NET INTEREST INCOME $47,800 $45,233
======= =======
INTEREST RATE SPREAD 2.66% 3.18%
===== =====
NET YIELD ON AVERAGE INTEREST EARNING ASSETS 2.84% 3.32%
===== =====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses amounted to $1.6 million for the three month
period ended March 31, 1998 compared to $7.3 million for the comparable 1997
period. Included in the provision for the three month period ended March 31,
1997, was a $5.6 million provision related to loans acquired in the Derby
acquisition. At March 31, 1998, the allowance for loan losses was $51.6 million
and represented 138.3% of nonaccrual loans, compared to $50.1 million and
124.7%, respectively a year earlier.
16
<PAGE>
Webster Financial Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest income for the three month period ended March 31, 1998 amounted
to $13.3 million compared to $8.0 million for the same period in 1997. The
increase is due primarily to an increase in the net gains on the sale of
securities, in addition to increased income from fees and service charges in the
1998 period. There were $3.1 million of net gains on the sales of securities for
the three month period ended March 31, 1998 compared to $408,000 for the same
period in 1997. Fees and service charges increased to $7.9 million for the three
months ended March 31, 1998 from $6.3 million for the same period in 1997 due
primarily to deposit related fees and charges.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended March 31, 1998 amounted to
$35.2 million compared to $53.5 million for the same period in 1997. The
decrease in noninterest expenses for the current three month period is due
primarily to $19.9 million of acquisition expenses in the first quarter of 1997
related to the Derby acquisition. For the three month period ended March 31,
1998 compared to the same period in 1997, noninterest expenses decreased
$246,000, excluding acquisition and capital securities expenses and the
dividends on the preferred stock of the subsidiary corporation. Decreases in
salary and benefits, occupancy, foreclosed property and other operating expenses
were offset by increases in furniture and equipment and marketing expenses.
INCOME TAXES
Total income tax expense for the three month period ended March 31, 1998
amounted to $8.8 million compared to a benefit of $3.6 million for the same
period in 1997. The increase in income tax expense was due primarily to the net
loss recorded by Webster in 1997 as a result of the acquisition expenses related
to the Derby acquisition.
17
<PAGE>
Webster Financial Corporation and Subsidiaries
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The following table details the estimated market value of Webster's
financial assets at March 31, 1998, if interest rates instantaneously increase
or decrease 100 basis points.
<TABLE>
<CAPTION>
BOOK MARKET ESTIMATED MARKET VALUE IMPACT
ASSETS VALUE VALUE -100 BP +100BP
- ------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest-Sensitive Assets
Trading $ 82,713 $ 82,713 $ (164) $ (40)
Non-Trading 6,853,221 6,645,451 106,501 (137,300)
Interest-Sensitive Liabilities 7,070,547 6,977,602 (86,539) 86,619
</TABLE>
The table above excludes earning assets that are not directly impacted by
changes in interest rates. These assets include equity securities of $230.4
million (See Note 2 to Consolidated Financial Statements) and nonaccrual loans
of $37.3 million (See "Asset Quality" within the MD&A). Values for mortgage
servicing rights have been included in the table above as changes in interest
rates affect the valuation of the servicing rights. Equity securities and
nonaccrual assets not included in the above table are however, subject to
fluctuations in market value based on other risks.
Based on Webster's asset/liability mix at March 31, 1998, management's
sensitivity analysis of the effects of changing interest rates estimates that an
instantaneous 100 basis point increase in interest rates would decrease net
interest income over the next twelve months by about 4.9% and an instantaneous
100 basis point decline in interest rates would increase net interest income
over the next twelve months by about 3.5%. The above estimated market values are
subject to factors that could cause actual results to differ from such
projections and estimates.
18
<PAGE>
Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
Item 5. OTHER INFORMATION
On April 15, 1998, Webster completed its previously announced merger
transaction with Eagle Financial Corporation.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3 Bylaws of the Corporation.
Exhibit No. 27 Financial Data Tables.
