SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Quarter Ended October 31, 1998 Commission File Number 0-15898
DESIGNS, INC.
(Exact name of registrant as
specified in its charter)
Delaware 04-2623104
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
66 B Street, Needham, MA 02494
(Address of principal executive offices) (Zip Code)
(781) 444-7222
(Registrant's telephone
number, including area code)
Indicate by "X" whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of October 31, 1998
----- ----------------------------------
Common 15,878,000
DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
October 31, 1998, November 1, 1997 and January 31, 1998 (In
thousands, except share data)
October 31, November1, January 31,
1998 1997 1998
ASSETS (unaudited) (unaudited)
-------------------------------
Current assets:
Cash and cash equivalents $ 1,490 $ 2,402 $1,473
Accounts receivable 3,282 358 115
Inventories 58,938 82,849 54,972
Income taxes refundable and deferred 10,196 14,603 13,857
Pre-opening costs, net - 242 -
Prepaid expenses 1,422 4,362 1,015
---------------------------------
Total current assets 75,328 104,816 71,432
Property and equipment, net of
accumulated depreciation and amortization 19,897 38,205 35,307
Other assets:
Deferred income taxes 6,362 2,700 6,362
Intangible assets, net 2,707 3,010 2,945
Other assets 1,201 253 353
---------------------------------
Total assets $105,495 $148,984 $116,399
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,610 $27,229 $8,821
Accrued expenses and other
current liabilities 5,879 7,551 6,129
Accrued rent 2,005 2,739 2,751
Reserve for severance and store closings 7,111 5,040 1,799
Notes payable 11,340 10,000 9,828
---------------------------------
Total current liabilities 37,945 52,559 29,328
---------------------------------
Minority interest - 5,427 4,691
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized,
none issued
Common Stock, $0.01 par value, 50,000,000 shares authorized, 16,160,000,
15,969,000 and 16,012,000 shares issued at October 31, 1998, November 1, 1997
and January 31, 1998, respectively 161 160 160
Additional paid-in capital 53,867 53,541 53,652
Retained earnings 15,503 39,124 30,395
Treasury stock at cost, 281,000 shares (1,827) (1,827) (1,827)
Deferred compensation (154) - -
---------------------------------
Total stockholders' equity 67,550 90,998 82,380
---------------------------------
Total liabilities and stockholders $105,495 $148,984 $116,399
=================================
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
October 31, November 1,
1998 1997
------------------------
Sales $ 58,714 $ 77,459
Cost of goods sold including
occupancy 45,247 58,659
------------------------
Gross profit 13,467 18,800
Expenses:
Selling, general and administrative 12,699 16,466
Provision for store closings 13,407 -
Depreciation and amortization 2,632 2,799
------------------------
Total expenses 28,738 19,265
------------------------
Operating income (loss) (15,271) (465)
Interest expense 163 258
Interest income 31 26
------------------------
Income (loss) before minority interest
and income taxes (15,403) (697)
Less minority interest (1,278) 240
------------------------
Income (loss) before income taxes (14,125) (937)
Provision (benefit) for income taxes (5,379) (370)
------------------------
Net income (loss) $ (8,746) $ (567)
=========================
Net income (loss) per common and common
equivalent share- basic and diluted $ (0.55) $(0.04)
Weighted average common and common equivalent
shares outstanding- basic and diluted 15,867 15,641
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
------------------------
October 31, November 1,
1998 1997
------------------------
Sales $ 149,193 $ 197,472
Cost of goods sold including
occupancy 117,013 167,771
-------------------------
Gross profit 32,180 29,701
Expenses:
Selling, general and administrative 36,420 49,470
Provision for store closings 13,407 6,046
Depreciation and amortization 7,859 8,466
-------------------------
Total expenses 57,686 63,982
-------------------------
Operating income (loss) (25,506) (34,281)
Interest expense 469 664
Interest income 70 94
-------------------------
Income (loss) before minority interest
and income taxes (25,905) (34,851)
Less minority interest (1,692) (187)
-------------------------
Income (loss) before income taxes (24,213) (34,664)
Provision (benefit) for income taxes (9,321) (14,333)
--------------------------
Net income (loss) $ (14,892) $ (20,331)
==========================
Net income (loss) per common and common
equivalent share basic and diluted $ (0.94) $ (1.30)
Weighted average common and common equivalent
shares outstanding- basic and diluted 15,789 15,623
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Twelve Months Ended
October 31, November 1,
1998 1997
-------------------------
Sales $ 217,446 $ 276,247
Cost of goods sold including
occupancy 176,609 224,685
-------------------------
Gross profit 40,837 51,562
Expenses:
Selling, general and administrative 52,581 65,144
Provision for store closings 15,007 6,046
Depreciation and amortization 10,629 11,015
-------------------------
Total expenses 78,217 82,205
-------------------------
Operating income (loss) (37,380) (30,643)
Interest expense 656 727
Interest income 121 355
--------------------------
Income (loss) before minority interest
and income taxes (37,915) (31,015)
Less minority interest (1,830) 204
-------------------------
Income (loss) before income taxes (36,085) (31,219)
Provision (benefit) for income taxes (12,479) (13,079)
-------------------------
Net income (loss) $(23,606) $(18,140)
=========================
Net income (loss) per common and common
equivalent share basic and diluted $ (1.50) $ (1.16)
Weighted average common and common equivalent
shares outstanding- basic and diluted 15,773 15,616
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended
October 31, November 1,
1998 1997
--------------------
Cash flows from operating activities:
Net loss $ (14,892) $ (20,331)
Adjustments to reconcile to net cash
provided by (used for) operating activities:
Depreciation and amortization 7,859 8,466
Minority interest (1,701) (187)
Loss on sale of investments - 102
Loss from disposal of property
and equipment 986 26
Changes in operating assets and liabilities:
Accounts receivable (651) 200
Inventories (918) (2,891)
Prepaid expenses (407) 472
Reserve for severance and store closings 11,866 5,347
Income taxes refundable and deferred 3,661 (14,796)
Accounts payable 2,789 15,035
Accrued expenses and other current liabilities (249) 505
Accrued rent 1,176 341
--------------------
Net cash provided by (used for) operating activities 9,519 (7,711)
--------------------
Cash flows from investing activities:
Acquistion of 25 stores (note 3) (9,737) -
Additions to property and equipment (388) (7,115)
Incurrence of pre-opening costs - (327)
Proceeds from disposal of property and equipment 102 154
Sale and maturity of investments - 5,888
(Increase) reduction in other assets (1,052) 12
Distributions to joint venture partner - (1,110)
--------------------
Net cash used for investing activities (11,075) (2,498)
--------------------
Cash flows from financing activities:
Net borrowings under credit facility 1,512 9,000
Issuance of common stock under option program (1) 61 221
--------------------
Net cash provided by financing activities 1,573 9,221
--------------------
Net increase (decrease) in cash and cash equivalents 17 (988)
Cash and cash equivalents:
Beginning of the year 1,473 3,390
--------------------
End of the quarter $ 1,490 $ 2,402
====================
(1)Net of related tax effect.
The accompanying notes are an integral part of the consolidated
financial statements.
DESIGNS, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments necessary for a fair
presentation of the interim financial statements. These financial statements do
not include all disclosures associated with annual financial statements and,
accordingly, should be read in conjunction with the notes contained in the
Company's audited consolidated financial statements for the year ended January
31, 1998. The Company's business has historically been seasonal in nature and
the results of the interim periods presented are not necessarily indicative of
the results to be expected for the full year.
2. Minority Interest
On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary of the Company
(the "Designs JV Subsidiary"), and LDJV Inc., a subsidiary of Levi's Only
Stores, Inc. ("LOS"), which is a wholly-owned subsidiary of Levi Strauss & Co.,
entered into a partnership agreement (the "Partnership Agreement"). The purpose
of the Partnership Agreement was to sell Levi's(R) brand jeans and jeans-related
products in Original Levi's Stores(R) and Levi's(R) Outlet stores in a specified
territory. The joint venture established under the Partnership Agreement is
known as The Designs/OLS Partnership (the "OLS Partnership"). The operating
results of the OLS Partnership are consolidated with the financial statements of
the Company for the three, nine and twelve months ended October 31, 1998.
Minority interest represents LDJV Inc.'s 30% interest in the OLS Partnership.
During the first nine months of fiscal 1997, the OLS Partnership distributed
$3.7 million in "Excess Cash" to its partners in accordance with the terms of
the Partnership Agreement. During the first nine months of fiscal 1998, there
were no cash distributions to the partners.
In October 1998, the Company announced that it had reached an agreement with LOS
to terminate the OLS Partnership. Pursuant to this agreement the OLS Partnership
distributed to the Designs JV Subsidiary 11 Levi's(R) Outlet stores, valued at a
net book value of approximately $6.3 million. In addition, the OLS Partnership
distributed three Original Levi's Stores(R) to LDJV Inc. The net book value of
these three Original Levi's Stores(R) was approximately $5.5 million, which was
greater than LDJV Inc.'s equity interest in the OLS Partnership. Consequently,
LDJV Inc. made a $2.9 million capital contribution of cash to the OLS
Partnership at October 31, 1998.
In connection with the plan to dissolve and wind up the OLS Partnership, the
partnership recorded a pre-tax charge of $4.5 million related to the closing of
the eight Original Levi's Stores(R) that it did not distribute. This $4.5
million charge is included in the total $13.4 million charge recorded by the
Company on a consolidated basis and is discussed in Note 5 below. This charge
includes cash costs of approximately $2.9 million related to lease terminations,
severance and other costs. The remaining $1.6 million of non-cash costs were
related to fixed asset write-offs. Barring unforeseen circumstances, the Company
expects to close these stores by the end of fiscal 1998.
3. Outlet Store Acquisition
On September 30, 1998, the Company completed the acquisition of 25 outlet stores
from LOS for a purchase price of approximately $9.7 million, subject to
adjustment in the 60 to 90 days following the acquisition date. These stores, 16
of which now operate under the names "Dockers(R) Outlet by Designs" and nine of
which operate under the name "Levi's(R) Outlet by Designs", are located in the
eastern United States. The majority of the purchase price for these stores,
approximately $5.1 million, was for inventory. The remainder of the purchase
price, approximately $4.6 million, was for fixed assets associated with these
stores. The Company also assumed the obligations associated with the real estate
leases for the stores.
