UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
Commission file number 1-4416
SPS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1116110
(State of incorporation) (I.R.S. Employer
101 Greenwood Avenue, Suite 470 Identification No.)
Jenkintown, Pennsylvania 19046
(Address of principal executive offices) (Zip Code)
(215) 517-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
The number of shares of Registrant's Common Stock outstanding
on November 5, 1998 was 12,671,174.
<PAGE>1
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
---------------------------------------
INDEX
-----
Part I. Financial Information
- -----------------------------
Item 1. Financial Statements
Statements of Consolidated Operations -
Three and Nine Months Ended
September 30, 1998 and 1997
(Unaudited)
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997
(Unaudited)
Condensed Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Comprehensive Income -
Three and Nine Months Ended
September 30, 1998 and 1997
(Unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
- --------------------------
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PAGE<2>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited-Thousands of dollars except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
Net sales $ 184,440 $ 142,280 $ 539,454 $ 433,363
Cost of goods sold 143,432 110,913 416,486 339,249
---------- ---------- ---------- ---------
Gross profit 41,008 31,367 122,968 94,114
Selling, general and
administrative expense 21,926 17,289 63,285 51,550
---------- ---------- ---------- ---------
Operating earnings 19,082 14,078 59,683 42,564
---------- ---------- ---------- ---------
Other income (expense):
Interest income 157 282 709 720
Interest expense (2,539) (2,030) (7,680) (6,656)
Equity in earnings (loss)
of affiliates (545) 265 (1,328) 410
Minority interest (64) 28 (486) (58)
Other, net (116) (23) (563) (820)
---------- ---------- ---------- ---------
(3,107) (1,478) (9,348) (6,404)
---------- ---------- ---------- ---------
Earnings before income taxes 15,975 12,600 50,335 36,160
Provision for income taxes 4,950 4,150 16,670 12,200
---------- ---------- ---------- ---------
Net earnings $ 11,025 $ 8,450 $ 33,665 $ 23,960
========== ========== ========== =========
Earnings per common share:
Basic $ 0.87 $ 0.70 $ 2.69 $ 1.98
========== ========== ========== =========
Diluted $ 0.84 $ 0.66 $ 2.59 $ 1.88
========== ========== ========== =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>3
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars)
September 30, December 31,
1998 1997
------------ -----------
Assets
Current assets
Cash and cash equivalents $ 21,970 $ 18,659
Accounts and notes receivable,
less allowance for doubtful
receivables of $2,973 (1997-$2,027) 108,966 84,419
Inventories 112,448 102,466
Deferred income taxes 15,624 17,076
Prepaid expenses and other 4,690 4,268
-------- --------
Total current assets 263,698 226,888
-------- --------
Investments in affiliates 4,660 5,988
Property, plant and equipment, net of
accumulated depreciation of $146,628
(1997-$131,627) 192,982 172,599
Other assets 90,651 66,573
-------- --------
Total assets $551,991 $472,048
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>4
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited-Thousands of dollars, except share data)
September 30, December 31,
1998 1997
------------- ------------
Liabilities and shareholders' equity
Current liabilities
Notes payable and current portion of
long-term debt $ 17,512 $ 15,211
Accounts payable 49,924 45,006
Accrued expenses 63,595 54,723
Income taxes payable 7,137 5,563
-------- --------
Total current liabilities 138,168 120,503
-------- --------
Deferred income taxes 17,013 14,799
Long-term debt 110,791 95,507
Retirement obligations 24,840 24,623
Minority interest 2,006 1,826
Shareholders' equity
Preferred stock, par value $1 per share,
authorized 400,000 shares, issued none
Common stock, par value $0.50 per share,
authorized 60,000,000 shares,
issued 13,780,288 shares (13,576,846
shares in 1997) 6,890 6,788
Additional paid-in capital 106,002 92,597
Retained earnings 167,056 133,391
Accumulated other comprehensive income
Minimum pension liability (2,292) (2,292)
Cumulative translation adjustments (6,056) (6,838)
Common stock in treasury, at cost,
1,109,114 shares (1,204,766 shares
in 1997) (12,427) (8,856)
-------- --------
Total shareholders' equity 259,173 214,790
-------- --------
Total liabilities and
shareholders' equity $551,991 $472,048
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>5
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited-Thousands of dollars)
Nine Months Ended
September 30,
----------------------
1998 1997
-------- --------
Net cash provided by operating
activities (including depreciation
and amortization of $22,161 in
1998 and $17,373 in 1997) $ 56,480 $ 42,862
Cash flows provided by (used in) investing
activities
Additions to property, plant and equipment (19,631) (26,854)
Proceeds from sale of property, plant
and equipment 291 1,350
Acquisitions of businesses, net of
cash acquired (25,132) (36,784)
-------- --------
Net cash used in investing activities (44,472) (62,288)
-------- --------
Cash flows provided by (used in) financing
activities
Proceeds from borrowings 35,372 23,787
Reduction of borrowings (42,048) (26,982)
Purchases of treasury stock (3,579) (1,063)
Proceeds from exercise of stock options 1,450 1,682
-------- --------
Net cash used in financing activities (8,805) (2,576)
-------- --------
Effect of exchange rate changes on cash 108 (423)
-------- --------
Net increase (decrease) in cash and cash
equivalents 3,311 (22,425)
Cash and cash equivalents at
beginning of period 18,659 33,310
-------- --------
Cash and cash equivalents at
end of period $ 21,970 $ 10,885
======== ========
Significant noncash investing and
financing activities
Issuance of treasury shares for
businesses acquired $ 8,828
Debt assumed with businesses acquired $ 24,838 $ 1,944
Acquisition of treasury shares for
stock options exercised $ 1,778 $ 774
See accompanying notes to condensed consolidated financial statements.
<PAGE>6
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - Thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
Net earnings $11,025 $ 8,450 $33,665 $23,960
Other comprehensive
income(expense):
Foreign currency
translation adjustments 3,230 (2,606) 782 (5,100)
------- ------- ------- -------
Total comprehensive income $14,255 $ 5,844 $34,447 $18,860
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>7
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited-Thousands of dollars, except share data)
1. Financial Statements
In the opinion of the Company's management, the accompanying
unaudited, condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial position as of
September 30, 1998, the results of operations for the three and nine
month periods ended September 30, 1998 and 1997, and cash flows for the
nine month periods ended September 30, 1998 and 1997. The December 31,
1997 balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted
accounting principles. The accompanying financial statements contain
only normal recurring adjustments. All financial information has been
prepared in conformity with the accounting principles reflected in the
financial statements included in the 1997 Annual Report filed on Form
10-K applied on a consistent basis.
2. Business Acquisitions
All acquisitions have been accounted for under the purchase
method. The results of operations of the acquired businesses are
included in the consolidated financial statements from the dates of
acquisition.
On March 23, 1998, the Company acquired all of the outstanding
shares of Greenville Metals, Inc. (Greenville), a manufacturer of
specialty metals and alloys, located in Transfer, Pennsylvania, for
$15,500. The excess of the purchase price over the fair values of the
net assets acquired was approximately $7,700 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 40
years.
On June 30, 1998, the Company acquired all of the outstanding
shares of Terry Machine Company (Terry), a manufacturer of specialty
cold headed fasteners for the automotive industry, located in
Waterford, Michigan, for $22,300. The excess of the purchase price
over the fair values of the net assets acquired was approximately
$7,800 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
On June 30, 1998, the Company also acquired the operating assets
of Howell Penncraft (Penncraft), a manufacturer of high-speed tool
steel and carbide products used in metal forming, located in Howell,
Michigan, for $3,500. The purchase price approximated the fair value
of the net assets acquired.
<PAGE>8
On July 31, 1998, the Company acquired all of the outstanding
shares of Nevada Bolt & Mfg. Co. doing business as Non-Ferrous Bolt &
Mfg. Co. (Non-Ferrous), a manufacturer of non-standard, hot-forged
bolts and nuts from stainless steel and specialty alloy materials,
located in Las Vegas, Nevada for $12,700. Approximately $8,800 was
paid with 200 thousand shares of common stock from treasury and the
remainder in debt assumed by the Company. The excess of the purchase
price over the fair values of the net assets acquired was approximately
$7,000 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
In January 1997, the Company acquired all of the outstanding
shares of Postkey, Ltd. (Postkey), a manufacturer of cylindrical thread
roll dies, located in Nuneaton, England for $1,200. The excess of the
purchase price over the fair values of the net assets acquired was
approximately $860 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 20 years.
On February 24, 1997, the Company acquired all of the outstanding
shares of Greer Stop Nut, Inc. (Greer), a manufacturer of nylon insert
nuts, located in Nashville, Tennessee for $10,000. The excess of the
purchase price over the fair values of the net assets acquired was
approximately $5,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 40 years.