19
<PAGE>
Webster Financial Corporation and Subsidiaries
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(b) Reports on Form 8-K
Webster filed the following Current Reports on Form 8-K with the
Securities and Exchange Commission (the "SEC") during the quarter
ended March 31, 1998:
Current Report on Form 8-K/A filed with the SEC on January 26,
1998 (date of report November 17, 1997) (amending the Form 8-K
filed with the SEC on November 17, 1997 and attaching Webster's
consolidated financial statements restated to reflect the
acquisition by Webster of People's Savings Financial Corp.
("People's")).
Current Report on Form 8-K/A filed with the SEC on January 26,
1998 (date of report November 17, 1997) (amending the Form 8-K
filed with the SEC on November 17, 1997 and attaching Webster's
consolidated financial statements restated to reflect the
acquisition by Webster of People's).
Current Report on Form 8-K/A filed with the SEC on February 6,
1998 (date of report November 17, 1997) (amending the Form 8-K
filed with the SEC on November 17, 1997 and attaching Webster's
consolidated financial statements restated to reflect the
acquisition by Webster of People's).
Current Report on Form 8-K filed with the SEC on March 4, 1998
(date of report March 2, 1998) (announcing the date of Webster's
1998 Annual Meeting of Shareholders).
Current Report on Form 8-K filed with the SEC on March 19, 1998
(date of report March 17, 1998) (announcing the two-for-one stock
split of Webster's common stock).
20
<PAGE>
Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
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.
WEBSTER FINANCIAL CORPORATION
-----------------------------
Registrant
Date: May 14, 1998 By: /s/ John V. Brennan
---------------------------- --------------------------------------
John V. Brennan
Executive Vice President
Chief Financial Officer and Treasurer
Principal Financial Officer
Principal Accounting Officer
21
<PAGE>
Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3 Bylaws of the Corporation.
27 Financial Data Tables.
22
EXHIBIT 3
BYLAWS
OF
WEBSTER FINANCIAL CORPORATION
(hereinafter called the "Corporation")
(As amended effective February 23, 1998)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation shall be
in the city of Wilmington, County of New Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. Place of Meetings. Meetings of shareholders for the election of
directors or for any other purpose shall be held at such time and place, either
within or without the State of Delaware, as shall be designated from time to
time by the board of directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. The annual meetings of shareholders shall be held at
Webster Plaza, Waterbury, Connecticut on the third Thursday of April at 11:00
a.m. or at such other place, date and hour as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at which
meetings the shareholders shall elect by a plurality vote a board of directors
and transact such other business as may properly be brought before the meeting.
Written notice of the annual meeting stating the place, date and hour of the
meeting shall be given to each shareholder entitled to vote at such meeting not
less than 20 nor more than 50 days before the date of the meeting. The notice
shall also set forth the purpose or purposes for which the meeting is called.
SECTION 3. Business at Annual Meeting. At an annual meeting of the shareholders,
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
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the board of directors, (b) otherwise properly brought
before the meeting by or at the direction of the board of directors, or (c)
otherwise properly brought before the meeting by a shareholder.
For business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 45 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to
1
<PAGE>
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such business.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 3. The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that a matter of business
was not properly brought before the meeting in accordance with the provisions of
this Section 3, and 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.
SECTION 4. Special Meetings. Special meetings of shareholders for any purpose
may be called only as provided in the Certificate of Incorporation. Written
notice of a special meeting stating the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called shall be given not less
than 20 nor more than 50 days before the date of the meeting to each shareholder
entitled to vote at such meeting.
SECTION 5. Quorum. The holders of one-third of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. 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 shareholder entitled to vote at the
meeting.
SECTION 6. Voting. Except as otherwise required by law, the Certificate of
Incorporation or these bylaws, any matter brought before any meeting of
shareholders shall be decided by the affirmative vote of the majority of the
votes cast on the matter. Each shareholder represented at a meeting of
shareholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such shareholder. The board of directors,
in its discretion, may require that any votes cast at such meeting shall be cast
by written ballot.
SECTION 7. List of Shareholders Entitled to Vote. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder of the Corporation who is present.