4. Pro Forma Results of Operations
The following pro forma summary presents the consolidated results of operations
of the Company, adjusted for: (a) the acquisition of the 25 outlet stores, and
(b) 30% of the earnings of the 11 Levi's(R) Outlet stores that were distributed
by the OLS Partnership.
The results of operations for the three, nine and twelve month periods ended
October 31, 1998 include the results of operations since September 30, 1998 of
the 25 outlet stores acquired from LOS. The following pro forma results have
been adjusted to include results of operations for these stores for the period
November 3, 1996 through September 30, 1998.
In addition, the results of operations for the three, nine and twelve month
periods ended October 31, 1998 include the results of operations for the 11
Levi's(R) Outlet stores that were owned and operated by the OLS Partnership
until October 31, 1998. The following pro forma results have been adjusted to
assume that these 11 stores were wholly-owned by the Company for the period
November 3, 1996 through October 31, 1998.
(In thousands,
except per share data)
For the For the For the Three months ended Nine months
ended Twelve months ended 10/31/98 11/1/97 10/31/98 11/1/97
10/31/98 11/1/97
------------------ ------------------ ------------------
Revenue $64,282 $86,866 $165,793 $217,738 $241,358 $303,460
Net income (loss) (8,064) 912 (14,434) (18,607) (22,664) (15,819)
Net income (loss)
per share $ (0.51) $ 0.06 $ (0.91) $ (1.19) $ (1.44) $ (1.01)
5. Charge for Store Closings
During the third quarter of fiscal 1998, the Company recorded a pre-tax charge
of $13.4 million, or $0.47 per share after tax, related to its decision to close
14 Designs stores, eight Boston Trading Co.(R)/BTC(TM) stores and eight Original
Levi's Stores(R) operated by the OLS Partnership, which is discussed in Note 2
above.
This charge includes cash costs of approximately $7.0 million related to lease
terminations, severance and other related costs and non-cash costs of
approximately $6.4 million related to the write-off of fixed assets. At October
31, 1998 the $7.0 million of cash costs is included in Reserve for Severance and
Store Closings on the Consolidated Balance Sheet. Property and Equipment on the
Consolidated Balance Sheet is net of the $6.4 million related to write-off of
fixed assets.
The estimated earnings and cash flow benefits expected, barring unforeseen
circumstances, to be derived from these store closures are $3.9 million and $5.9
million, respectively, for fiscal 1999 and $3.6 million and $5.5 million,
respectively, for fiscal 2000.
6. Boston Trading Ltd., Inc. Acquisition
On May 2, 1995, the Company acquired certain assets of Boston Trading Ltd., Inc.
In accordance with the terms of the Asset Purchase Agreement dated April 21,
1995, the Company paid $5.4 million in cash, financed by operations, and
delivered a non-negotiable promissory note in the original principal amount of
$1 million (the "Purchase Note") payable in two equal annual installments
through May 2, 1997. In the first quarter of fiscal 1996, the Company asserted
rights of indemnification under the Asset Purchase Agreement. In accordance with
that Agreement, the Company, when exercising its indemnification rights, has the
right, among other courses of action, to offset against the payment of principal
and interest due and payable under the Purchase Note, the value of its
indemnification claim. Accordingly, based on these indemnification rights, the
Company ultimately did not make either of the $500,000 payments of principal due
on the Purchase Note on May 2, 1996 and May 2, 1997. Nevertheless, the Company
continued to pay interest on the original principal amount of the Purchase Note
through May 2, 1996 and continued to pay interest thereafter through November 2,
1997 on $500,000 of principal. In January 1998, Atlantic Harbor, Inc. (formerly
known as "Boston Trading Ltd., Inc.") filed a lawsuit against the Company for
refusing to pay the purportedly outstanding principal amount of the Purchase
Note. Thereafter, the Company filed claims against Atlantic Harbor, Inc. and its
stockholders alleging that the Company was damaged in excess of $1 million
because of the breach of certain representations and warranties concerning,
among other things, the existence and condition of certain foreign trademark
registrations and license agreements. Barring unforeseen circumstances,
management of the Company does not believe that the result of this litigation
will have a material adverse impact on the Company's business or financial
condition.
7. Credit Facility
On June 4, 1998 the Company entered into an Amended and Restated Loan and
Security Agreement with a subsidiary of BankBoston, N.A., BankBoston Retail
Finance Inc., as agent for the lenders named therein (the "Credit Agreement").
The Credit Agreement, which terminates on June 4, 2001, consists of a revolving
line of credit permitting the Company to borrow up to $50 million. Under this
credit facility, the Company has the ability to cause the lenders to issue
documentary and standby letters of credit up to $5 million. The Company's
obligations under the Credit Agreement are secured by a lien on all of the
Company's assets, except the assets of the OLS Partnership. The ability of the
Company to borrow under the Credit Agreement is subject to a number of
conditions including the accuracy of certain representations and compliance with
tangible net worth and fixed charge coverage ratio covenants. The availability
of the unused revolving line of credit is limited to specified percentages of
the value of the Company's eligible inventory determined under the Credit
Agreement, ranging from 60% to 65%. At the option of the Company, borrowings
under this facility bear interest at BankBoston, N.A.'s prime rate or at
LIBOR-based fixed rates. The Credit Agreement contains certain covenants and
events of default customary for credit facilities of this nature, including
change of control provisions and limitations on payment of dividends by the
Company. The Company is subject to a prepayment penalty of $250,000 to $500,000
if the Credit Agreement terminates prior to June 4, 2000.
In the third quarter of fiscal 1998, the Credit Agreement was amended to, among
other things, permit and acknowledge the Company's acquisition of the 25 outlet
stores from LOS and the transactions associated with the agreement to dissolve
and wind up the OLS Partnership. These amendments include an increase in the
minimum tangible net worth that the Company must have, which was adjusted to
recognize the value of the assets distributed to the Company by the OLS
Partnership. Prior to these amendments, the tangible net worth of the OLS
Partnership was excluded from the calculation of the Company's tangible net
worth for purposes of these financial covenants. Subject to certain limitations
and conditions, the Credit Agreement permits the Company, without the prior
permission of its lenders, to consummate certain acquisitions and to repurchase
shares of the Company's Common Stock. These amendments, among other things,
reduced the amount that the Company may expend for such purposes without
obtaining the prior permission of its lenders.
At October 31, 1998 the Company had borrowings of approximately $10.3 million
outstanding under this facility and had two outstanding standby letters of
credit totaling approximately $228,000. The Company was in compliance with all
debt covenants under the Credit Agreement at the end of the third quarter.
8. Net Income (Loss) Per Share
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings per Share". The following table reconciles the numerator and the
denominator of the basic and diluted earnings per share (EPS) as shown on the
Consolidated Statements of Income.
(In thousands,
except per share data)
For the For the For the Three months ended Nine months
ended Twelve months ended 10/31/98 11/1/97 10/31/98 11/1/97
10/31/98 11/1/97
-----------------------------------------------------------
Basic EPS
Computation
Numerator:
Net loss $(8,746) $(567) $(14,892) $(20,331) $(23,606) $(18,140)
Denominator:
Weighted average
common shares
outstanding 15,867 15,641 15,789 15,623 15,773 15,616
-------------------------------------------------------
Basic EPS $ (0.55) $(0.04) $ (0.94) $ (1.30) $ (1.50) $ (1.16)
=======================================================
Diluted EPS
Computation
Numerator:
Net income (loss) $(8,746) $(567) $(14,892) $(20,331) $(23,606) $(18,140)
Denominator:
Weighted average
common shares
outstanding 15,867 15,641 15,789 15,623 15,773 15,616
--------------------------------------------------------
Diluted EPS $ (0.55) $(0.04) $(0.94) $(1.30) $(1.50) $ (1.16)
========================================================
The following shares of Common Stock were excluded from the computation of
diluted earnings per share, as the inclusion of these shares would have been
anti-dilutive:
For the For the For the
Three months ended Nine months ended Twelve months ended
(In thousands) 10/31/98 11/1/97 10/31/98 11/1/97 10/31/98 11/1/97
-----------------------------------------------------------
Anti-dilutive shares 115 33 66 44 63 52
===========================================================
The following options to purchase shares of Common Stock were excluded from
computation of diluted EPS because the exercise price of the options was greater
than the average market price per share of Common Stock for the periods
reported. Excluded options to purchase shares of Common Stock were:
For the For the For the
Three months ended Nine months ended Twelve months ended
(In thousands) 10/31/98 11/1/97 10/31/98 11/1/97 10/31/98 11/1/97
----------------------------------------------------------
Options 2,012 2,123 1,892 2,108 1,892 2,108
===========================================================
9. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" on February 1, 1998. This Statement requires
that all components of comprehensive income be reported prominently in the
financial statements. For the Company, the only adjustment for comprehensive
income is deferred compensation. Total comprehensive income for the three, nine
and twelve months ended October 31, 1998 was as follows:
(In thousands) Three months Nine Months Twelve Months
------------ ----------- -------------
Net loss $(8,746) $(14,892) $(23,606)
Deferred compensation 20 (154) (154)
------- -------- ---------
Comprehensive income (loss) $(8,726) $(15,046) $(23,760)
======== ========= =========
There were no adjustments for comprehensive income(loss) for the same periods in
the prior year.
10. Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. SFAS 131 becomes effective for fiscal years
beginning after December 15, 1997. The Company is required to adopt this
standard for the fiscal year ending January 30, 1999. The required disclosures
for SFAS No. 131 will be included in the Company's 1998 annual report on Form
10K.
Part I. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OUTLET STORE EXPANSION, JOINT VENTURE WIND UP AND UNPROFITABLE STORE CLOSINGS
During the third quarter of fiscal 1998, the Company completed transactions that
narrow the Company's business to one focused on its outlet stores.
On September 30, 1998, the Company purchased 16 Dockers(R) Outlet stores and
nine Levi's(R) Outlet stores from a subsidiary of Levi Strauss & Co. for
approximately $9.7 million. As discussed below, these stores have generated
approximately $3.9 million in sales for the two month period ended November 28,
1998. The Company believes, barring unforeseen circumstances, that this group of
stores will produce approximately $24 million in revenue and $2.2 million in
cash flow in fiscal 1999. The acquisition included the purchase of $5.1 million
of inventory and $4.6 million of fixed assets associated with these stores. The
Company also assumed the real estate leases associated with these stores. The
Company sees opportunities to improve the performance of the 25 stores as these
stores are integrated into its existing store operations, thereby leveraging the
Company's existing outlet store infrastructure in areas such as store operating
and payroll expenses. As discussed below, these stores have generated sales for
the two month period ended November 28, 1998 of approximately $3.9 million.