On March 7, 1997, the Company acquired the assets of RJF
International Corporation's (RJF) Bonded Magnet Business, a manufacturer
of flexible ferrite bonded magnets, located in Cincinnati and Marietta,
Ohio for $9,200. The excess of the purchase price over the fair values
of the net assets acquired was approximately $5,200 and has been
recorded as goodwill, which is being amortized on a straight-line basis
over 30 years.
On May 5, 1997, the Company acquired all of the outstanding shares
of Lake Erie Design Co., Inc. (LED), a manufacturer of high precision
ceramic cores for the investment casting industry, located in Wickliffe,
Ohio for $8,100. The excess of the purchase price over the fair values
of the net assets acquired was approximately $6,500 and has been recorded
as goodwill, which is being amortized on a straight-line basis over 30
years.
On September 23, 1997, the Company acquired all of the outstanding
shares of Mohawk Europa Limited (Mohawk), a specialty cutting tool
manufacturer, located in Shannon, Ireland for $9,100. The purchase price
approximated the fair value of the net assets acquired.
On December 2, 1997, the Company acquired all of the outstanding
shares of Magnetic Technologies Corporation (MTC), a designer and
manufacturer of magnetic, electronic, and mechanical subassemblies of
copiers and printers for the electronic office equipment industry,
located in Rochester, New York and Rochester, England for $14,400.
Approximately $9,600 was paid in cash and the remainder in common stock
of the Company. The excess of the purchase price over the fair values of
the net assets acquired was approximately $8,500 and has been recorded as
<PAGE>9
goodwill, which is being amortized on a straight-line basis over 40
years.
The following unaudited pro forma consolidated results of
operations are presented as if the Greenville, Terry, Penncraft, Non-
Ferrous, Greer, RJF, LED, Mohawk and MTC acquisitions had been made at
the beginning of the periods presented. The effects of the Postkey
acquisition is not material and, accordingly, has been excluded from
the pro forma presentation.
Nine Months Ended
September 30,
---------------------
1998 1997
-------- --------
Net sales $578,461 $523,666
Net earnings 33,310 25,502
Basic earnings
per common share 2.67 2.05
Diluted earnings
per common share 2.56 1.95
The pro forma consolidated results of operations include
adjustments to give effect to amortization of goodwill and interest
expense on acquisition debt, together with related income tax effects.
The unaudited pro forma information is not necessarily indicative of
the results of operations that would have occurred had the purchase
been made at the beginning of the periods presented or the future
results of the combined operations.
3. Inventories
September 30, December 31,
1998 1997
------------- ------------
Finished goods $ 44,569 $ 38,222
Work-in-process 37,668 36,871
Raw materials
and supplies 24,369 20,843
Tools 5,842 6,530
-------- --------
$112,448 $102,466
======== ========
The September 30, 1998 inventory balances include $9,200 of
inventory from businesses acquired in 1998.
4. Environmental Contingency
The Company has been identified as a potentially responsible party
by various federal and state authorities for clean up or removal of
waste from various disposal sites. At September 30, 1998, the accrued
liability for environmental remediation represents management's best
estimate of the undiscounted costs related to environmental remediation
which are considered probable and can be reasonably estimated.
Management believes the overall costs of environmental remediation will
<PAGE>10
be incurred over an extended period of time. The Company has not
included any insurance recovery in the accrued environmental liability.
The measurement of the liability is evaluated quarterly based on
currently available information. As the scope of the Company's
environmental liability becomes more clearly defined, it is possible
that additional reserves may be necessary. Accordingly, it is possible
that the Company's results of operations in future quarterly or annual
periods could be materially affected. Management does not anticipate
that its consolidated financial condition will be materially affected
by environmental remediation costs in excess of amounts accrued.
5. Common Stock Split
On July 29, 1997, the Company's Board of Directors approved a two-
for-one split of its common stock, effective August 20, 1997, distributed
to shareholders on August 29, 1997. In conjunction with the stock split,
the Board of Directors also approved a reduction in the par value of the
common shares from $1.00 to $0.50, and increased the number of authorized
common shares from 30,000,000 to 60,000,000. All share and per share
data for prior periods presented have been restated to reflect the stock
split.
6. Per Share Data
Earnings per share amounts have been restated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." This restatement resulted in no material change from amounts
previously reported. Earnings per share are computed as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net earnings $ 11,025 $ 8,450 $ 33,665 $ 23,960
=========== =========== =========== ===========
Average shares of
common stock
outstanding used
to compute basic
earnings per
common share 12,647,054 12,138,097 12,499,041 12,083,666
Additional common
shares to be
issued assuming
exercise of stock
options, net of
shares assumed
reacquired 455,523 694,649 488,899 659,925
----------- ----------- ----------- -----------
Shares used to
compute dilutive
effect of stock
options 13,102,577 12,832,746 12,987,940 12,743,591
=========== =========== =========== ===========
<PAGE>11
Basic earnings per
common share $0.87 $0.70 $2.69 $1.98
===== ===== ===== =====
Diluted earnings per
common share $0.84 $0.66 $2.59 $1.88
===== ===== ===== =====
7. Recently Issued Accounting Standards
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive
Income." This Statement establishes standards for reporting and
disclosing comprehensive income and its components. Comprehensive
income includes all changes in equity except those resulting from
investments by owners and distribution to owners.
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This Statement
establishes standards for reporting segment results based on the way
management organizes segments within the enterprise for making
operating decisions and assessing performance. This Statement is
effective for financial statements for periods beginning after December
15, 1997. This Statement need not be applied to interim financial
statements in the initial year of its application. The Company will
adopt SFAS No. 131 in the fourth quarter of 1998. Under the management
approach described in SFAS No. 131, the Company expects to replace its
fasteners and materials segments with fasteners, specialty materials
and magnetic materials operating segments.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This
Statement revises the required disclosures for employee benefit plans,
but it does not change the measurement or recognition of such plans.
This Statement is effective for financial statements for periods
beginning after December 15, 1997. This Statement need not be applied
to interim financial statements in the initial year of its application.
The Company will adopt SFAS No. 132 in the fourth quarter of 1998, and
is still evaluating its impact on the Company's retirement plans and
other benefits disclosures.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge transaction. This
Statement is effective for all interim period financial statements for
fiscal years beginning after June 15, 1999. The Company will adopt
SFAS No. 133 in the first quarter of 2000. The Company anticipates
<PAGE>12
that, due to its limited use of derivative instruments, the adoption of
SFAS No. 133 will not have a material effect on the Company's results
of operations or its financial position.
8. Subsequent Event
On October 28, 1998 the Company acquired all of the outstanding
shares of Chevron Aerospace Group Limited (Chevron) based in Wilford,
Nottingham, England for approximately $54,000. Chevron is a
manufacturer of aircraft structural assemblies, precision machined
components, avionic panels, wiring harnesses and turbine lockplates.
The excess of the purchase price over the fair values of the net assets
acquired was approximately $25,000 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 40 years. The
acquisition of Chevron will be accounted for under the purchase method.
Chevron's results of operations will be included in the consolidated
financial statements from the date of acquisition.
The following unaudited pro forma consolidated results of
operations are presented as if Chevron and the 1998 material
acquisitions made prior to September 30, 1998 (as described in Note 2
to the financial statements) had been made at the beginning of the
periods presented.
Nine Months Ended
September 30,
---------------------
1998 1997
-------- --------
Net sales $611,125 $554,652
Net earnings 34,661 26,546
Basic earnings
per common share 2.77 2.14
Diluted earnings
per common share 2.67 2.03
The pro forma consolidated results of operations include
adjustments to give effect to amortization of goodwill, interest
expense on acquisition debt and certain other adjustments, together
with related income tax effects. The unaudited pro forma information
is not necessarily indicative of the results of operations that would
have occurred had the purchase been made at the beginning of the
periods presented or the future results of the combined operations.
PAGE<13>
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Introduction
- ------------
Sales, net earnings and net cash provided by operating activities are a
major improvement over the corresponding periods in the prior year. With
the inclusion of businesses acquired in 1997 and 1998, all business groups
within the fasteners and materials segments contributed to the improvement
in operating results. In the first nine months of 1998, the Company
completed seven acquisitions which expands the product offerings of the
related business groups.
Sales and Operating Earnings by Segment
- ---------------------------------------
(Unaudited-Thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------- ------
Net sales:
Fasteners $120,561 $ 96,095 $343,965 $292,076
Materials 63,879 46,185 195,489 141,287
-------- -------- -------- --------
$184,440 $142,280 $539,454 $433,363
======== ======== ======== ========
Operating earnings:
Fasteners $ 13,361 $ 10,282 $ 41,804 $ 30,475
Materials 8,251 6,066 25,794 19,219
Unallocated
corporate costs (2,530) (2,270) (7,915) (7,130)
-------- -------- -------- --------
$ 19,082 $ 14,078 $ 59,683 $ 42,564
======== ======== ======== ========
Net Sales
- ---------
Net sales increased $42.2 million, or 29.6 percent, in the third
quarter of 1998 and $106.1 million, or 24.5 percent, for the nine month
period ended September 30, 1998 compared to the same periods in 1997.