SECTION 8. Stock Ledger. The stock ledger of the Corporation shall be the only
evidence as to who are the shareholders entitled to examine the list required by
Section 7 of this Article II or to vote in person or
2
<PAGE>
by proxy at any meeting of shareholders.
SECTION 9. Proxies. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or his duly authorized
attorney-in-fact. Proxies solicited on behalf of the board of directors shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
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.
SECTION 10. Voting of Shares in the Name of Two or More Persons. If shares or
other securities having voting power stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the secretary
of the Corporation is given written notice to the contrary and is furnished with
a copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (1) if only one votes, his act binds all; (2) if more than one
vote, the act of the majority so voting binds all; (3) if more than one vote,
but the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or any person voting the shares, or a
beneficiary, if any, may apply to the Court of Chancery of the State of Delaware
or such other court as may have jurisdiction to appoint an additional person to
act with the persons so voting the shares, which shall then be voted as
determined by a majority of such persons and the person appointed by the Court.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this subsection shall be
a majority or even-split in interest.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by any officer, agent or proxy as the bylaws of
such corporation may prescribe, or, in absence of such provision, as the board
of directors of such corporation may determine. Shares held by an administrator,
executor, guardian or conservator may be voted by him, but no trustees shall be
entitled to vote shares held by him without a transfer of such shares into his
name. Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer into his name if authority so to do is contained
in an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
unless in the transfer by the pledgor on the books of the Corporation he has
expressly empowered that pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon.
Neither treasury shares of its own stock held by the Corporation, nor shares
held by another corporation, if a majority of shares entitled to vote for the
election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of shareholders,
the board of directors may appoint any persons other than nominees for office as
inspectors of election to act at such meeting or any adjournment thereof. The
number of inspectors shall be either one or three. If the board of directors so
appoints either one or three such inspectors, that appointment shall not be
altered at the meeting. If inspectors of election are not so appointed, the
chairman of the board or the president may, and on the
3
<PAGE>
request of not less than ten percent of the votes represented at the meeting
shall, make such appointments at the meeting. If appointed at the meeting, the
majority of the votes present shall determine whether one or three inspectors
are to be appointed. In case any person appointed as inspector fails to appear
or fails or refuses to act, the vacancy may be filled by appointment by the
board of directors in advance of the meeting or by the chairman of the board or
the president.
Unless otherwise prescribed by law, the duties of such inspectors shall include:
determining the number of shares of stock entitled to vote, the voting power of
each share, the shares of stock represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in any
way arising in connection with the right to vote; counting and tabulating all
votes or consents; determining the result; and such acts as may be proper to
conduct the election or the vote with fairness to all shareholders.
SECTION 14. Conduct of Meetings. Annual and special meetings shall be conducted
in accordance with rules prescribed by the presiding officer of the meeting,
unless otherwise prescribed by law or these bylaws. The board of directors shall
designate, when present, either the chairman of the board or the president to
preside at such meetings.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The number of directors shall be
fourteen. Directors need not be residents of the State of Delaware. To be
eligible for nomination as a director, a nominee must be a resident of the State
of Connecticut at the time of his nomination or, if not then a resident, have
been previously a resident for at least three years.
Directors shall be elected only by shareholders at annual meetings of
shareholders, other than the initial board of directors and except as provided
in Section 2 of this Article III in the case of vacancies and newly created
directorships.
Each director elected shall hold office for the term for which he is elected and
until his successor is elected and qualified or until his earlier resignation or
removal. After the Corporation becomes publicly-owned, each director is required
to own not less than 100 shares of the common stock of the Corporation.
SECTION 2. Classes; Terms of Office; Vacancies. The board of directors shall
divide the directors into three classes; and, when the number of directors is
changed, shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided, further, that no
decrease in the number of directors shall affect the term of any director then
in office. At each annual meeting of shareholders, directors elected to succeed
those whose terms are expiring shall be elected for a term of office to expire
at the third succeeding annual meeting of shareholders and when their respective
successors are elected and qualified.
Vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled, for the unexpired term, by the
concurring vote of a majority of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred and until such director's successor shall have been elected
and qualified.