Although these stores are generating lower sales than they generated last year
for the same two months, sales for the two month period ended November 28, 1998
is approximately 20% in excess of the amount of sales the Company projected for
these stores prior to consummation of the acquisition.
Also during the third quarter, the Company and Levi Strauss & Co. agreed to
dissolve and wind up the joint venture between subsidiaries of the two companies
(the "OLS Partnership"). As part of the dissolution process, on October 31,
1998, the OLS Partnership distributed 11 Levi's(R) Outlet stores to the Company
having a net book value of approximately $6.4 million. The Company believes,
barring unforeseen circumstances, that these 11 Levi's(R) Outlet stores will
generate a total of approximately $12 million in revenues and $1.4 million in
cash flow throughout all of fiscal year 1998. The Company believes, barring
unforeseen circumstances, that this group of stores will produce approximately
$14 million in revenue and $1.9 million in cash flows in fiscal 1999. Since the
Company previously owned only a 70% interest in these stores, the only pro-forma
adjustment for future earnings is the additional 30% of earnings and cash flows
that will be derived from these stores, which are now wholly-owned by the
Company.
In addition, the OLS Partnership distributed to LDJV Inc., a subsidiary of
Levi's Only Stores, Inc., three Original Levi's Stores(R) located in New York
City and Boston, Massachusetts. The net book value of these distributed stores
was approximately $5.5 million, which was greater than LDJV Inc.'s equity
ownership in the OLS Partnership. Consequently, LDJV Inc. made a $2.9 million
capital contribution to the OLS Partnership on October 31, 1998.
The OLS Partnership intends to close, barring unforeseen circumstances, as part
of the termination of its operations, eight remaining Original Levi's Stores(R)
through lease terminations and expirations. The Company anticipates that the
joint venture will have sufficient cash flow to satisfy its remaining
obligations. However, if the OLS Partnership does not have the ability to pay
its obligations, the Company would be required to contribute additional funds in
proportion to its 70% partnership interest.
During the third quarter of fiscal 1998, the Company also announced its plans,
barring unforeseen circumstances, to close 14 unprofitable Designs stores and
eight unprofitable Boston Trading Co.(R)/BTC(TM) stores through lease
terminations and expirations. This store closing strategy resulted in the
Company recording a pre-tax charge of $13.4 million, or ($0.47) per share after
tax, related to the closing of 14 Designs stores, eight Boston Trading
Co.(R)/BTC(TM) and eight Original Levi's Stores(R) owned by the joint venture.
This charge includes approximately $7.0 million of cash costs related to lease
terminations, severance associated with these store closings, and other related
miscellaneous expenses. The remainder of the $13.4 million charge consists of
non-cash costs of approximately $6.4 million related to fixed asset write-offs
associated with the planned store closings, and includes a fixed asset write-off
related to plans to replace certain outlet stores with new ones. This charge is
accounted for in the provision for store closings on the Consolidated Statements
of Income for the three, nine and twelve months ended October 31, 1998.
RECENT DEVELOPMENTS
On December 11, 1998, the Company announced that its Board of Directors had
formed a committee of independent outside directors to consider the Company's
strategic alternatives, including a possible sale of the Company, with a view
towards maximizing shareholder value in the near term. The Company announced
that its Board had determined to oppose a consent solicitation initiated by
Jewelcor Management, Inc. and its controlling shareholder, Seymour Holtzman. The
Company also announced that it does not believe that a change in the composition
of the Board at this time is in the best interests of its shareholders because
it would interfere with the Company's process of considering its strategic
alternatives and the implementation of any such alternatives and could adversely
affect the Company's relationship with Levi Strauss & Co.
RESULTS OF OPERATIONS
Sales
- -----
Set forth below are the Company's total sales and comparable store sales for the
third quarter of fiscal 1998 and the nine month and twelve month rolling periods
ended October 31, 1998, and for these same periods in the prior fiscal year. Of
the 132 stores the Company operated as of October 31, 1998, 80 were comparable
stores.
Percentage
Total Sales Change at
(In Thousands) 10/31/98 11/1/97 10/31/98
---------------------------------------------------
Three months ended $ 58,714 $ 77,459 (24.2%)
Nine months ended 149,193 197,472 (24.4%)
Twelve months ended 217,446 276,247 (21.3%)
Comparable Store Percentage
Sales Change at
(In Thousands) 10/31/98 11/1/97 10/31/98
----------------------------------------------------
Three months ended $ 45,604 $ 57,331 (20.5%)
Nine months ended 114,197 144,728 (21.1%)
Twelve months ended 161,081 199,052 (19.1%)
Approximately $16.6 million, or 35 percent, of the $48.3 million year-to-date
decline in total sales is the result of the closure of 31 unprofitable stores in
fiscal 1997 and 20 unprofitable stores through the end of the third quarter of
fiscal 1998. The remainder of this decline is primarily due to lower sales of
men's and women's Levi's(R) brand jeans and tops and limited availability of
certain popular Levi Strauss & Co. styles of merchandise. As reported by
national and trade press, the Levi's(R) brand has experienced a notable decline
in U.S. market share. This decline has affected the Company's sales of Levi's(R)
brand merchandise. In the first nine months of fiscal 1998, approximately 66
percent of the Company's revenue was generated by sales in its Levi's(R) Outlet
by Designs stores. The Company anticipates that Levi's(R) and Dockers(R) brand
merchandise will account for a greater portion of future sales because of the
recent addition of 25 outlet stores and the decision to eliminate 30 mall-based
stores from the Company's mix of stores. The Company expects, barring unforeseen
circumstances, that 90% of its revenue will be generated by its of Levi's(R) and
Dockers(R) Outlet stores in fiscal 1999. The Company anticipates that decreases
in comparable store sales will continue through the remainder of fiscal 1998.
Gross Margin
- ------------
Set forth below are gross margin rates (including the cost of occupancy) as a
percentage of total sales for the third quarter of fiscal 1998 and the nine
month and twelve month rolling periods ended October 31, 1998, and for these
same periods in the prior fiscal year.
Gross Margin Percentage
Rate Change at
10/31/98 11/1/97 10/31/98
----------------------------------------
Three months ended 22.9% 24.3% (1.4%)
Nine months ended 21.6% 15.0% 6.6%
Twelve months ended 18.8% 18.7% 0.1%
The 1.4 percentage point decrease in gross margin in the third quarter of fiscal
1998 compared to the third quarter of fiscal 1997 is primarily the result of
fixed occupancy costs as a percentage of decreasing sales which resulted in a
2.0 percentage point decrease in gross margin. This decrease was partially
offset by a 0.6 percentage point improvement in merchandise margin which was the
result of increased initial margins on certain Levi's(R) Outlet merchandise,
decreased promotional markdowns and events, and the elimination of the poor
performing Boston Traders(R) brand product from the merchandise mix. The changes
in gross margin rate for the nine and twelve month periods are attributable to
merchandise markdowns and fabric reserves recorded in the second quarter of
fiscal 1997 related to the Company's shift in strategy away from its vertically
integrated private label development strategy, adjustments for inventory
shrinkage results recorded in the fourth quarter of fiscal 1997 and reserves
recorded against pending resolution of vendor discussions regarding proofs of
delivery of certain goods.
Selling, General and Administrative Expenses
- --------------------------------------------
Set forth below is certain information concerning the Company's selling, general
and administrative expenses for the third quarter of fiscal 1998 and the nine
month and twelve month rolling periods ended October 31, 1998, and for these
same periods in the prior fiscal year.
SG&A Expenses
(In thousands, except 10/31/98 11/1/97
percentage data) $ % of sales $ % of sales
- ------------------------------------------------------------------------------
Three months ended $12,699 21.6% $16,466 21.3%
Nine months ended 36,420 24.4% 49,470 25.1%
Twelve months ended 52,581 24.2% 65,144 23.4%
The $3.8 million decrease in selling, general and administrative expenses in the
third quarter of fiscal 1998 compared to such expenses in the third quarter of
fiscal 1997 is primarily due to reduced store payroll expense from lower
staffing levels in response to sales decreases. Also contributing to this
decrease was a series of expense reduction actions undertaken in fiscal 1997
that are ongoing. The decreases in selling, general and administrative expenses
for the nine month and rolling twelve month periods ended October 31, 1998
compared to such expenses in the same periods in the prior year are due to
similar reasons. The Company expects to further reduce overhead levels by the
beginning of fiscal 1999 and expects to realize approximately $1 million of
savings from these reductions in fiscal 1999.
Provision for Store Closings
- ----------------------------
In addition to the store closing charge recorded in the third quarter of fiscal
1998 which is discussed above, during the second quarter of fiscal 1997, the
Company recorded a pre-tax charge of $20 million, or $(0.75) per share. This
charge was principally related to the Company's decision in June 1997 to abandon
its vertically integrated private label strategy. Approximately $13.9 million of
this charge related to merchandise markdowns and cancellation of fabric
commitments and is accounted for in cost of goods sold for the twelve months
ended November 1, 1997. The remaining approximately $6.1 million, related to the
costs of terminating leases for unprofitable stores, asset impairment charges,
severance and other related costs, is included in the provision for store
closings on the Consolidated Statement of Income for the same period. In the
fourth quarter of fiscal 1997 the Company recorded an additional pre-tax charge
of $1.6 million, or $(0.06) per share after tax, related to the Company's
decision to reduce corporate overhead through a January 1998 reduction in force.
The Company expects savings of approximately $3.3 million in payroll costs as a
result of this reduction in fiscal 1998. This charge is included in the
provision for store closings for the twelve months ended November 1, 1997.
Depreciation and Amortization
- -----------------------------
Set forth below are depreciation and amortization expenses for the Company for
the third quarter of fiscal 1998 and the nine month and twelve month rolling
periods ended October 31, 1998, and for these same periods in the prior fiscal
year.