Fastener segment sales increased $24.5 million, or 25.5 percent, in the
third quarter of 1998 and $51.9 million, or 17.8 percent, for the nine
month period. The Company's aerospace fastener sales were up 18.7 percent
to $62.2 million in the third quarter and 19.8 percent to $186.6 million
for the nine month period. The Company believes that demand for aerospace
fasteners should remain relatively high throughout 1998 and into 1999 given
the forecasted build rates for new aircraft and the ongoing need for
maintenance and repair parts for the aging fleet of commercial and military
aircraft. While aerospace orders in North America did decrease in the
first nine months of 1998, the Company believes that production volume
should remain at a level that will continue to generate reasonable profits
and significant free cash flow. To further participate in the expanding
PAGE<14>
European aerospace market, the Company has planned for a $4.3 million
expansion project to its European aerospace fastener manufacturing
operation. This expansion is intended to be completed in 1999 and increase
manufacturing capacity at the facility by 25 percent.
Excluding the $10.8 million of sales by companies acquired in the last
three months (Terry Machine Company and Non-Ferrous Bolt and Mfg. Co.), the
Company's automotive and industrial fastener sales decreased $1.9 million,
or 4.6 percent, compared to the third quarter of 1997 but increased $1.5
million, or 1.2 percent, for the nine month period. Modest growth in sales
of fasteners manufactured in North America and Europe have been offset by a
decrease in sales of fasteners manufactured in Brazil and Australia. The
overall weakness of the Brazilian economy and increased fastener industry
capacity has adversely affected the Company's Brazilian operation. The
Company's Australian operation was adversely affected by weak conditions in
the automotive industry as a result of the Asian economic slowdown.
The fastener segment includes sales by the Precision Tool Group. This
group was formed to build a full service, global tool business focusing on
precision consumable tools used for metal forming and cutting. Due
primarily to the acquisition of Mohawk Europa Limited (Mohawk) on September
23, 1997, and Howell Penncraft, Inc. (Penncraft) on June 30, 1998, this
group increased sales by $5.7 million in the third quarter and $12.8
million for the nine month period.
Material segment sales increased $17.7 million, or 38.3 percent, in the
third quarter of 1998 and $54.2 million, or 38.4 percent, for the nine
month period. Material segment acquisitions made after the third quarter
of 1997, primarily Magnetic Technologies Corporation (MTC) and Greenville
Metals, Inc. (Greenville), accounted for $10.1 million of the increased
sales in the third quarter and $28.3 million of the increased sales in the
nine month period. Superalloy sales by the Cannon-Muskegon Corporation
increased $6.6 million in the third quarter and $14.1 million in the nine
month period. Superalloy sales benefited from strong demand from the
aerospace and industrial gas turbine markets.
Operating Earnings
- ------------------
Operating earnings of the fasteners segment improved significantly from
$30.5 million, or 10.4 percent of sales, for the nine months ended
September 30, 1997, to $41.8 million, or 12.2 percent of sales, for the
nine months ended September 30, 1998. The improvement in earnings is
attributed to increased sales of aerospace fasteners and improved operating
efficiencies in all fastener businesses as a result of the aggressive
capital expenditure programs over the past four years. New production
equipment, new plant layouts and process simplification have improved
margins in the fastener group segment. The operating earnings from Mohawk
(acquired on September 23, 1997) and other fastener group acquisitions
completed in 1998 also contributed to this increase.
In the third quarter of 1998, the Company announced further downsizing
of its manufacturing operation in Coventry, England. In connection with
this downsizing, the Company incurred a third quarter charge of $1.6
<PAGE>15
million. The headcount at this facility will be reduced by two-thirds to
approximately 50 employees. For the nine months ended September 30, 1998,
the Coventry facility lost $3.1 million which included operating losses of
$600 thousand, cost of employee separations of $1.5 million, inventory
write offs of $600 thousand and other cost of $400 thousand. For the nine
months ended September 30, 1997, the Coventry facility lost $2.4 million
which included operating losses of $1.6 million and cost of employee
separations of $800 thousand.
Operating earnings of the materials segment increased from $19.2
million, or 13.6 percent of sales, for the nine months ended September 30,
1997 to $25.8 million, or 13.2 percent of sales, for the nine months ended
September 30, 1998. The improvement in operating earnings is attributed to
increased volume of superalloy sales and operating earnings from the
recently acquired material businesses noted above.
Other Income and Expense
- ------------------------
Due to higher levels of debt, interest expense increased from $6.7
million in the first nine months of 1997 to $7.7 million in the first nine
months of 1998. The $1.3 million loss in equity in earnings of affiliates
is the result of losses incurred by the Company's affiliates in China and
India. The loss from the Chinese joint venture is primarily due to the
significant decrease in sales (41 percent or $3.7 million). The loss from
the India affiliate is primarily due to the writeoff of certain receivables
and higher interest expense. A portion of the profits before tax reported
by Mecair and National-Arnold Magnetics Company have been offset in
minority interest because the Company owns less than 100 percent of these
consolidated subsidiaries. Minority interest was $486 thousand in the
first nine months of 1998.
Orders and Backlog
- ------------------
Incoming orders for the third quarter of 1998 were $175.2 million
compared to $155.4 million in 1997, a 12.7 percent increase. Incoming
orders for the nine months ended September 30, 1998 were $525.8 million
compared to $479.9 million for the same period in 1997, a 9.6 percent
increase. Recently acquired businesses (primarily Terry Machine Company,
Mohawk, Penncraft, MTC and Greenville) increased orders by $24.0 million
for the quarter and $55.5 million for the nine month period. Partially
offsetting these increases was a decrease in orders received for aerospace
fasteners ($14.5 million for the quarter and $30.4 million for the nine
month period). The decrease in aerospace orders is attributed to extended
delivery times for certain aerospace products due to the high backlog of
orders and to a flattening of current demand for aerospace fasteners
manufactured in North America. Orders for aerospace fasteners manufactured
in Europe actually increased by $5.6 million for the nine month period.
Backlog at September 30, 1998 was $238.1 million, compared to $231.2
million on the same date a year ago and $251.1 million at December 31,
1997.
<PAGE>16
Acquisitions
- ------------
As discussed in Note 2 to the financial statements, the Company
acquired four businesses in the first nine months of 1998. On March 23,
1998, the Company acquired all of the outstanding shares of Greenville
Metals, Inc. (Greenville) located in Transfer, Pennsylvania, for $15.5
million. Greenville manufactures master alloy ingot and shot, foundry
additive products, miscellaneous induction alloys and refines and converts
scrap for a wide variety of customers. In 1997, Greenville had sales of
approximately $20.5 million. Greenville's capabilities complement and
expand those of the Cannon-Muskegon Corporation and the Company expects
future benefits from the operational synergies that can be achieved between
Cannon-Muskegon and Greenville. On June 30, 1998, the Company acquired all
of the outstanding shares of Terry Machine Company (Terry) located in
Waterford, Michigan, for $22.3 million. Terry manufactures specialty cold
headed fasteners for the automotive industry and had sales for the twelve
months ended April 30, 1998 of approximately $37.2 million. This
acquisition expands the Company's automotive product lines at a time when
auto makers are attempting to limit the number of suppliers they do
business with. On June 30, 1998, the Company purchased the operating
assets of Howell Penncraft (Penncraft) located in Howell, Michigan, for
$3.5 million. Penncraft is a manufacturer of high-speed tool steel and
carbide products used in metal forming. This acquisition expands the
product range and geographic sales coverage of the Company's Precision Tool
Group. On July 31, 1998, the Company acquired all of the outstanding
shares of Nevada Bolt & Mfg. Co. doing business as Non-Ferrous Bolt & Mfg.
Co. (Non-Ferrous) located in Las Vegas, Nevada for $12.7 million. Non-
Ferrous manufactures non-standard, hot-forged bolts and nuts from stainless
steel and specialty alloy materials. For the year ended January 31, 1998,
Non-Ferrous had sales of approximately $17.1 million. This acquisition
expands the product range of the Company's industrial fastener products and
extends their penetration into the industrial markets.
For $2.8 million, the Company also acquired three smaller sized
businesses intended to add specific product line capabilities and enhance
the competitive position of the Company's current businesses. The company
acquired the assets of Premier Microwave Corporation's solenoid business,
certain assets of Robertson Tooling Limited (a manufacturer of planetary
thread roll dies) and the assets of KSS Socket Screw, Inc. (a manufacturer
of small diameter headed socket screws). The combined annual sales of
these three businesses is approximately $3.5 million and all assets were or
will be relocated to currently owned facilities of the Company.