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SECTION 3. Duties and Powers. The business of the Corporation shall be managed
by or under the direction of the board of directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation, or by these bylaws directed or
required to be exercised or done by the shareholders. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 4. Meetings. The board of directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The annual regular meeting of the board of directors shall be held
without other notice than this bylaw immediately after, and at the same place
as, the annual meeting of the shareholders. Additional regular meetings of the
board of directors shall be held monthly, and may be held without notice at such
time and at such place as may from time to time be determined by the board of
directors. Special meetings of the board of directors may be called by the
chairman of the board, the president or a majority of directors then in office.
Notice thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than 48 hours before the date of the
meeting, or by telephone or telegram on 24 hours' notice.
SECTION 5. Quorum. Except as may be otherwise specifically provided by law, the
Certificate of Incorporation or these bylaws, at all meetings of the board of
directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the board
of directors. If a quorum shall not be present at any meeting of the board of
directors, 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 6. Actions Without Meeting. 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 the members of the board of directors 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 of directors or
committee.
SECTION 7. Meetings by Means of Conference Telephone. Members of the board of
directors of the Corporation, or any committee designated by the board of
directors, may participate in a meeting of the board of directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
SECTION 8. Compensation. The board of directors shall have the authority to fix
the compensation of directors. The directors may be paid their reasonable
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a reasonable fixed sum for actual attendance at each meeting of the
board of directors. Directors, as such, may receive a stated salary for their
services. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 9. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer
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is present at or participates in the meeting of the board of directors or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose if (i) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or their relationship or interest
and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
SECTION 10. Corporate Books. The directors may keep the books of the Corporation
outside of the State of Delaware at such place or places as they may from time
to time determine.
SECTION 11. Presumption of Assent. A director of the Corporation who is present
at meeting of the board of directors at which action on any matter is taken
shall be presumed to have assented to the action taken unless his dissent or
abstention shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation within five days after the
date he receives a copy of the minutes of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action.
SECTION 12. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the chairman of the board or the president
of the Corporation. Unless otherwise specified therein such resignation shall
take effect upon receipt thereof by the chairman of the board or the president.
More than three consecutive absences from regular meetings of the board of
directors, unless excused by resolution of the board of directors, shall
automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
SECTION 13. Nominees. Only persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
Corporation may be made at a meeting of shareholders by or at the direction of
the board of directors or by any shareholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 13. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 45 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 15th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations or proxies for election of directors,
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or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (b) as to the shareholder giving
notice (i) the name and address, as they appear on the Corporation's books, of
such shareholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder. 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 shareholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 13. 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
procedures prescribed by the bylaws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more other directors to constitute an executive committee. The chairman of the
board shall serve as the chairman of the executive committee, unless a different
director is designated as chairman by the board of directors. The designation of
any committee pursuant to this Article IV and the delegation of authority
thereto shall not operate to relieve the board of directors, or any director, of
any responsibility imposed by law or regulation.
SECTION 2. Authority. The executive committee, when the board of directors is
not in session, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it, except to the extent, if any, that such powers and
authority shall be limited by the resolution appointing the executive committee;
and except also that the executive committee shall not have the power or
authority of the board of directors with reference to amending the Certificate
of Incorporation; adopting an agreement of merger or consolidation; recommending
to the shareholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets; recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution; amending the
bylaws of the Corporation; filling a vacancy or creating a new directorship; or
approving a transaction in which any member of the executive committee, directly
or indirectly, has any material beneficial interest; and unless the resolution
or bylaws expressly so provide, the executive committee shall not have the power
or authority to declare a dividend or to authorize the issuance of stock or
securities convertible into or exercisable for stock.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this Article IV,
each member of the executive committee shall hold office until the next annual
regular meeting of the board of directors following his designation and until
his successor is designated as a member of the executive committee.
SECTION 4. Meetings. Regular meetings of the executive committee may be held
without notice at such times and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may be
called by the chairman of the executive committee, the chief executive officer
or any two members thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in
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person. The notice of a meeting of the executive committee need not state the
business proposed to be transacted at the meeting.