Depreciation Percentage
(In thousands, except and Amortization Change at
percentage data) 10/31/98 11/1/97 10/31/98
----------------------------------------------
Three months ended $ 2,632 $ 2,799 (6.0%)
Nine months ended 7,859 8,466 (7.2%)
Twelve months ended 10,629 11,105 (4.3%)
The decrease in depreciation and amortization expenses in the third quarter of
fiscal year 1998 compared to the third quarter of fiscal year 1997 is
principally due to the write off of fixed assets in fiscal 1997 related to
unprofitable store closures. The decreases for the nine month and rolling twelve
month periods compared to the same periods in the prior fiscal year also are
primarily due to the closing of stores and is partially offset by the timing of
new and remodeled stores in the prior fiscal year.
Interest Expense
- ----------------
Interest expense was $163,000 and $258,000 in the third quarter of fiscal 1998
and fiscal 1997, respectively. For the nine-month period, interest expense was
$469,000 as compared to $664,000 in the prior year. For the twelve-month period,
interest expense was $656,000 as compared to $727,000 for the prior year. These
decreases are attributable to lower average borrowing levels and decreased
interest rates under the Company's revolving credit facility for the three, nine
and twelve month periods ended October 31, 1998 as compared with the same
periods in the prior year. The Company anticipates, barring unforeseen
circumstances, that interest expense for fiscal 1998 will be approximately the
same as the prior year due to the anticipated additional borrowings under the
Company's revolving facility primarily to fund payments necessary for lease
terminations associated with the closing of unprofitable stores, acquisition of
the 25 outlet stores and special purchases of merchandise for the Levi's(R) and
Dockers(R) Outlet by Designs stores.
Interest Income
- ---------------
Interest income for the third quarter of fiscal 1998 was $31,000 compared to
$26,000 in the third quarter of fiscal year 1997. For the nine-month and rolling
twelve-month periods, interest income was $70,000 and $121,000, respectively, as
compared to $94,000 and $355,000 for the comparable periods in the prior year.
The decrease in interest income is attributable to lower average investment
balances compared to the same periods in the prior year. The Company anticipates
that interest income will be minimal through fiscal 1998.
Net Profit/Loss
- ---------------
Set forth below is the net loss for the Company for the third quarter of fiscal
1998 and the nine month and twelve month rolling periods ended October 31, 1998,
and for these same periods in the prior fiscal year.
Net Loss
(In thousands, except 10/31/98 11/1/97
per share data) $ per share $ per share
- ------------------------------------------------------------------------------
Three months ended $ (8,746) $(0.55) $ ( 567) $(0.04)
Nine months ended (14,892) (0.94) (20,331) (1.30)
Twelve months ended (23,606) (1.50) (18,140) (1.16)
Below is a summary of certain pre-tax charges included in the net income
reported during the respective periods:
For the Three For the Nine For the Twelve
(In thousands, months ended months ended months ended
except per share data) 10/31/98 11/1/97 10/31/98 11/1/97 10/31/98 11/1/97
-----------------------------------------------------
Store Closing Reserve
recorded in Q3'98 $13,400 -- $13,400 -- $13,400 --
Reduction in Force
recorded in Q4'97 -- -- -- -- 1,600 --
Store Closing Reserve
and abandonment of
vertical integration
strategy in Q2'97 -- -- -- $20,000 -- $20,000
----------------------------------------------------
Total charges $13,400 -- $13,400 $20,000 $15,000 20,000
====================================================
Earnings(loss) per share
impact of charges
for each period $(0.47) -- $(0.47) $(0.75) $(0.53) $(0.75)
=====================================================
Earnings(loss) per share
exclusive of the above
charges $(0.08) $(0.04) $(0.47) $(0.55) $(0.97) $(0.41)
=====================================================
SEGMENT INFORMATION AND IMPACT OF THIRD QUARTER TRANSACTIONS
- ------------------------------------------------------------
As described above,during the third quarter of fiscal 1998, the following
transactions occurred:
* The Company acquired 16 Dockers(R) Outlet and 9 Levi's(R) Outlet stores.
* The Company received a distribution of 11 additional Levi's(R) Outlet
stores from the OLS Partnership.
* The Company announced plans to dissolve and wind up the
OLS Partnership.
* The Company decided to close 30 unprofitable stores and record a $13.4
million pre-tax charge for these store closings.
As a result of these transactions, the Company now operates two store groups:
(i) 100 Outlet stores and (ii) 9 Specialty stores.
Outlet Store Group
- ------------------
At October 31, 1998, the Outlet Store Group consisted of:
* 59 Levi's(R) Outlet by Designs stores
* 16 Dockers(R) Outlet by Designs and the 9 Levi's(R) Outlet by Designs
stores that were acquired on September 30, 1998
* 11 Levi's(R) Outlet stores which were owned and operated by the joint
venture through October 31, 1998
* 5 Buffalo Jeans Factory Stores
The following table sets forth certain information for the Outlet Store Group
for the three, nine and twelve month rolling periods ended October 31, 1998, and
for the same periods in the prior year and certain balance sheet information as
of October 31, 1998.
Three months ended Nine months ended Twelve months ended
10/31/98 11/1/97 % 10/31/98 11/1/97 % 10/31/98 11/1/97 %
----------------------- ------------------------- --------------------------
Sales $ 44,808 $ 53,046 (15.5%) $108,303 $135,382 (20.0%) $148,000 $183,817 (19.5%)
Gross Margin, net of
occupancy costs 13,165 14,613 (9.9%) 30,399 40,025 (24.0%) 42,067 57,831 (27.3%)
Gross Margin Rate 29.4% 27.6% 6.5% 28.1% 29.6% 5.0% 28.4% 31.5% (9.7%)
Contribution to
profit (1) 6,505 7,203 (9.7%) 12,069 18,884 (36.1%) 17,604 30,151 (41.6%)
Cash Flow from
operations 7,448 7,982 (6.7%) 14,452 21,295 (32.1%) 20,505 33,373 (38.6%)
- -----------------------------------------------------------------------------------------------------------------
Number of stores open:
Levi's(R)Outlet by Designs 59 59 59 59 59 59
Joint Venture Levi's(R)Outlets 11 11 11 11 11 11
Levi's(R)Outlets purchased (3) 9 - 9 - 9 -
Dockers(R)Outlets purchased (3) 16 - 16 - 16 -
Buffalo Jeans Factory Stores 5 - 5 - 5 -
- -----------------------------------------------------------------------------------------------------------------
Total stores 100 70 100 70 100 70
Balance Sheet at: 10/31/98 11/1/97
- -----------------------------------------------------------------------------------------------------------------
Inventory, net $ 50,813 $ 53,486 (5.0%)
Merchandise Receipts
for the nine months 67,411 86,439 (22.0%)
Fixed Assets 10,220 8,305 23.1%
Contingent Lease Obligations (2) 62,320 ---
(1) The Company analyzes individual store profitability in terms of a store's
"Contribution to Profit" which is defined by the Company as gross margin
less occupancy costs and all store specific expenses such as payroll,
advertising, insurance and depreciation.
(2) Contingent Lease Obligations represents the total future minimum rental
payments that the Company is obligated to pay under its existing store
leases.
(3) The Levi's(R) Outlet stores and the Dockers(R) Outlet stores purchased by
the Company on September 30, 1998 are included in the Company's results of
operations since September 30, 1998. Sales and contribution to profit for
these 25 stores for the period September 30, 1998 to October 31, 1998 were
$1,733,000 and $52,000, respectively.
Specialty Store Group
- ---------------------
At October 31, 1998, the Specialty Store Group consisted of:
* Six Designs stores
* Three BTC(TM) stores
The Company expects to continue to test its multi-branded specialty store
concept through fiscal 1999.
The following table sets forth certain information for the Specialty Store Group
for the three, nine and twelve month rolling periods ended October 31, 1998, and
for the same periods in the prior year and certain balance sheet information as
of October 31, 1998.
Three months ended Nine months ended Twelve months ended
10/31/98 11/1/97 % 10/31/98 11/1/97 % 10/31/98 11/1/97 %
------------------------- ------------------------ -------------------------
Sales $ 3,380 $ 3,888 (13.1%) $ 8,535 $ 9,311 (8.3%) $ 13,536 $ 14,727 (8.1%)
Gross Margin, net of
occupancy costs 1,080 837 29.0% 2,720 1,999 36.1% 3,908 3,913 (0.1%)
Gross Margin Rate 32.0% 21.5% 48.8 % 31.9% 21.5% 48.4% 28.9% 26.6% (.9%)
Contribution to Profit (588) (815) (27.9%) (1,847) (2,561) (27.9%) (2,275) (2,414) (5.8%)
Cash Flow from
operations (423) (649) (34.8%) (1,353) (2,057) (34.2%) (1,615) (1,248) 29.4%
- ----------------------------------------------------------------------------------------------------------------
Number of stores open:
BTC(TM)/Boston Trading Co.(R) 3 3 3 3 3 3
Designs stores 6 6 6 6 6 6
- ----------------------------------------------------------------------------------------------------------------
Total stores 9 9 9 9 9 9
Balance Sheet at: 10/31/98 11/1/97
- ----------------------------------------------------------------------------------------------------------------
Inventory, net 3,930 3,979 (1.2%)
Merchandise Receipts
for the nine months 6,234 7,917 (21.3%)
Fixed Assets 1,783 2,301 (22.5%)
Contingent Lease Obligations 6,032 --
Closed and Other Stores
- -----------------------
This group of stores includes:
* Designs and Boston Traders(R) Outlet stores closed as part of the fiscal
year 1997 store closing program Designs, Boston Trading Co.(R)/BTC(TM)
stores that will close as part of the fiscal 1998 store closing program.
* The operations of the joint venture stores that are closing and the three
Original Levi's Stores(R) that were distributed as part of the
dissolution of the joint venture.
* Four Boston Traders(R) Outlet stores that will either be closed or will
be converted to Dockers(R) Outlet stores during fiscal 1999.
The following table sets forth certain information for the Closed and Other
Store Group for the three, nine and twelve month rolling periods ended October
31, 1998, and for the same periods in the prior year and certain balance sheet
information as of October 31, 1998.