Liquidity and Capital Resources
- -------------------------------
Management considers liquidity to be the ability to generate adequate
amounts of cash to meet its needs and capital resources to be the resources
from which such cash can be obtained, principally from operating and
external sources. The Company believes that capital resources available to
it will be sufficient to meet the needs of its business, both on a short-
term and long-term basis.
Cash flow provided or used by operating activities, investing
activities and financing activities is summarized in the condensed
PAGE<17>
statements of consolidated cash flows. Net cash provided by operating
activities increased by $13.6 million compared to the first nine months of
1997 primarily due to the $9.7 million improvement in net earnings.
The decrease in cash used in investing activities is attributed to the
1998 payments for the acquisitions of Greenville ($9.7 million), Terry
($8.4 million) and Penncraft ($3.5 million) versus the 1997 payments for
the acquisitions of Greer Stop Nut, Inc. ($10 million), RJF International
Corporation's bonded magnet business ($9.2 million), Lake Erie Design Co.,
Inc. ($7.8 million) and Mohawk ($8.4 million). In January 1997, the
Company sold land and a building located in Puerto Rico, a former site of
an Unbrako manufacturing operation closed in 1992, for $1.1 million and
these proceeds are included in the consolidated cash flow from investing
activities. Additionally, the Company spent $19.6 million for capital
expenditures in the first nine months of 1998 and has budgeted $30.0
million for the full year of 1998, as reported on Form 10-K for the year
ended December 31, 1997.
The Company's total debt to equity ratio was 50 percent at September
30, 1998, compared to 52 percent at December 31, 1997. Total debt was
$128.3 million at September 30, 1998 and $110.7 million at December 31,
1997. As of September 30, 1998, under the terms of the existing credit
agreements, the Company is permitted to incur an additional $130 million in
debt. In the second quarter of 1998, the Company amended its Bank Credit
Agreement and $85 million Note Purchase Agreement to, among other items,
redefine the covenants which limit the Company's total allowable debt. The
redefined covenants use net worth versus tangible net worth in the maximum
leverage ratio computation, thus increasing the amount of borrowings
allowed under these debt agreements.
Year 2000 Readiness Disclosures
- -------------------------------
The following statements include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure
Act of 1998. The Company is identifying, evaluating and implementing
changes to computer systems and applications necessary to achieve a year
2000 date conversion with no material effect on customers or disruption to
business operations. These actions are necessary to ensure that the
systems and applications will recognize and process the year 2000 and
beyond. Major areas of potential business impact have been identified and
conversion efforts are underway. All mainframe based computer systems have
been assessed, plans have been put into place and required conversion of
computer programs is partially completed. Converted programs have been
tested and placed into operation. Conversion is expected to be completed
by March 1999. The process of assessing the various PC and LAN based
computer systems and non-information technology systems is in process. The
Company has converted and tested many of these systems. The Company is
communicating with suppliers, customers, financial institutions and others
which it does business with to coordinate year 2000 conversion. The
Company has not completed its assessment and evaluation of the state of
readiness of its customers or vendors, although major customers have
requested from the Company information regarding its year 2000 readiness
and certain key suppliers have confirmed their own internal year 2000
readiness. The Company expects that the total cost specifically associated
<PAGE>18
with addressing year 2000 issues over the cost of normal software and
hardware upgrades and replacements will not be material to the Company's
results of operations. For the nine months ended September 30, 1998, the
Company has incurred approximately $600 thousand of incremental expenses
related to this issue. All costs have been expensed in the period
incurred. The failure to correct a material year 2000 problem could result
in an interruption in, or failure of, certain normal business activities or
operations. Due to the general uncertainty inherent in the year 2000
problem, the Company is unable to determine at this time whether the
consequences of year 2000 failure will have a material impact on the
Company's results of operations, liquidity or financial condition. The
Company will continue to assess the readiness of its own systems and that
of its suppliers and customers. Contingency plans will be developed in
1999 to deal with any problems which may become known as a result of these
assessments.
Forward-Looking Statements
- --------------------------
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information,
within the meaning of the Private Securities Litigation Reform Act of 1995,
that involve risk and uncertainty. The Company's expectations of demand
for aerospace fasteners and its effect on the Company's aerospace
operations, future benefits from operational synergies with newly acquired
companies and completing the Year 2000 date conversion with no material
adverse effect on operations and at no material cost to the Company's
results of operations are "forward looking" statements contained in
management's discussion and analysis of financial condition and results of
operations. Actual future results may differ materially depending on a
variety of factors, such as: the effects of competition on products and
pricing, customer satisfaction and qualification issues, labor disputes,
worldwide political and economic stability and changes in fiscal policies,
laws and regulations on a national and international basis. The Company
undertakes no obligation to publicly release any forward-looking
information to reflect anticipated or unanticipated events or
circumstances after the date of this document.
<PAGE>19
SPS TECHNOLOGIES, INC. AND SUBSIDIARIES
---------------------------------------
PART II
-------
OTHER INFORMATION
-----------------
Item 5. Other Information
- --------------------------
The Company Declares Dividend Distribution Under Shareholder Rights Plan
- ------------------------------------------------------------------------
On October 27, 1998, the Company's Board of Directors declared a dividend
distribution under its new Shareholder Rights Plan (the "New Plan").
Under the terms of the New Plan, which is effective November 21, 1998,
preferred purchase rights will be distributed as a dividend at the rate of
one right for each Common Share held as of the close of business on
November 21, 1998. Shareholders will not receive certificates for the
rights, but the rights will become part of each Common Share. All rights
expire on November 21, 2008.
As previously disclosed, a summary of the New Plan will be mailed to
shareholders of record on or around November 21, 1998. A complete copy of
the New Plan will be filed with the Securities and Exchange Commission and
will be available from the Company upon the request of a rights holder.
The Company Acquires Chevron Aerospace Group Limited
- ----------------------------------------------------
On October 28, 1998 the Company acquired all of the outstanding shares of
Chevron Aerospace Group Limited (Chevron) based in Wilford, Nottingham,
England for approximately $54 million. The sources of the funds used were
current available cash, proceeds from the Company's current Bank Credit
Agreement and a $22 million note payable to the sellers. Chevron is a
manufacturer of aircraft structural assemblies, precision machined
components, avionic panels, wiring harnesses and turbine lockplates.
Chevron's customers include BAe Airbus, Raytheon Hawker, Rolls-Royce,
Lockheed Martin, Bombardier Shorts, Boeing and GKN Westland. Chevron was
purchased from its management team and Lloyds Development Capital, a UK
private equity investor. For the fiscal year ending March 31, 1999,
Chevron is expected to have sales of $47 million.
The acquisition of Chevron expands SPS' product offering to the European
aerospace market, which is growing rapidly due to the continued success of
Airbus in booking new airplane orders. The acquisition of Chevron will be
accounted for under the purchase method. Chevron's results of operations
will be included in the consolidated financial statements from the date of
acquisition.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
3 By-Laws as amended, effective April 28, 1998.
(b) No reports on Form 8-K were filed during the quarter ended September
30, 1998.
<PAGE>20
SPS TECHNOLOGIES, INC. 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.
SPS TECHNOLOGIES, INC.
----------------------
(Registrant)
Date: November 2, 1998 /s/William M. Shockley
----------------------
William M. Shockley
Vice President and
Chief Financial Officer
Mr. Shockley is signing on behalf of the registrant and as the Chief
Financial Officer of the registrant.
<PAGE>21
EXHIBIT INDEX
3 By-Laws as amended, effective April 28, 1998.
27 Financial Data Schedule.
PAGE<22>
SPS TECHNOLOGIES, INC.
formerly
(STANDARD PRESSED STEEL CO.)
As Amended and Effective April 28, 1998
BY-LAWS
-------
ARTICLE I
---------
1.1 Principal Office - The principal office of the
----------------
corporation shall be at Jenkintown, Pennsylvania.
1.2 Other Offices - The corporation shall also have
-------------
offices at such other places as the Board of Directors may from
time to time appoint or the business of the corporation may
require.
ARTICLE II
----------
Shareholders and Share Certificates
-----------------------------------
2.1 Issuance of Share Certificates - Every shareholder
------------------------------
of record shall be entitled to a share certificate representing
the shares owned by him. Share certificates shall be in such
form as may be required by law and as the Board of Directors
shall prescribe. Every share certificate shall be signed by the
Chairman or President or a Vice-President and the Treasurer or
Secretary or Assistant Treasurer or Assistant Secretary, and
sealed with the corporate seal, which may be a facsimile, either
engraved or printed. Whenever permitted by law, the Board of
Directors may authorize the issuance of share certificates
bearing the facsimile signatures of the officers authorized to
sign such certificates.