SECTION 5. Quorum. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
SECTION 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee and the writings are filed with the
minutes of the proceedings of the committee.
SECTION 7. Vacancies. Any vacancy in the executive committee may be filled by a
resolution adopted by a majority of the full board of directors.
SECTION 8. Resignations and Removal. Any member of the executive committee may
be removed at any time with or without cause by resolution adopted by a majority
of the full board of directors. Any member of the executive committee may resign
from the executive committee at any time by giving written notice to the
chairman of the board or the president of the Corporation. Unless otherwise
specified therein, such resignation shall take effect upon receipt. The
acceptance of such resignation shall not be necessary to make it effective.
SECTION 9. Procedure. The executive committee may fix its own rules of procedure
which shall not be inconsistent with these bylaws. It shall keep regular minutes
of its proceedings and report the same to the full board of directors for its
information at the meeting thereof held next after the proceedings shall have
been taken.
SECTION 10. Other Committees. The board of directors by resolution shall
establish an audit committee, and a stock option committee, composed in each
case only of directors who are not employees of the Corporation or any
subsidiary thereof. The board of directors by resolution may also establish such
other committees composed of directors as they may determine to be necessary or
appropriate for the conduct of the business of the Corporation and may prescribe
the duties and powers thereof.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a president, one
or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate the
chairman of the board as an officer. The president shall be the chief executive
officer, unless the board of directors designates the chairman of the board as
the chief executive officer. The president may serve as the chairman of the
board, if so designated by the board of directors. The offices of the secretary
and treasurer may be held by the same person and a vice president may also be
either the secretary or the treasurer. The board of directors may designate one
or more vice presidents as executive vice president or senior vice president.
The board of directors may also elect or authorize the appointment of such other
officers as the business of the Corporation may require. The officers shall have
such authority and perform such duties as the board of directors may from time
to time authorize or determine. In the absence of action by the board of
directors, the officers shall have such powers and
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duties as generally pertain to their respective offices.
SECTION 2. Election. The board of directors at its first meeting held after the
annual meeting of shareholders shall elect annually the officers of the
Corporation who shall exercise such powers and perform such duties as shall be
set forth in these bylaws and as determined from time to time by the board of
directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the board of directors may be removed at any
time by the affirmative vote of a majority of the board of directors. Any
vacancy occurring in any office of the Corporation shall be filled by the board
of directors. The salaries of all officers of the Corporation shall be fixed by
the board of directors.
SECTION 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
SECTION 4. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the chairman of the board, the president or any
vice president, and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The board of directors may, by resolution, from time
to time confer like powers upon any other person or persons.
ARTICLE VI
STOCK
SECTION 1. Form of Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by or in the name of the Corporation by
(i) the chairman of the board or the president and (ii) by the secretary or an
assistant secretary of the Corporation, representing the number of shares
registered in certificate form.
SECTION 2. Signatures. Any and all of the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer 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 3. Lost Certificates. The chairman of the board, the president or any
vice president may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the chairman of the board, the
president or any vice president may, in his discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as such officer may require and/or to give the Corporation a bond in
such sum as he may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
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SECTION 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these bylaws. Transfer of stock shall be made on
the books of the Corporation only by the person named in the certificate or by
his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
SECTION 5. Record Date. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than 50 days nor less than 20 days before the date
of such meeting, nor more than 50 days prior to any other action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
SECTION 6. Beneficial Owners. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and 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 the Corporation shall have express
or other notice thereof, except as otherwise required by law.
ARTICLE VII
NOTICES
SECTION 1. Notices. Whenever written notice is required by law, the Certificate
of Incorporation or these bylaws to be given to any director, members of a
committee or shareholder, such notice may be given by mail, addressed to such
director, members of a committee or shareholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
Unites States mail. Written notice may also be given personally or by telegram,
telex or cable.
SECTION 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these bylaws to be given to any director, member
of a committee or shareholder, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting with 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. Neither the business to
be transacted at nor the purpose of any regular or special meeting of the
shareholders, directors, or members of a committee of directors need be
specified in any other waiver of notice unless so required by the Certificate of
Incorporation or these bylaws.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of
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the Certificate of Incorporation and the laws of the State of Delaware, may be
declared by the board of directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of capital stock of the Corporation.