Three months ended Nine months ended Twelve months ended
10/31/98 11/1/97 % 10/31/98 11/1/97 % 10/31/98 11/1/97 %
------------------------- ------------------------ --------------------------
Sales $ 10,526 $ 20,525 (48.7%) $32,355 $ 52,779 (38.7%) $ 55,910 $ 77,703 (28.0%)
Gross Margin, net
of Occupancy costs (51) 4,110 (101.2%) 1,365 3,877 (64.8%) (2,090) 6,736 (131.0%)
Contribution to Profit (3,674) (1,796) 104.6% (9,681) (11,204) (13.6%) (18,675) (13,404) 39.3%
Store Closing Charges (13,400 -- (13,400) (20,000) (15,000) (20,000)
- ----------------------------------------------------------------------------------------------------------------
Reconciliation of Contribution to Profit to Operating Income (Loss)
Contribution to Profit:
Outlet Store Group 6,505 7,203 12,069 18,884 17,604 30,151
Specialty Store Group (588) (815) (1,847) (2,561) (2,275) (2,414)
Closed Store Group (3,674) (1,796) (9,681) (11,204) (18,675) (13,404)
Store Closing Charges (13,400) -- (13,400) (20,000) (15,000) (20,000)
General and Administrative (4,114) (5,057) (12,647) (19,400) (19,034) (24,976)
- ----------------------------------------------------------------------------------------------------------------
Total Operating Loss (15,271) (465) (25,506) (34,281) (37,380) (30,643)
SEASONALITY
The Company's business has historically been seasonal, reflecting increased
consumer buying in the "Fall" and "Holiday" seasons. Historically, the second
half of each fiscal year provides a greater portion of the Company's annual
sales and operating income. In recent years, the Company's focus has shifted
towards its outlet store business and the percentage of this business has
increased (and is anticipated to continue to increase) because of the shift in
the Company's store mix towards outlet stores and away from closed and closing
mall-based specialty stores. Accordingly, the Company's third and fourth
quarters, although continuing to generate a greater proportion of total sales,
have become less significant to total sales as had previously been the case.
This change is due to a difference in seasonality of the Company's outlet
business as compared with the mall-based specialty stores.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs have been for operating expenses, including
cash outlays associated with inventory purchases, capital expenditures for new
and remodeled stores, and the purchase of 25 outlet stores from Levi's Only
Stores, Inc. In fiscal 1999, the Company expects to incur capital expenditures
related to system enhancements, new outlet stores and outlet store relocations
of $2.6 million. The Company expects that cash flow from operations, short-term
revolving borrowings and trade credit will enable it to finance its current
working capital, store remodeling and acquisition requirements.
WORKING CAPITAL AND CASH FLOWS
To date, the Company has financed its working capital requirements and store
opening and remodeling programs with cash flow from operations, income tax
refunds, borrowings under the Company's credit facility and proceeds from Common
Stock offerings. Cash provided by operations for the first nine months of fiscal
1998 was $10.2 million as compared to cash used for operations of $7.7 million
for the same period in the prior year. This $17.9 million improvement is the
result of the receipt of a federal income tax refund, lower inventory purchases,
expense control initiatives, the closure of stores and the timing of other
working capital accounts.
The Company's cash and investment position at October 31, 1998 was approximately
$1.5 million, compared to $2.4 million at November 1, 1997. At October 31, 1998,
the Company had borrowings of $10.3 million outstanding under its revolving
credit facility as compared to borrowings outstanding of $9.0 million at
November 1, 1997. The Company expects that average borrowings in the fourth
quarter of fiscal 1998 will be higher than those in the fourth quarter of fiscal
1997 as a result of borrowings under the facility to fund the acquisition of the
25 outlet stores, special purchases of merchandise for the Levi's(R) and
Dockers(R) Outlet by Designs stores, and the cost of lease terminations
associated with the closing of unprofitable stores, as described above.
The Company's working capital at October 31, 1998 was approximately $37.4
million, compared to $52.2 million at November 1, 1997. This decrease in working
capital was primarily attributable to operating losses for the twelve months
ending October 31, 1998. At October 31, 1998, total inventory equaled $58.9
million, compared to $82.8 million at November 1, 1997. The decrease of 29
percent in the Company's inventory level was primarily due to the liquidation of
private label product, the closing of unprofitable stores, and reduced purchases
of Levi Strauss & Co. brands of merchandise. The Company continues to evaluate
and, within the discretion of management, act upon opportunities to purchase
substantial quantities of Levi's(R) and Dockers(R) brand products for its
Levi's(R) and Dockers(R) Outlet by Designs stores.
During the first nine months of fiscal 1998, the Company experienced limited
availability of merchandise from Levi Strauss & Co. The Company stocks its
Levi's(R) Outlet by Designs and Dockers(R) Outlet by Designs exclusively with
manufacturing overruns, discontinued lines and irregulars purchased directly
from Levi Strauss & Co., and end of season merchandise transferred from the
Company's mall-based stores. By its nature, this merchandise, including the most
popular Levi Strauss & Co. styles of merchandise and the breadth of the mix of
this merchandise, is subject to limited availability. During the fourth quarter
of fiscal year 1998, the Company expects, barring unforeseen circumstances, to
purchase approximately $10 million at cost in special purchases of Levi's(R)
tops and bottoms to compensate for the any decrease in availability of
merchandise from Levi Strauss & Co. during fiscal 1999. The Company may act upon
similar opportunities to purchase substantial quantities of Levi's(R) brand
products for its Levi's(R) and Dockers(R) outlet stores into fiscal 1999.
At October 31, 1998, the accounts payable balance was $11.6 million as compared
with a balance of $27.2 million at November 1, 1997. This 57 percent decrease
was primarily related to the timing of payments to vendors associated with a
reduced store count and reduced availability of certain products. The Company's
trade payables to Levi Strauss & Co., its principal vendor, generally are due 30
days after the date of invoice. In fiscal 1997, prior to the abandonment of a
vertically-integrated strategy, the Company sourced private label products
primarily with offshore vendors. Payment to these vendors was through the use of
letters of credit, which required payment upon presentation of shipping
documents. During the third quarter of 1998 the Company was current with all
outstanding merchandise payables to vendors. The Company expects, barring
unforeseen circumstances, that any purchases of branded merchandise from vendors
other than Levi Strauss & Co. will be limited and will be in accordance with
customary industry credit terms.
On June 4, 1998 the Company entered into an Amended and Restated Loan and
Security Agreement with a subsidiary of BankBoston, N.A., BankBoston Retail
Finance Inc., as agent for the lenders named therein (the "Credit Agreement").
The Credit Agreement, which terminates on June 4, 2001, consists of a revolving
line of credit permitting the Company to borrow up to $50 million. Under this
credit facility, the Company has the ability to cause the lenders to issue
documentary and standby letters of credit up to $5 million. The Company's
obligations under the Credit Agreement are secured by a lien on all of the
Company's assets, except the assets of the OLS Partnership. The ability of the
Company to borrow under the Credit Agreement is subject to a number of
conditions including the accuracy of certain representations and compliance with
tangible net worth and fixed charge coverage ratio covenants. The availability
of the unused revolving line of credit is limited to specified percentages of
the value of the Company's eligible inventory determined under the Credit
Agreement, ranging from 60% to 65%. At the option of the Company, borrowings
under this facility bear interest at BankBoston, N.A.'s prime rate or at
LIBOR-based fixed rates. The Credit Agreement contains certain covenants and
events of default customary for credit facilities of this nature, including
change of control provisions and limitations on payment of dividends by the
Company. The Company is subject to a prepayment penalty of $250,000 to $500,000
if the Credit Agreement terminates prior to June 4, 2000.
In the third quarter of fiscal 1998, the Credit Agreement was amended to, among
other things, permit and acknowledge the Company's acquisition of the 25 outlet
stores from Levi's Only Stores, Inc. and the transactions associated with the
agreement to dissolve and wind up of the OLS Partnership. These amendments
include an increase in the minimum tangible net worth that the Company must
have, which was adjusted to recognize the value of the assets distributed to the
Company by the OLS Partnership. Prior to these amendments, the tangible net
worth of the OLS Partnership was excluded from the calculation of the Company's
tangible net worth for purposes of these financial covenants. Subject to certain
limitations and conditions, the Credit Agreement permits the Company, without
the prior permission of its lenders, to consummate certain acquisitions and to
repurchase shares of the Company's Common Stock. These amendments, among other
things, reduced the amount that the Company may expend for such purposes without
obtaining the prior permission of its lenders.
At October 31, 1998, the Company had borrowings of $10.3 million outstanding
under this facility and had two outstanding standby letters of credit totaling
approximately $228,000. The Company was in compliance with all debt covenants
under the credit agreement at the end of the third quarter.
During the third quarter of fiscal 1996, the Company entered into a Credit
Agreement (the "OLS Credit Agreement") with the OLS Partnership and Levi's Only
Stores, Inc. under which the Company and Levi's Only Stores, Inc. were committed
to make advances to the OLS Partnership in amounts up to $3.5 million and $1.5
million, respectively. There were never any borrowings under this credit
facility since its inception. The OLS Credit Agreement expired on September 30,
1998.
CAPITAL EXPENDITURES
Total cash outlays for capital expenditures for the first nine months of fiscal
1998 were $391,000, which represents the cost of store and corporate capital
expenditures. Total cash outlays for the first nine months of fiscal 1997 were
$7.1 million. During the first six months of fiscal 1997, the Company opened six
new Boston Trading Co.(R) stores, remodeled one Levi's(R) Outlet by Designs
store and five Boston Traders(R) Outlet stores. During the nine months ended
October 31, 1998, the Company has closed 20 stores as part its strategy to close
unprofitable stores.
In fiscal year 1998 the Company was presented with an opportunity to test
another branded outlet store concept. This new outlet store concept features a
collection of tops and bottoms designed and produced under the Buffalo Jeans
label. In the third quarter of fiscal year 1998, the Company opened five Buffalo
Jeans Factory Stores in locations that were previously occupied by Boston
Traders(R) Outlet stores. Buffalo Jeans Factory Stores sell in-season
merchandise and manufacturers close-outs from this Canadian manufacturer of
fashion apparel. Over time, based on the performance of the five test stores,
the Company could open additional Buffalo Jeans Factory Stores. As a group, the
Buffalo Jeans Factory Stores had approximately $514,000 in sales in the first
three months of operations. Buffalo Jeans is a well-known Canadian jeans and
sportswear brand with a number stores in Canada, full-price U.S. retail
distribution in stores such as Macy's Neiman Marcus, Burdines, Bloomingdales and
select specialty stores.