2.2 Transfer of Shares - Shares of the capital stock
------------------
of the corporation shall be transferable only on the books of the
corporation by the person in whose name such shares are
registered, or by his duly authorized attorney or representa-
tive. In all cases of transfer by an attorney, the original
letter of attorney, duly approved, or an official copy thereof,
duly certified, shall be deposited and remain with the
corporation. In case of transfer by executors, administrators,
guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be
required to be deposited and remain with the corporation in its
discretion. No transfer shall be made unless and until the
certificate issued to the transferor is delivered to the
corporation, properly endorsed.
<PAGE>24
2.3 Lost or Destroyed Share Certificates - Any person
------------------------------------
desiring a share certificate to be issued in lieu of one lost or
destroyed shall make an affidavit setting forth the loss or
destruction of such share certificate, and shall, if the Board of
Directors shall so require, advertise such loss or destruction in
such manner as the Board of Directors may require, and shall, if
the Board of Directors shall so require, give the corporation a
bond of indemnity, in such form and with such security as may be
satisfactory to the Board, indemnifying the corporation against
any loss that may result from the issuance of a new share
certificate. Upon receipt of such affidavit and proof of
publication of the advertisement of such loss or destruction if
such advertisement is required by the Board of Directors, and the
bond, if any, required by the Board of Directors, a new share
certificate may be issued of the same tenor and for the same
number of shares as the one alleged to have been lost or
destroyed.
2.4 Addresses of Shareholders - Each shareholder
-------------------------
shall, when issued his share certificate, notify the Secretary of
the corporation in writing of the address to which such
shareholder wishes notices relating to the business of the
corporation to be mailed and he shall thereafter notify the
Secretary in writing of any changes in such address.
2.5 Transfer of Rights - Rights issued pursuant to the
------------------
Rights Agreement to be effective as of November 21, 1998, between
the corporation and Chase Mellon Shareholder Services (the
"Rights Agreement") may be transferred by an Acquiring Person or
an Associate or Affiliate of an Acquiring Person (as such terms
are defined in the Rights Agreement) only in accordance with the
terms of, and subject to the restrictions contained in, the
Rights Agreement.
ARTICLE III
-----------
Meetings of Shareholders
------------------------
3.1 Annual Meeting - The Annual Meeting of the
--------------
shareholders of the corporation for the election of directors and
for the transaction of such other business as may be appropriate
shall be held at the principal office of the corporation, or at
such other place within or without the Commonwealth of
Pennsylvania as the Board of Directors may from time to time
prescribe. The annual meeting shall be held on such date as
shall be determined by the Board of Directors of the Corporation.
3.2 Special Meetings - Special meetings of the
----------------
shareholders may be called at any time by the Chairman, and shall
be called by the Chairman, or in his absence, by the Secretary,
upon the written request of a majority of the members of the
Board of Directors. Upon receipt of the written request of any
person or persons entitled to call a special meeting, which shall
<PAGE>25
state the purpose of the meeting, it shall be the duty of the
Chairman, or, in his absence, the Secretary, to call such meeting
to be held not less than ten days, nor more than sixty days,
after receipt of such request. If the Chairman or the Secretary
shall neglect or refuse to issue such call, the person or persons
making the request may do so. Special meetings of the
shareholders shall be held at the principal office of the
corporation or at such other place as the Board of Directors may
from time to time direct.
3.3 Notice of Meetings - Notice of the time and place
------------------
of the annual or any special meeting of the shareholders shall be
given to each shareholder entitled to notice of such meeting at
least ten days prior to the date of the meeting, unless a greater
period of notice is by law required in a particular case. Such
notice shall be given by the Secretary of the corporation or by
or at the direction of the person or persons authorized to call
the meeting in the case of a special meeting, and shall be mailed
to each shareholder at the address last given by him, as herein
provided. If no such address be given, notice deposited in the
post office, addressed to him at the city or place in which the
principal office of the corporation is located, shall be
sufficient. In the case of special meetings of the shareholders,
the notice shall specify the purpose thereof, and no business
shall be transacted other than that mentioned in the notice
except with the consent of all of the shareholders of the
corporation entitled to vote at such meeting. When a meeting is
adjourned it shall not be necessary to give any notice of the
adjourned meeting or of the business to be transacted at an
adjourned meeting other than by announcement at the meeting at
which such adjournment is taken.
3.4 Determination of Shareholders of Record - The
---------------------------------------
Board of Directors may fix a time, not more than fifty days prior
to the date of any meeting of the shareholders, or the date fixed
for the payment of any dividend or distribution, or the date for
the allotment of rights, or the date when any change or
conversion or exchange of shares will be made or will go into
effect, as a record date for the determination of the
shareholders entitled to notice of or to vote at any such
meeting, or entitled to receive payment of any such dividend or
distribution, or entitled to receive any such allotment of
rights, or to exercise the rights in respect to any such change,
conversion or exchange of shares. In any such case only such
shareholders as shall be shareholders of record at the close of
business on the day so fixed shall be entitled to notice of or to
vote at such meeting, or to receive payment of such dividend or
distribution, or to receive such allotment of rights, or to
exercise any such rights in respect to any such change,
conversion or exchange of shares, as the case may be,
notwithstanding any transfers of any shares on the books of the
corporation after the date so fixed. The Board of Directors may
close the books of the corporation against transfers of shares
<PAGE>26
during the whole or any part of such period, and during the time
when the transfer books of the corporation shall be closed no
transfers of shares shall be made thereon; provided, however,
that in case the Board of Directors shall determine to close the
transfer books of the corporation, written or printed notice
thereof shall be mailed to each shareholder of record at the
address given by him as herein provided, at least ten days before
the date fixed for the closing of the transfer books.
3.5 Voting Rights - Except as otherwise provided
-------------
herein, or in the articles of incorporation or by law, every
shareholder of record shall have the right at every shareholders'
meeting to one vote for every share standing in his name on the
books of the corporation. Every shareholder may vote either in
person or by proxy.
3.6 Nominations for Directors - Nominations of
-------------------------
candidates for election by the shareholders to the Board of
Directors shall be given in writing to the Secretary of the
Company not less than sixty (60) days in advance of the meeting
at which such election is to take place in order to be considered
timely. Such notice shall include the name and address of record
of the nominating shareholder, a representation that the
shareholder is entitled to vote at such meetings and intends to
appear in person or by proxy at the meeting; the name, age,
business and residence address and principal occupation of such
proposed nominee; a description of any and all arrangements or
understandings between the shareholder and each proposed nominee;
such other information as would be required by the Securities and
Exchange Commission to be included in the proxy statements
soliciting proxies for the election of the proposed nominee; and
the signed consent of each such individual to serve as director
if elected. The Board shall also have the right to require any
proposed nominee to furnish other information which the Board
shall reasonably require to determine the proposed nominee's
eligibility and qualifications to serve as a director. If the
Board, after affording the shareholder a reasonable opportunity
to cure any deficiency which the Board perceives in the original
notice, determines that an individual was not nominated in
accordance with the foregoing procedure, then such individual
shall not be eligible for nomination and election as a director.
3.7 Proxies - Every proxy shall be executed in writing
-------
by the shareholder, or by his duly authorized attorney in fact,
and filed with the Secretary of the corporation. A proxy, unless
coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the proxy
to the contrary, but the revocation of a proxy shall not be
effective until written notice thereof has been given to the
Secretary of the corporation. No unrevoked proxy shall be valid
after eleven months from the date of its execution, unless a
longer time is expressly provided therein, but in no event shall
a proxy, unless coupled with an interest, be voted on after three
<PAGE>27
years from the date of its execution. A proxy shall not be
revoked by the death or incapacity of the maker unless, before
the vote is counted or the authority is exercised, written notice
of such death or incapacity is given to the Secretary of the
Corporation.
3.8 Ballot - No vote by the shareholders need be by
------
ballot, except upon demand made in writing before the voting
begins by a shareholder then entitled to vote. In all cases
where voting shall be by ballot, a record of the name of and the
number of shares of stock represented by each person voting shall
be made by the Judge or Judges of Election duly appointed, and
shall be kept on file by the corporation.
3.9 Majority Vote - Except as otherwise specified in
-------------
the articles of incorporation, in these by-laws or provided by
law, all matters shall be decided by the vote of the holders of a
majority of the shares then entitled to vote present in person or
represented by proxy at the meeting.
3.10 Cumulative Voting - In all elections for
-----------------
directors, every shareholder entitled to vote shall have the
right, in person or by proxy, to multiply the number of votes to
which he may be entitled by the total number of directors to be
elected in the same election by the holders of the class or
classes of shares of which his shares are a part, and he may cast
the whole number of such votes for one candidate or he may
distribute them among any two or more candidates. The candidates
receiving the highest number of votes from each class or group of
classes entitled to elect directors separately up to the number
of directors to be elected in the same election by such class or
group of classes shall be elected.