Subject to the provisions of the General Corporation Law of the State of
Delaware, such dividends may be paid either out of surplus, out of the net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
SECTION 2. Disbursement. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be December 31.
SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words. "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those
by or in the Right of the Corporation. Subject to Section 3 of this Article IX,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, trustee, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, trustee, employee or
agent of another corporation, association, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, and any appeal
therein, if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding, and any
appeals therein, by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, trustee, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against amounts paid in
settlement and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, If he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best
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interests of the Corporation; provided, however, that no indemnification shall
be made against expenses in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation or against
amounts paid in settlement unless and only to the extent that there is a
determination (as set forth in Section 3 of this Article IX) that despite the
adjudication of liability or the settlement, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses or amounts paid in settlement.
SECTION 3. Authorization of Indemnification. Any indemnification under this
Article IX (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, trustee, employee or agent is proper in the circumstances
because such director, officer, trustee, employee or agent has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article IX and, if applicable, is fairly and reasonably entitled to indemnity as
set forth in the proviso in Section 2 of this Article IX, as the case may be.
Such determination shall be made (i) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the shareholders. To the extent,
however, that a director, officer, trustee, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case. No director, officer, trustee, employee or
agent of the Corporation shall be entitled to indemnification in connection with
any action, suit or proceeding voluntarily initiated by such person unless the
action, suit or proceeding was authorized by a majority of the entire board of
directors.
SECTION 4. Good Faith Defined. For purposes of any determination under Section 3
of this Article IX, a person shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe his conduct was unlawful, if his action is
based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
association, partnership, joint venture, trust or other enterprise of which such
person is or was serving at the request of the Corporation as a director,
officer, trustee, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article IX, as the case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he has met the applicable standards of conduct set
forth in Sections 1 and 2 of this Article IX, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
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Corporation promptly upon the filing of such application. Notwithstanding any of
the foregoing, unless otherwise required by law, no director, officer, trustee,
employee or agent of the Corporation shall be entitled to indemnification in
connection with any action, suit or proceeding voluntarily initiated by such
person unless the action, suit or proceeding was authorized by a majority of the
entire board of directors.
SECTION 6. Expenses Payable in Advance. Expenses incurred in connection with a
threatened or pending action, suit or proceeding may be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer, trustee,
employee or agent to repay such amount if it shall be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IX.
SECTION 7. Contract, Non-exclusivity and Survival of Indemnification. The
indemnification provided by this Article IX shall be deemed to be a contract
between the Corporation and each director, officer, employee and agent who
serves in such capacity at any time while this Article IX is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. Further, the indemnification and
advancement of expenses provided by this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any certificate of incorporation,
bylaw, agreement, contract, vote of shareholders or disinterested directors or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that, subject to the limitation in Section 3 of this Article IX
concerning voluntary initiation of actions, suits or proceedings,
indemnification of the person specified in Sections 1 and 2 of this Article IX
shall be made to the fullest extent permitted by law. The provisions of this
Article IX shall not be deemed to preclude the indemnification of any person who
is not specified in Sections 1 and 2 of this Article IX but whom the Corporation
has the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, trustee, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of each person.
SECTION 8. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, trustee, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
SECTION 9. Meaning of "Corporation" for Purposes of Article IX. For purposes of
this Article IX, 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, association,
partnership, joint venture, trust or other enterprises, shall stand in the same
position under the provisions of this Article IX with respect to the
13
<PAGE>
resulting of surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
ARTICLE X
AMENDMENTS
The board of directors or the shareholders may from time to time amend the
bylaws of the Corporation. Such action by the board of directors shall require
the affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the board of directors called for such purpose. Such
action by the shareholders shall require the affirmative vote of at least
two-thirds of the total votes eligible to be voted at a duly constituted meeting
of shareholders called for such purpose.
***************
The foregoing bylaws were originally adopted by the board of directors on
October 6, 1986.
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