Year 2000
- ---------
I. State of Readiness: Most of the Company's computer and process control
systems were designed to use only two digits to represent years. As a
result , they may not recognize "00" as representing the year 2000, but
rather the year 1900 which could result in errors or system failures. The
Company is in the process of converting technology and its information
systems to be Year 2000 compliant. Barring unforeseen circumstances, the
Company anticipates that the conversion will be complete by the end of
calendar year 1999.
The Company's primary data processing systems for financial reporting, and
merchandise management have been upgraded with new releases of year 2000
compliant software. Other significant systems utilized by the Company,
which includes point of sale is in the process of being upgraded and will
be complete in the first quarter of 1999. The payroll system is in process
of being reviewed and the Company plans to upgrade this system in 1999.
Embedded systems impacted by the year 2000 issue are being reviewed by
management and a plan has been developed to address embedded systems based
upon how critical they are to the business. During the first quarter of
1999 the Company expects to implement a plan to determine the year 2000
readiness of the Company's vendors including, Levi Strauss & Co. and the
Company's other merchandise vendors.
II. Cost to Address Year 2000 Issues: The Company expects to spend
approximately $500,000,which will be expensed to the Company's financial
statements, in the conversion and upgrade costs, primarily in fiscal 1998
to accomplish this. To date the Company has incurred approximately
$300,000, which does not include internal costs of approximately $25,000,
in the remediation of the year 2000 issue. The Company expects that cash
flow from operations, and short-term revolving borrowings will enable it
to fund its Year 2000 remediation .
III. Risks related to the Company's Year 2000 Issues: In the worst case scenario
the Company's ability to operate would be impacted by the lack of
electronic transmission of data from its merchandise vendors and would
result in the implementation of manual processes to account for receipt of
merchandise. The implementation of manual processes would result in a slow
down of product shipments to the Company's stores, which could have an
adverse impact on sales.
IV. Company's Contingency Plan: The Company's contingency plan in the event
that a slow down of shipments from Levi Strauss would occur includes
increasing purchases in advance of the beginning of the year 2000 to
ensure adequate supplies of merchandise would be available. Embedded
systems impacted by the year 2000 issue are being reviewed by management
and will be addressed based upon how critical they are in relation to
the business. During the first quarter of 1999 the Company expects to
implement a plan to determine the year 2000 readiness of the Company's
vendors including, Levi Strauss & Co. and the Company's other merchandise
vendors.
On May 2, 1995, the Company acquired certain assets of Boston Trading Ltd., Inc.
("Boston Trading") in accordance with the terms of an Asset Purchase Agreement
dated April 21, 1995. The Company paid $5.4 million in cash, financed by
operations, and delivered a non-negotiable promissory note in the original
principal amount of $1 million (the "Purchase Note"). The principal amount of
the Purchase Note was payable in two equal installments through May 1997. In the
first quarter of fiscal 1996, the Company asserted certain indemnification
rights under the Asset Purchase Agreement. In accordance with the Asset Purchase
Agreement, the Company, when exercising its indemnification rights, has the
right, among other courses of action, to offset against the payment of principal
and interest due and payable under the Purchase Note the value of its
indemnification claim. Accordingly, based on these indemnification rights, the
Company ultimately did not make either of the $500,000 payments of principal on
the Purchase Note that were due on May 2, 1996 and May 2, 1997. Nevertheless,
the Company continued to pay interest on the original principal amount of the
Purchase Note through May 2, 1996 and continued to pay interest thereafter
through November 2, 1997 on $500,000 of principal. The portion of the principal
amount of the Purchase Note ultimately to be paid by the Company depends upon
whether its claims are satisfied by Boston Trading and its stockholders.
On October 31, 1998 the Company and Levi Strauss & Co. amended the trademark
license agreement (as amended, the "Outlet License Agreement") that authorizes
the Company to use certain Levi Strauss & Co. trademarks in connection with the
operation of the Company's Levi's(R) Outlet by Designs and Dockers(R) Outlet by
Designs stores in 25 states in the eastern portion of the United States. Subject
to certain default provisions, the term of the Outlet License Agreement was
extended to September 30, 2004, and the license for any particular store is the
period co-terminous with the lease term for such store (including extension
options). For the first time, the Outlet License Agreement now provides that the
Company has the opportunity to extend the term of the license associated with
one or more of the Company's older Levi's(R) Outlet by Designs stores by either
renovating the store or replacing the store with a new store with an updated
format and fixturing. In order to extend the license associated with each of the
Company's 59 older outlet stores, the Company must, subject to certain grace
periods, complete these renovations or the construction of replacement stores by
December 31, 2004. At October 31, 1998, the average remaining lease term
(including extension options) of the Company's Levi's(R) Outlet by Designs and
Dockers(R) Outlet by Designs stores was approximately 9.5 years.
The Company is currently seeking opportunities to open and operate outlet stores
for other manufacturers of branded apparel. Further, as leases expire, the
Company may lose the right to use the Levi's(R) and Dockers(R) trademarks in
connection with certain Levi's(R)and Dockers(R) Outlet by Designs stores. The
Company continues to evaluate the performance of its existing stores and to
consider ways to enhance its businesses. As a result of this process, certain
store locations could be closed or relocated within a shopping center in the
future.
The foregoing discussion of the Company's results of operations, liquidity,
capital resources and capital expenditures includes certain forward-looking
information. Such forward-looking information requires management to make
certain estimates and assumptions regarding the Company's expected strategic
direction and the related effect of such plans on the financial results of the
Company. Accordingly, actual results and the Company's implementation of its
plans and operations may differ materially from forward-looking statements made
by the Company. The Company encourages readers of this information to refer to
Exhibit 99 of the Company's Annual Report on Form 10-K, previously filed with
the United States Securities and Exchange Commission on May 1, 1998, which
identifies certain risks and uncertainties that may have an impact on future
earnings and the direction of the Company.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Part II. Other Information
ITEM 1. Legal Proceedings
In January 1998 Atlantic Harbor, Inc. (formerly known as "Boston
Trading Ltd., Inc.") filed a lawsuit against the Company for failing to pay the
outstanding principal amount of the Purchase Note. Thereafter, the Company filed
claims against Atlantic Harbor, Inc. and its stockholders alleging that the
Company was damaged in excess of $1 million because of the breach of certain
representations and warranties concerning the existence and condition of certain
foreign trademark registrations and license agreements. Barring unforeseen
circumstances, management of the Company does not believe that the result of
this litigation will have a material adverse effect on the Company's business or
financial condition.
The Company is a party to other litigation and claims arising in the
normal course of its business. Barring unforeseen circumstances, management does
not expect the results of these actions to have a material adverse effect on the
Company's business or financial condition.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 6. Exhibits and Reports on Form 8-K
A. Reports on Form 8-K:
None.
B. Exhibits:
3.1 Restated Certificate of Incorporation of the Company, as amended
(included as Exhibit 3.1 to Amendment No. 3 of the Company's
Registration Statement on Form S-1 (No. 33-13402), and incorporated
herein by reference). *
3.2 Certificate of Amendment to Restated Certificate of Incorporation, as
amended, dated June 22, 1993 (included as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q dated June 17, 1996, and
incorporated herein by reference). *
3.3 Certificate of Designations, Preferences and Rights of a Series of
Preferred Stock of the Company establishing Series A Junior
Participating Cumulative Preferred Stock dated May 1, 1995 (included
as Exhibit 3.2 to the Company's Annual Report on Form 10-K dated May,
1996, and incorporated herein by reference). *
3.4 By-Laws of the Company, as amended.
4.1 Shareholder Rights Agreement dated as of May 1, 1995 between the
Company and its transfer agent (included as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated May 1, 1995, and
incorporated herein by reference). *
4.2 First Amendment dated as of October 6, 1997 to the Shareholder Rights
Agreement dated as of May 1, 1995 between the Company its transfer
agent (included as Exhibit 4.1 to the Company's Current Report on
Form 8-K dated October 9, 1997, and incorporated herein by
reference). *
10.1 1987 Incentive Stock Option Plan, as amended (included as
Exhibit 10.1 to the Company's Annual Report on Form 10-K dated
April 29, 1993, and incorporated herein by reference). *
10.2 1987 Non-Qualified Stock Option Plan, as amended (included as
Exhibit 10.2 to the Company's Annual Report on Form 10-K
dated April 29, 1993, and incorporated herein by reference). *
10.3 1992 Stock Incentive Plan, as amended (included as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q dated June 16, 1998,
and incorporated herein by reference). *
10.4 Senior Executive Incentive Plan effective beginning with the fiscal
year ended February 1, 1997 (included as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q dated September 17, 1996, and
incorporated herein by reference). *
10.5 License Agreement between the Company and Levi Strauss & Co. dated
as of April 14, 1992 (included as Exhibit 10.8 to the Company's
Annual Report on Form 10-K dated April 29, 1993, and incorporated
herein by reference). *
10.6 Amended and Restated Trademark License Agreement between the
Company and Levi Strauss & Co. dated as of October 31, 1998
(included as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated December 3, 1998, and incorporated herein by
reference). *
10.7 Amended and Restated Loan and Security Agreement dated as of June 4,
1998, between the Company and BankBoston Retail Finance Inc., as
agent for the Lender(s) identified therein ("BRBF"), and the
Lender(s) (included as Exhibit 10.1 to the Company's Current Report
on Form 8-K dated June 11, 1998, and incorporated herein by
reference). *
10.8 Fee letter dated as of June 4, 1998, between the Company and BBRF
(included as Exhibit 10.2 to the Company's Current Report on Form 8-K
dated June 11, 1998, and incorporated herein by reference). *
10.9 First Amendment to Loan and Security Agreement dated as of September
29, 1998 among the Company, BBRF and the Lender(s) identified therein
(included as Exhibit 10.5 to the Company's Current Report on Form 8-K
dated December 3, 1998, and incorporated herein by reference). *
10.10 Second Amendment to Loan and Security Agreement dated as of October
31, 1998 among the Company, BBRF and the Lender(s) identified therein
(included as Exhibit 10.6 to the Company's Current Report on Form 8-K
dated December 3, 1998, and incorporated herein by reference). *
10.11 Participation Agreement among Designs JV Corp. (the "Designs
Partner"), the Company, LDJV Inc. (the "LOS Partner"), Levi's
Only Stores, Inc. ("LOS"), Levi Strauss & Co. ("LS&CO") and Levi
Strauss Associates Inc. ("LSAI") dated January 28, 1995 (included
as Exhibit 10.1 to the Company's Current Report on Form 8-K dated
April 24, 1995, and incorporated herein by reference). *
10.12 Partnership Agreement of The Designs/OLS Partnership (the "OLS
Partnership") between the LOS Partner and the Designs Partner dated
January 28, 1995 (included as Exhibit 10.2 to the Company's Current
Report on Form 8-K dated April 24, 1995, and incorporated herein by
reference). *
10.13 Glossary executed by the Designs Partner, the Company, the LOS
Partner, LOS, LS&CO, LSAI and the OLS Partnership dated January 28,
1995 (included as Exhibit 10.3 to the Company's Current Report on
Form 8-K dated April 24, 1995, and incorporated herein by reference).