3.11 Voting on Sale or Merger - The affirmative vote of
------------------------
shareholders owning at least 80% of the outstanding capital stock
of the corporation shall be required (a) for the adoption of any
agreement for the merger or consolidation of the corporation with
or into any other corporation and (b) to authorize any sale,
lease or exchange of all or substantially all of the assets of
the corporation to or with, or any sale, lease or exchange to or
with the corporation (in exchange for its securities in a
transaction for which stockholder approval is required by law or
any agreement between the corporation and any national securities
exchange) of any assets of, any other corporation, person or
other entity.
3.12 Quorum of Shareholders - At all meetings of the
----------------------
shareholders a quorum shall consist of the presence of persons
representing a majority of the outstanding shares of the
corporation entitled to vote at such meeting, and in the absence
of a quorum no business shall be transacted. The shareholders
present at a duly organized meeting can continue to do business
until adjournment, notwithstanding the withdrawal of enough
<PAGE>28
shareholders to leave less than a quorum. Except as otherwise
provided by law, if a meeting cannot be organized because a
quorum has not attended, those present may adjourn the meeting to
such time and place as they may determine, and in the case of any
meeting called for the election of directors those who attend the
second of such adjourned meetings, although less than a quorum as
fixed in this section, shall nevertheless constitute a quorum for
the purpose of electing directors.
3.13 Judges of Election - In advance of any meeting of
------------------
shareholders, the Board of Directors may appoint Judges of
Election, who need not be shareholders, to act at such meeting or
any adjournment thereof. If Judges of Election be not so
appointed, the Chairman of any such meeting may, and on the
request of any shareholder or his proxy shall, make such
appointment at the meeting. The number of judges shall be one or
three. No person who is a candidate for office shall act as a
judge. The Judges of Election shall do all such acts as may be
proper to conduct the election or vote with fairness to all
shareholders. If requested by the Chairman of the meeting or any
shareholder or his proxy, they shall make a written report of any
matter determined by them and execute a certificate of any fact
found by them. If there be three Judges of Election, the
decision, act or certificate of a majority shall be effective in
all respects as the decision, act or certificate of all.
3.14 Voting Lists - The officer or agent having charge
------------
of the transfer books for shares of the corporation shall make a
complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of and
the number of shares held by each, which list shall be produced
and kept open at the time and place of the meeting, and shall be
subject to the inspection of any shareholder during the whole
time of the meeting for the purposes thereof. If the corporation
has, at the time when the aforesaid list is required to be
prepared, five thousand or more shareholders, then in lieu of the
making of such list, it may make such information available by
other appropriate means. The original share ledger or transfer
book, or a duplicate thereof kept in the Commonwealth of
Pennsylvania, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or
transfer book, or to vote, in person or by proxy, at any meeting
of the shareholders.
3.15 Advance Notice of Shareholder Proposals - At any
---------------------------------------
annual or special meeting of shareholders, proposals by
shareholders shall be considered only if advance notice thereof
has been timely given as provided herein and such proposals are
otherwise proper for consideration under applicable law and the
articles of incorporation of the corporation and these By-laws.
Notice of any proposal to be presented by any share- holder at
any meeting of shareholders shall be delivered in writing to the
Secretary of the Company not less than sixty (60) days prior to
<PAGE>29
the date of the meeting; provided, however, that if the date of
the meeting is first publicly announced or disclosed (in a public
filing or otherwise) less than seventy (70) days prior to the
date of the meeting, such advance notice shall be given not more
than ten (10) days after such date is first so announced or
disclosed. Public notice shall be deemed to have been given more
than seventy (70) days in advance of the annual meeting if the
corporation shall have previously disclosed, in these By-laws or
otherwise, that the annual meeting in each year is to be held on
a determinable date, unless and until the Board determines to
hold the meeting on a different date. Notice of any such
proposal shall include the text of the proposal to be presented,
a brief written statement of the reasons why such shareholder
favors the proposal, the name and address of record of the
proposing shareholder, a representation that the shareholder is
entitled to vote at such meetings and intends to appear in person
or by proxy at the meeting, the number and class of all shares of
each class of stock of the corporation beneficially owned by such
shareholder, and any material interest of such shareholder in the
proposal (other than as a shareholder). If the Board, after
affording the shareholder a reasonable opportunity to cure any
deficiency which the Board perceives in the original notice
relating to the information required in the immediately preceding
sentence, determines that notice of a proposal was not effected
in accordance with the foregoing procedure, then such proposal
shall not be eligible for consideration at the meeting.
ARTICLE IV
----------
Directors
---------
4.1 Number of Directors - The Board of Directors shall
-------------------
consist of such number of members, not less than three, as shall
be from time to time fixed by resolution of the Board of
Directors.
4.2 Directors - The Board of Directors shall be
---------
divided into three classes, as nearly equal in number as
possible, consisting of two classes of three members each and one
class of two members. The term of office of one class shall
expire in each year. The members of each class shall be elected
for terms of three years except in the case of a vacancy in any
class, in which case the vacancy shall be filled for the balance
of the term of the class in which the vacancy exists.
4.3 Powers; Qualifications and Personal Liability
---------------------------------------------
(a) The Board of Directors shall have the control
and management of the business and affairs of the corporation,
and all powers of the corporation except those specifically
reserved or granted to the shareholders by law, by the articles
of incorporation, or by these by-laws, are hereby granted to and
vested in the Board of Directors.
<PAGE>30
(b) Directors need not be residents of the
Commonwealth of Pennsylvania or shareholders in the corporation.
A director may also be a salaried officer of the corporation.
If any person elected as a director shall, upon written request,
fail to accept such office, either in writing or by attending a
meeting of the Board of Directors, the Board of Directors may
declare his office vacant.
(c) A director of the corporation shall not be
personally liable for monetary damages as such for any action
taken, or any failure to take any action, unless the director has
breached or failed to perform the duties of his or her office
under 42 Pa.C.S. Section 8363 and the breach or failure to
perform constitutes self-dealing, willful misconduct or
recklessness. The provisions of this subsection shall not apply
to the responsibility or liability of a director pursuant to any
criminal statute or the liability of a director for the payment
of taxes pursuant to local, state or Federal law. The provisions
of this subsection shall be effective January 27, l987, but shall
not apply to any action filed prior to that date nor to any
breach of performance of duty or any failure of performance of
duty by a director occurring prior to that date.
4.4 Annual Report - The Board of Directors through the
-------------
appropriate corporate officer shall present at the annual meeting
of the shareholders a report of the financial condition of the
corporation as of the closing of the preceding fiscal year. Such
report shall be sent to all shareholders and shall be available
for the inspection of shareholders at the annual meeting. The
Board of Directors shall have the financial statements contained
in such report examined and reported upon by independent
certified public accountants who shall not be required to be
elected by the shareholders of the corporation.
4.5 Resignations - Any director of the corporation may
------------
resign at any time by giving written notice to the Chairman of
the Board of Directors or the Secretary of the corporation. Such
resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein, and unless
otherwise specified therein the acceptance of such resignation
shall not be necessary to make it effective.
4.6 Removal - Directors may be removed in such manner
-------
as may be provided by law.
4.7 Vacancies - The Board of Directors shall have
---------
power to fill all vacancies occurring on the Board, whether by
death, resignation, increase in number or otherwise. A vacancy
in the Board of Directors may be filled by a vote of the majority
of the remaining members of the Board, though less than a quorum,
and each person so elected shall be a director until his
successor is elected by the shareholders.
<PAGE>31
4.8 Committee of the Board - Except as otherwise
----------------------
provided in Section 4.9 of these By-Laws, the Board of Directors
may, by resolution adopted by a majority of the entire Board,
designate one or more committees, each committee to consist of
two or more directors. Any such committee to the extent provided
in the resolution creating it shall have and exercise the
authority of the Board of Directors in the management of the
business and affairs of the corporation. The Board may designate
one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of
the committee, provided that any such alternate member shall meet
the qualifications, if any, applicable to members of such
committee. If the resolution creating any committee so provides,
then, in the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another director to
act at the meeting in the place of any such absent or
disqualified member, provided that any person so appointed shall
meet the qualifications, if any, applicable to members of such
committee. Each such committee shall keep minutes of its
proceedings and report the same to the Board of Directors at its
next meeting.
4.9 Continuing Directors Committee
------------------------------
(a) There is hereby designated and established a
Continuing Directors Committee consisting of one or more members
of the Board of Directors having the qualifications set forth in
this Section 4.9, which Continuing Directors Committee shall have
and may exercise the powers granted to the Continuing Directors
in the management of the business and affairs of the Company to
the extent set forth in the Rights Agreement, as such Rights
Agreement may be amended from time to time in accordance with the
terms thereof.