*
10.14 Sublicense Agreement between LOS and the LOS Partner dated January
28, 1995 (included as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated April 24, 1995, and incorporated herein by reference).
*
10.15 Sublicense Agreement between the LOS Partner and the OLS Partnership
dated January 28, 1995 (included as Exhibit 10.5 to the Company's
Current Report on Form 8-K dated April 24, 1995, and incorporated
herein by reference). *
10.16 License Agreement between the Company and the OLS Partnership dated
January 28, 1995 (included as Exhibit 10.6 to the Company's Current
Report on Form 8-K dated April 24, 1995, and incorporated herein by
reference). *
10.17 Administrative Services Agreement between the Company and the OLS
Partnership dated January 28, 1995 (included as Exhibit 10.7 to the
Company's Current Report on Form 8-K dated April 24, 1995, and
incorporated herein by reference). *
10.18 Amendment and Distribution Agreement dated as of October 31, 1998
among the Designs Partner, the LOS Partner and the OLS Partnership
(included as Exhibit 10.2 to the Company's Current Report on Form 8-K
dated December 3, 1998, and incorporated herein by reference). *
10.19 Guaranty by the Company of the indemnification obligation of the
Designs Partner dated as of October 31, 1998 in favor of LS& Co.
(included as Exhibit 10.3 to the Company's Current Report on Form 8-K
dated December 3, 1998, and incorporated herein by reference). *
10.20 Credit Agreement among the Company, LOS and the OLS Partnership dated
as of October 1, 1996 (included as Exhibit 10.15 to the Company's
Quarterly Report on Form 10-Q dated December 17, 1996, and
incorporated herein by reference). *
10.21 First Amendment to Credit Agreement among the Company, LOS and the
OLS Partnership dated as of October 29, 1997 (included as Exhibit
10.16 to the Company's Quarterly Report on Form 10-Q dated December
16, 1997, and incorporated herein by reference). *
10.22 Asset Purchase Agreement between LOS and the Company relating to the
sale by the Company of stores located in Minneapolis, Minnesota dated
January 28, 1995 (included as Exhibit 10.9 to the Company's Current
Report on Form 8-K dated April 24, 1995, and incorporated herein by
reference). *
10.23 Asset Purchase Agreement among Boston Trading Ltd., Inc., Designs
Acquisition Corp., the Company and others dated April 21, 1995
(included as 10.16 to the Company's Quarterly Report on Form 10-Q
dated September 12, 1995, and incorporated herein by reference). *
10.24 Non-Negotiable Promissory Note between the Company and Atlantic
Harbor, Inc., formerly known as Boston Trading Ltd., Inc., dated May
2, 1995 (included as 10.17 to the Company's Quarterly Report on Form
10-Q dated September 12, 1995, and incorporated herein by reference).
*
10.25 Asset Purchase Agreement dated as of September 30, 1998 between the
Company and LOS relating to the purchase by the Company of 16
Dockers(R) Outlet and nine Levi's(R) Outlet stores (included as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
December 3, 1998, and incorporated herein by reference). *
10.26 Employment Agreement dated as of October 16, 1995 between the Company
and Joel H. Reichman (included as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated December 6, 1995, and incorporated
herein by reference). *
10.27 Employment Agreement dated as of October 16, 1995 between the Company
and Scott N. Semel (included as Exhibit 10.2 to the Company's Current
Report on Form 8-K dated December 6, 1995, and incorporated herein by
reference). *
10.28 Employment Agreement dated as of May 9, 1997 between the Company and
Carolyn R. Faulkner (included as Exhibit 10.23 to the Company's
Quarterly Report on Form 10-Q dated June 17, 1997, and incorporated
herein by reference). *
10.29 Separation Agreement dated as of February 9, 1998 between the Company
and Mark S. Lisnow (included as Exhibit 10.26 to the Company's Annual
Report on Form 10-K dated May 1, 1998, and incorporated herein by
reference). *
11 Statement re: computation of per share earnings.
27 Financial Data Schedule.
99.1 Report of the Company dated May 1, 1998 concerning certain cautionary
statements of the Company to be taken into account in conjunction
with consideration and review of the Company's publicly-disseminated
documents (including oral statements made by others on behalf of the
Company) that include forward looking information (included as
Exhibit 99 to the Company`s Annual Report on Form 10-K dated May 1,
1998 and incorporated herein by reference). *
99.2 Press Release dated December 11, 1998 (included as Exhibit 99.1 to
the Company's Current Report on Form 8-K dated December 11, 1998 and
incorporated by reference). *
* Previously filed with the Securities and Exchange Commission.
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.
DESIGNS, INC.
December 15, 1998 By: /s/ Carolyn R. Faulkner
Carolyn R. Faulkner, Vice President,
Chief Financial Officeer and Treasurer
BY-LAWS
OF
DESIGNS, INC.
Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS
1.1 These By-Laws are subject to the Certificate of Incorporation of the
Corporation. In these By-Laws, references to the Certificate of Incorporation
and By-Laws mean the provisions of the Certificate of Incorporation and the
By-Laws as are from time to time in effect.
Section 2. OFFICES
2.1 Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
2.2 Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
Section 3. STOCKHOLDERS
3.1 Location of Meetings. All meetings of the stockholders shall be held at
such place either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors. Any adjourned session of any
meeting shall be held at the place designated in the vote of adjournment.
3.2 Annual Meeting. The annual meeting of stockholders shall be held for
the election of directors on the second Tuesday in June in each year, unless
that day be a legal holiday at the place where the meeting is to be held, in
which case the meeting shall be held at the same hour on the next succeeding day
not a legal holiday, or at such other date and time as shall be designated from
time to time by the Board of Directors. Any other business as may be required or
permitted by law or these By-Laws may properly come before the annual meeting.
3.3 Special Meeting in Place of Annual Meeting. If the election for
directors shall not be held on the day designated by these By-Laws, the
directors shall cause the election to be held as soon thereafter as convenient,
and to that end, if the annual meeting is omitted on the day herein provided
therefor or if the election of directors shall not be held thereat, a special
meeting of the stockholders may be held in place of such omitted meeting or
election, and any business transacted or election held at such special meeting
shall have the same effect as if transacted or held at the annual meeting, and
in such case all references in these By-Laws to the annual meeting of the
stockholders, or to the annual election of directors, shall be deemed to refer
to or include such special meeting. Any such special meeting shall be called and
the purposes thereof shall be specified in the call, as provided in Section 3.4.
3.4 Notice of Annual Meeting. Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. Such notice may specify the business to be
transacted and actions to be taken at such meeting. No action shall be taken at
such meeting unless such notice is given, or unless waiver of such notice is
given by the holders of outstanding stock having not less than the minimum
number of votes necessary to take such action at a meeting at which allshares
entitled to vote thereon were voted. Prompt notice of all action taken in
connection with such waiver of notice shall be given to all stockholders not
present or represented at such meeting.
3.5 Special Meetings. Except as otherwise required by law and subject to
the rights, if any, of the holders of any series of preferred stock, special
meetings of the stockholders of the Corporation may be called only by the Board
of Directors pursuant to a resolution approved by the affirmative vote of a
majority of the directors then in office.
3.6 Notice of Special Meeting. Written notice of a special meeting of
stockholders 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 ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting. No action shall be taken at such meeting unless such
notice is given, or unless waiver of such notice is given by the holders of
outstanding stock having not less than the minimum number of votes necessary to
take such action at a meeting at which all shares entitled to vote thereon were
voted. Prompt notice of all action taken in connection with such waiver of
notice shall be given to all stockholders not present or represented at such
meeting.
3.7 Stockholder List. The Secretary shall prepare and make, at least ten
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
3.8 Quorum of Stockholders. The holders of a majority of the 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 stockholders for the
transaction of business except as otherwise required by law, or by the
Certificate of Incorporation or by these By-Laws. Except as otherwise provided
by law, no stockholder present at a meeting may withhold his shares from the
quorum count by declaring his shares absent from the meeting.
3.9 Adjournment. Any meeting of stockholders may be adjourned from time to
time to any other time and to any other place at which a meeting of stockholders
may be held under these By-Laws, which time and place shall be announced at the
meeting, by a majority of votes cast upon the question, whether or not a quorum
is present. 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 original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
3.10 Proxy Representation. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, objecting to
or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. Except as otherwise
provided by law, a stockholder may revoke any proxy which is not irrevocable by
attending the meeting for which the proxy was given and voting in person or by
filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the Corporation. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and, if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. The authorization of a proxy may but need
not be limited to specified action, provided, however, that if a proxy limits
its authorization to a meeting or meetings of stockholders, unless otherwise
specifically provided such proxy shall entitle the holder thereof to vote at any
adjourned session but shall not be valid after the final adjournment thereof.
3.11 Inspectors. The directors or the person presiding at the meeting may,
but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting, the inspectors shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them.
3.12 Action by Vote. When a quorum is present at any meeting, whether the
same be an original or an adjourned session, a plurality of the votes properly
cast for election to any office shall elect to such office and a majority of the
votes properly cast upon any question other than an election to an office shall
decide the question, except when a larger vote is required by law, by the
Certificate of Incorporation or by these By-Laws. No ballot shall be required
for any election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.