(b) The member or members of the Continuing
Directors Committee shall consist of any member of the Board of
Directors of the Company, while such Person is a member of the
Board, who is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in
the Rights Agreement), or a representative of an Acquiring Person
or of any such Affiliate or Associate and (i) who was a member of
the Board immediately prior to the effective date of the Rights
Agreement, or (ii) whose nomination for election or election to
the Board was (x) subsequent to the effective date of the Rights
Agreement and (y) recommended or approved by a majority of the
Continuing Directors. In all cases where action of the Board of
Directors requires, under the terms of the Rights Agreement, the
concurrence of at least a majority of the Continuing Directors in
office at the time, such action shall not be deemed to have been
taken unless there are Continuing Directors in office at the
<PAGE>32
time.
(c) In the absence or disqualification of any
member of the Continuing Directors Committee, the member or
members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may
unanimously appoint another Continuing Director to act at the
meeting in the place of any such absent or disqualified member,
and, in the absence or disqualification of all members of the
Continuing Directors Committee, the member or members meeting the
qualifications of this Section 4.9 shall be appointed by a
majority of the Board of Directors as a whole.
(d) This Section 4.9 shall automatically terminate and
be of no further force or effect upon the expiration of the
Rights Agreement by its terms or the earlier redemption of the
Rights (as defined in the Rights Agreement) in accordance with
the terms of the Rights Agreement.
ARTICLE V
---------
Directors' Meetings
-------------------
5.1 Place of Meetings - The meetings of the Board of
-----------------
Directors may be held at such place within the Commonwealth of
Pennsylvania or elsewhere as a majority of the Directors may from
time to time elect, or as may be designated in the notice of the
meeting.
5.2 Annual Meeting - Immediately after each annual
--------------
election of directors, the Board of Directors shall meet for the
purpose of organization, election of officers, and the
transaction of other business, at the place where such election
of directors was held. Notice of such meeting need not be given.
Such annual meeting may be held at any other time or place which
shall be specified in a notice given in the manner provided for
special meetings of the Board of Directors.
5.3 Regular Meetings - The Board of Directors may by
----------------
resolution designate dates, times and places for regular meetings
to be held throughout the year not less than one meeting in each
quarter. Notice shall be given of any change in the date, time
or place of any regular meetings in the manner provided for
notice of special meetings of the Board of
Directors; otherwise no notice need be given.
5.4 Special Meetings - Special meetings of the Board
----------------
of Directors may be called by the Chairman, or by a majority of
the Directors, and shall be held at such time and place as shall
be designated by the person or persons calling the meeting.
Unless notice is waived by all of the members of the Board of
Directors, notice of the time, place and purpose of any special
meeting shall be sent to each director by mail or by telegraph or
<PAGE>33
by cable at least three days prior to the date of such meeting,
and such notice shall state the time, place and purpose of such
special meeting.
5.5 Notice of Adjourned Meeting - When a meeting is
---------------------------
adjourned, it shall not be necessary to give any notice of the
adjourned meeting, or of the business to be transacted at an
adjourned meeting, other then by announcement at the meeting at
which such adjournment is taken.
5.6 Quorum - A majority of the members of the Board of
------
Directors shall constitute a quorum for the transaction of
business at any meeting, and the acts of a majority of the
directors present at a meeting at which a quorum is present shall
be the acts of the Board of Directors. Any one or more directors
or members of a committee of the Board of Directors may
participate in a meeting of the Board or of the committee by
means of conference telephone or similar communications equipment
so connected that all persons participating in the meeting can
hear each other, and any person so participating
shall be considered as present at the meeting for the purpose of
determining the presence of a quorum, action by a majority, and
for all other purposes.
5.7 Order of Business - The order of business at
-----------------
meetings of the Board of Directors shall be as prescribed from
time to time by the Board.
5.8 Compensation - Each director shall be entitled to
------------
receive as compensation for his services such reasonable amounts
as may be fixed from time to time by the Board of Directors, in
the form of either fees and traveling expenses for attendance at
meetings of the Board and of the committees thereof, or of
payment at the rate of a fixed annual sum, or both.
ARTICLE VI
----------
Officers and Agents
-------------------
6.1 Officers Elected by the Board - At the first
-----------------------------
meeting of the Board of Directors after the election of directors
in each year, the Board shall elect a Chairman, a President, one
or more Vice-Presidents, a Secretary and a Treasurer, and such
other officers as the Board may deem necessary and as the
business of the corporation may require.
6.2 Terms and Qualifications of Officers - It
------------------------------------
shall not be necessary for any officer except the Chairman and
the President to be a member of the Board of Directors. Any two
or more offices may be held by the same person, except that the
offices of the President and Secretary shall not be held by the
same person. All officers of the corporation shall serve for one
year and until their successors shall have been duly elected and
<PAGE>34
shall have qualified; provided, however, that any officer may be
removed at any time, either with or without cause, by action of
the Board of Directors.
ARTICLE VII
-----------
Powers and Duties of Officers
-----------------------------
7.1 Chairman - The Chairman shall be the chief
--------
executive and head of the corporation, and in the recess of the
Board of Directors shall have the general control and management
of its business and affairs, subject, however, to the regulations
of the Board of Directors. He shall preside at all meetings of
the shareholders and of the Board of Directors. He shall be a
member ex officio of all standing committees of the Board. He
shall call special or other meetings of the shareholders and
Board of Directors and shall give, or cause to be given, notice
of meetings of the Board of Directors as required by law or by
these By-Laws.
7.2 President - The President shall be the chief
---------
operating officer of the corporation and, subject to the
supervision and control of the Chairman, shall carry out
corporate operating policies as established by the Chairman.
7.3 Vice-Presidents - The Vice-Presidents shall
---------------
have such duties as the Chairman or President may establish.
7.4 Secretary - The Secretary shall attend all
---------
meetings of the shareholders and of the Board of Directors and
shall be responsible for maintaining a record of all the
proceedings thereof in a book to be kept for that purpose. He
shall be the custodian of the corporate seal of the corporation.
In the absence of the Secretary, an Assistant Secretary or any
other person appointed or elected by the Board of Directors may
exercise the rights and perform any of the duties of the
Secretary.
7.5 Treasurer - The Treasurer shall be
---------
responsible for maintaining full and correct accounts of the
receipts and expenditures of the corporation in books belonging
to the corporation, for the deposit of all moneys and valuable
effects in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors, and
for the appropriate disbursement of its funds. He shall, if the
Board shall so direct, give bond with sufficient security in such
amount as may be required by the Board for the faithful
performance of his duties.
7.6 Controller - The Controller shall be
----------
responsible for the establishment and maintenance of sound
accounting practices and procedures throughout the corporation.
<PAGE>35
7.7 Additional Duties - The enumeration of
-----------------
specific duties shall not be deemed to mean that additional
appropriate powers and duties may not be assigned.
ARTICLE VIII
------------
Miscellaneous
-------------
8.1 Checks, Notes, Drafts and Acceptances - All
-------------------------------------
checks, notes and other similar obligations and acceptances of
drafts by the corporation shall be signed by such person or
persons as the Board of Directors may from time to time direct.
8.2 Endorsement of Negotiable Instruments for
-----------------------------------------
Deposit - Any officer of the corporation or any other employee,
- -------
as the Board of Directors may from time to time direct, shall
have full power to endorse for deposit all checks and all
negotiable paper drawn payable to his or their order or to the
order of the corporation.
8.3 Fiscal Year - The fiscal year of the corporation
-----------
shall begin on the first day of January and end on the thirty-
first day of December of each year.
8.4 1988 Pennsylvania Anti-Takeover Law - The
-----------------------------------
corporation shall not be subject to the provisions of Section 910
of the Pennsylvania Business Corporation Law (P.L. 364, No. 106),
as amended by Act 27, enacted March 23, 1988.
8.5 Act No. 1990-36 - The corporation shall not be
---------------
subject to the provisions of Subchapters G (Control-Share
Acquisitions) and H (Disgorgement by Certain Controlling
Shareholders Following Attempts to Acquire Control) of Chapter 25
of Article C of the Business Corporation Law of 1988 (p.1. 1444,
No. 177) as amended by Act 36 enacted April 27, 1990, and,
accordingly, Subchapters I (Severance Compensation for Employees
Terminated Following Certain Control-Share Acquisitions) and J
(Business Combination Transactions - Labor Contracts) shall not
apply to the Corporation.
ARTICLE IX
----------
Indemnification of Directors, Officers, Etc.
--------------------------------------------
9.1 Scope of Indemnification
------------------------
(a) The corporation shall indemnify an indemnified
representative against any liability incurred in connection with
any proceeding in which the indemnified representative may be
involved as a party or otherwise, by reason of the fact that such
person is or was serving in an indemnified capacity, including
without limitation liabilities resulting from any actual or
alleged breach or neglect of duty, error, misstatement or
<PAGE>36
misleading statement, negligence, gross negligence or act giving
rise to strict or products liability, except where such
indemnification is expressly prohibited by applicable law or
where the conduct of the indemnified representative has been
determined pursuant to Section 9.6 to constitute willful
misconduct or recklessness within the meaning of 42 Pa. C.S.
8365(b) or any superseding provision of law, sufficient in the
circumstances to bar indemnification against liabilities arising
from the conduct.
(b) If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any
liabilities to which such person may be subject, the corporation
shall indemnify such indemnified representative to the maximum
extent for such portion of the liabilities.
(c) The termination of a proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere
or its equivalent shall not, of itself, create a presumption that
the indemnified representative is not entitled to
indemnification.
(d) For purposes of this Article:
(1) "indemnified capacity" means any and all
past, present and future service by an indemnified
representative in one or more capacities as a director,
officer, employee or agent of the corporation, or, at
the request of the corporation, as a director, officer,
employee, agent, fiduciary or trustee of another
corporation, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise;
(2) "indemnified representative" means any and all
directors and officers of the corporation and any
other person designated as an indemnified represent-
ative by the board of directors of the corporation,
(which may, but need not, include any person serving
at the request of the corporation, as a director,
officer, employee, agent, fiduciary or trustee of
another corporation, partnership, joint venture,
trust, employee benefit plan or other entity or
enterprise);
(3) "liability" means any damage, judgment, amount
paid in settlement, fine, penalty, punitive damages,
excise tax assessed with respect to an employee
benefit plan, or cost or expense of any nature
(including, without limitation, attorneys' fees and
disbursements); and
<PAGE>37
(4) "proceeding" means any threatened, pending or
completed action, suit, appeal or other proceeding of
any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether
brought by or in the right of the corporation, a class
of its security holders or otherwise.
9.2 Proceedings Initiated by Indemnified
------------------------------------
Representatives - Notwithstanding any other provision of this
- ---------------
Article, the corporation shall not indemnify under this Article
an indemnified representative for any liability incurred in a
proceeding initiated (which shall not be deemed to include
counter-claims or affirmative defenses) or participated in as an
intervenor or amicus curiae by the person seeking indemnifi-
cation unless such initiation of or participation in the
proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the
directors in office. This section does not apply to reimburse-
ment of expenses incurred in successfully prosecuting or
defending an arbitration under Section 9.6 or otherwise
successfully prosecuting or defending the rights of an
indemnified representative granted by or pursuant to this
Article.
9.3 Advancing Expenses - The corporation shall pay the
------------------
expenses (including attorneys' fees and disbursements) incurred
in good faith by an indemnified representative in advance of the
final disposition of a proceeding described in Section 9.l or
9.2 upon receipt of an undertaking by or on behalf of the
indemnified representative to repay such amount if it shall
ultimately be determined pursuant to Section 9.6 that such
person is not entitled to be indemnified by the corporation
pursuant to this Article. The financial ability of an
indemnified representative to repay an advance shall not be a
prerequisite to the making of such advance.
9.4 Securing of Indemnification Obligations - To
---------------------------------------
further effect, satisfy or secure the indemnification
obligations provided herein or otherwise, the corporation may
maintain insurance, obtain a letter of credit, act as self
insurer, create a reserve, trust, escrow, cash collateral or
other fund or account, enter into indemnification agreements,
pledge or grant a security interest in any assets or properties
of the corporation, or use any other mechanism or arrangement
whatsoever in such amounts, at such costs, and upon such other
terms and conditions as the board of directors shall deem
appropriate. Absent fraud, the determination of the board of
directors with respect to such amounts, costs, terms and
conditions shall be conclusive against all security holders,
officers and directors and shall not be subject to voidability.
<PAGE>38
9.5 Payment of Indemnification - An indemnified
--------------------------
representative shall be entitled to indemnification within 30
days after a written request for indemnification has been
delivered to the secretary of the corporation.
9.6 Arbitration - Any dispute related to the right to
-----------
indemnification, contribution or advancement of expenses as
provided under this Article, except with respect to
indemnification for liabilities arising under the Securities Act
of l933 that the corporation has undertaken to submit to a court
for adjudication, shall be decided only by arbitration in the
metropolitan area in which the principal executive offices of
the corporation are located at the time, in accordance with the
commercial arbitration rules then in effect of the American
Arbitration Association, before a panel of three arbitrators,
one of whom shall be selected by the corporation, the second of
whom shall be selected by the indemnified representative and the
third of whom shall be selected by the other two arbitrators.
In the absence of the American Arbitration Association, or if
for any reason arbitration under the arbitration rules of the
American Arbitration Association cannot be initiated, or if one
of the parties fails or refuses to select an arbitrator, or if
the arbitrators selected by the corporation and the indemnified
representative cannot agree on the selection of the third
arbitrator within 30 days after such time as the corporation and
the indemnified representative have each been notified of the
selection of the other's arbitrator, the necessary arbitrator or
arbitrators shall be selected by the presiding judge of the
court of general jurisdiction in such metropolitan area. Each
arbitrator selected as provided herein is required to be or have
been a director or executive officer of a corporation whose
shares of common stock were listed during at least one year of
such service on the New York Stock Exchange or the American
Stock Exchange or quoted on the National Association of
Securities Dealers Automated Quotations System. The party or
parties challenging the right of an indemnified representative
to the benefits of this Article shall have the burden of proof.
The corporation shall reimburse an indemnified representative
for the expenses (including attorneys' fees and disbursements)
incurred in successfully prosecuting or defending such
arbitration. Any award entered by the arbitrators shall be
final, binding and nonappealable and judgment may be entered
thereon by any party in accordance with applicable law in any
court of competent jurisdiction. This arbitration provision
shall be specifically enforceable.
9.7 Discharge of Duty - An indemnified representative
-----------------
shall be deemed to have discharged such person's duty to the
corporation if he or she has relied in good faith on
information, opinions, reports or statements, including
financial statements and other financial data, in each case
prepared or presented by any of the following:
<PAGE>39
(1) one or more officers or employees of the
corporation whom the indemnified representative
reasonably believes to be reliable and competent with
respect to the matter presented;
(2) legal counsel, public accountants or other persons
as to matters that the indemnified representative
reasonably believes to be within the person's
professional or expert competence; or
(3) a committee of the board of directors on which he
or she does not serve as to matters within its area of
designated authority, which committee he or she
reasonably believes to merit confidence.
9.8 Contract Rights; Amendment or Repeal - All rights
------------------------------------
to indemnification and advancement of expenses under this
Article shall be deemed a contract between the corporation and
the indemnified representative pursuant to which the corporation
and each indemnified representative intend to be legally bound.
Any repeal, amendment or modification hereof shall be
prospective only and shall not affect any rights or obligations
then existing.
9.9 Scope of Article - The rights granted by this
----------------
Article shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled under any statute, agreement, vote of share-
holders or disinterested directors or otherwise, both as to
action in an indemnified capacity and as to action in any other
capacity. The indemnification and advancement of expenses
provided by or granted pursuant to this Article shall continue
as to a person who has ceased to be an indemnified representa-
tive in respect of matters arising prior to such time, and shall
inure to the benefit of the heirs, executors, administrators and
personal representatives of such a person.
9.10 Reliance on Provisions - Each person who
----------------------
shall act as an indemnified representative of the
corporation shall be deemed to be doing so in reliance upon
the rights of indemnification and advancement of expenses
provided by this Article.
ARTICLE X
---------
Amendments
----------
10.1 Procedure - Sections 3.6, 3.11 and 10.1 of
---------
these By-laws may be altered, amended, modified, added to or
repealed only at any annual or special meeting of the
shareholders, and, with respect to Sections 3.11 and 10.1,
only by the affirmative vote of shareholders owning at least
80% of the outstanding capital stock of the corporation.
<PAGE>40
Otherwise, these By-laws may be altered, amended, modified,
added to or repealed at any annual, regular or special
meeting of the Board of Directors or by the shareholders at
any annual or special meeting. Notice of any meeting shall
set forth such proposed change or a summary thereof.
10.2 - Amendments to Sections 4.8, 4.9 and 10.2 -
----------------------------------------
The amendment to Section 4.8 and the provisions of Sections
4.9 and 10.2 of these By-Laws have been adopted in
connection with the execution by the Company of the Rights
Agreement described in Section 4.9, and may be altered,
amended, modified, added to or repealed only by a resolution
duly adopted by the Board of Directors of the Company
(provided that no such resolution will be effective without
the concurrence of at least a majority of the Continuing
Directors).
<PAGE>41
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0
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