3.13 Action Without Meetings. Unless otherwise provided in the Certificate
of Incorporation, any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
3.14 Matters to be Considered at Annual Meetings. At any annual meeting of
stockholders or any special meeting in lieu of annual meeting of stockholders
(for purposes of this Section 3.14 and Section 4.16 hereof, hereinafter referred
to as an "Annual Meeting"), only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly brought before such
Annual Meeting. To be considered as properly brought before an Annual Meeting,
business must be: (a) specified in the notice of the Annual Meeting, (b)
otherwise properly brought before the annual meeting by, or at the direction of,
the Board of Directors, or (c) otherwise properly brought before the Annual
Meeting by any holder of record (both as of the time notice of such proposal is
given by the stockholder as set forth below and as of the record date for the
Annual Meeting in question) of any shares of capital stock of the Corporation
entitled to vote at such Annual Meeting who complies with the requirements set
forth in this Section 3.14.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 3.14 to
the Secretary of the Corporation and (ii) be present at such Annual Meeting,
either in person or by a representative. A stockholder's notice shall be timely
if delivered to, or mailed to and received by, the Corporation at its principal
executive office not less than seventy-five days nor more than one hundred
twenty days prior to the anniversary date of the immediately preceding Annual
Meeting (for purposes of this Section 3.14 and Section 4.16 hereof, hereinafter
referred to as the "Anniversary Date"); provided, however, that in the event the
Annual Meeting is scheduled to be held on a date more than thirty days before
the Anniversary Date or more than sixty days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (A) the seventy-fifth day prior to the scheduled
date of such Annual Meeting or (B) the fifteenth day following the day on which
public announcement of the date of such Annual Meeting is first made by the
Corporation.
For purposes of these By-Laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to all stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder desires to bring before such Annual Meeting and the
reasons for conducting such business at such Annual Meeting, (ii) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 3.14 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 3.14 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 3.14. If the presiding officer determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 3.14 or that the information provided in a
stockholders notice does not satisfy the information requirements of this
Section 3.14 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
stockholder proposal was made in accordance with the requirements of this
Section 3.14, the presiding officer shall so declare at the Annual Meeting and
ballots shall be provided for use at the Annual Meeting with respect to such
proposal.
Notwithstanding the foregoing provisions of this Section 3.14, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this Section
3.14, and nothing in this Section 3.14 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
3.15 Inspection of Stockholder Consents. In the event of the delivery to
the Corporation of the requisite written stockholder consents to take corporate
action and/or any related revocation or revocations, the Corporation shall
engage nationally recognized independent inspectors of elections for the purpose
of promptly performing a ministerial review of the validity of such consents and
revocations. For the purpose of permitting the inspectors to perform such
review, no action by written consent without a meeting shall be effective until
such date as the independent inspectors certify to the Corporation that the
consents delivered to the Corporation constitute at least the minimum number of
votes that would be necessary to take the corporate action. Nothing contained in
this paragraph shall in any way be construed to suggest or imply that the Board
of Directors or any stockholder shall not be entitled to contest the validity of
any consent or revocation thereof, whether before or after such certification by
the independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
Section 4. DIRECTORS
4.1 Number; Qualifications. The Board of Directors shall consist of one or
more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. Directors need not be stockholders.
4.2 Election; Vacancies. The Board of Directors shall initially consist of
persons elected as such by the incorporator. At the first annual meeting of
stockholders and at each annual meeting thereafter, the stockholders shall elect
directors to replace those directors whose terms then expire. Vacancies and any
newly created directorships resulting from any increase in the number of
directors may be filled by vote of the stockholders at a meeting called for the
purpose, or by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. When one or more directors shall resign
from the Board, effective at a future date, a majority of the directors then in
office, including those who have resigned, shall have power to fill such vacancy
or vacancies, the vote or action by writing thereon to take effect when such
resignation or resignations shall become effective. The directors shall have and
may exercise all their powers notwithstanding the existence of one or more
vacancies in their number, subject to any requirements of law or of the
Certificate of Incorporation or of these By-Laws as to the number of directors
required for a quorum or for any vote or other actions.
4.3 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each director shall hold office until the
next annual meeting and until his successor is elected and qualified, or until
he sooner dies, resigns, is removed or becomes disqualified.
4.4 Powers. The business of the Corporation shall be managed by or under
the direction of the Board of Directors which shall have and may exercise all
the powers of the Corporation and do all such lawful acts and things as are not
by law, the Certificate of Incorporation or these By-Laws directed or required
to be exercised or done by the stockholders.
4.5 Committees. The Board of Directors may, by vote of a majority of the
whole Board, (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
the committee; and (c) determine the extent to which each such committee shall
have and may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, including the power
to authorize the seal of the Corporation to be affixed to all papers which
require it and the power and authority to declare dividends or to authorize the
issuance of stock; excepting, however, such powers which by law, by the
Certificate of Incorporation or by these By-Laws they are prohibited from so
delegating. In the absence or disqualification of any member of such committee
and his alternate, if any, the member or members thereof present at any meeting
and not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Except as the
Board of Directors may otherwise determine, any committee may make rules for the
conduct of its business, but unless otherwise provided by the Board or such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these By-Laws for the conduct of business by the Board of
Directors. Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors upon request.
4.6 Regular Meeting. Regular meetings of the Board of Directors may be held
without call or notice at such place within or without the State of Delaware and
at such times as the Board may from time to time determine, provided that notice
of the first regular meeting following any such determination shall be given to
absent directors. A regular meeting of the directors may be held without call or
notice immediately after and at the same place as the annual meeting of the
stockholders.
4.7 Special Meetings. Special meetings of the Board of Directors may be
held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the Chairman, the
President or the Secretary, or by one-third or more in number of the directors,
reasonable notice thereof being given to each director by the Secretary, the
President or the Chairman or by any one of the directors calling the meeting.
4.8 Notice. It shall be reasonable and sufficient notice to a director to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting, addressed to him at his usual or last
known business or residence address or to give notice to him in person or by
telephone at least twelve hours before the meeting. Notice of a meeting need not
be given to any director if a written waiver of notice, executed by him before
or after the meeting, is filed with the records of the meeting, or to any
director who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a meeting nor a waiver
of a notice need specify the purposes of the meeting.
4.9 Quorum. Except as may be otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, at any meeting of the directors a majority
of the directors then in office shall constitute a quorum; a quorum shall not in
any case be less than one-third of the total number of directors constituting
the whole Board. Any meeting may be adjourned from time to time by a majority of
the votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
4.10 Action by Vote. Except as may be otherwise provided by law, by the
Certificate of Incorporation or by these By-Laws, when a quorum is present at
any meeting the vote of a majority of the directors present shall be the act of
the Board of Directors.
4.11 Action Without a Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, 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 or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the records of the meetings of the Board or of such
committee. Such consent shall be treated for all purposes as the act of the
Board or of such committee, as the case may be.
4.12 Participation in Meetings by Conference Telephone. Unless otherwise
restricted by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors or of any committee thereof, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at such meeting.
4.13 Compensation. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the authority
to fix from time to time the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and the performance of their responsibilities as directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors and/or
a stated salary as director. No such payment shall preclude any director from
serving the Corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. The Board of Directors may also
allow compensation for members of special or standing committees for service on
such committees.
4.14 Interested Directors and Officers.
(a) 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 the Corporation's 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 is present at or participates in the
meeting of the Board or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
(1) The material facts as to his 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 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
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) 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 stockholders.
(b) 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.
4.15 Resignation or Removal of Directors. Unless otherwise restricted by
the Certificate of Incorporation or by law, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the stock issued and outstanding and entitled to vote at an election of
directors. Any director may resign at any time by delivering his resignation in
writing to the President or the Secretary or to a meeting of the Board of
Directors. Such resignation shall be effective upon receipt unless specified to
be effective at some other time; and without in either case the necessity of its
being accepted unless the resignation shall so state. No director resigning and
(except where a right to receive compensation shall be expressly provided in a
duly authorized written agreement with the Corporation) no director removed
shall have any right to receive compensation as such director for any period
following his resignation or removal, or any right to damages on account of such
removal, whether his compensation be by the month or by the year or otherwise;
unless in the case of a resignation, the directors, or in the case of removal,
the body acting on the removal, shall in their or its discretion provide for
compensation.
4.16 Director Nominations. Nominations of candidates for election as
directors of the Corporation at any Annual Meeting may be made only (a) by, or
at the direction of, a majority of the directors then in office or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 4.16. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 4.16 and who seeks to make such a nomination, or such stockholder's
representative, must be present in person at the Annual Meeting. Only persons
nominated in accordance with the procedures set forth in this Section 4.16 shall
be eligible for election as directors at an Annual Meeting.
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 as set forth in this Section 4.16. A stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than seventy-five days nor more than
one hundred twenty days prior to the Anniversary Date; provided, however, that
in the event the Annual Meeting is scheduled to be held on a date more than
thirty days before the Anniversary Date or more than sixty days after the
Anniversary Date, a stockholder's notice shall be timely if delivered to, or
mailed and received by, the Corporation at its principal executive office not
later than the close of business on the later of (i) the seventy-fifth day prior
to the scheduled date of such Annual Meeting or (ii) the fifteenth day following
the day on which public announcement of the date of such Annual Meeting is first
made by the Corporation.
A stockholder's notice to the Secretary shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election 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's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a director if elected. A
stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (i) the name and address, as the appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such nominee(s), (ii) the class and number of
shares of the Corporation's capital stock which are held of record, beneficially
owned or represented by proxy by such stockholder and by any other stockholders
known by such stockholder to be supporting such nominee(s) on the record date
for the Annual Meeting in question (if such date shall then have been made
publicly available) and on the date of such stockholder's notice, and (iii) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 4.16 or that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 4.l6 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 4.16, the presiding officer of the Annual Meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder nomination
was not made in accordance with the terms of this Section 4.16 or that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 4.16 in any material respect, then
such nomination shall not be considered at the Annual Meeting in question. If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a nomination was made in accordance with the terms of this
Section 4.16, the presiding officer shall so declare at the Annual Meeting and
ballots shall be provided for use at the Annual Meeting with respect to such
nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 4.16, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
seventy-five days prior to the Anniversary Date, a stockholder's notice required
by this Section 4.16 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if such notice shall be
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the fifteenth day
following the day on which such public announcement is first made by the
Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 4.16. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at an
Annual Meeting in accordance with the procedures set forth in this Section 4.16
shall be provided for use at such Annual Meeting.
Section 5. NOTICES
5.1 Form of Notice. Whenever, under the provisions of law, or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, 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 United
States mail. Unless written notice by mail is required by law, written notice
may also be given by telegram, cable, telecopy, commercial delivery service,
telex or similar means, addressed to such director or stockholder at his address
as it appears on the records of the Corporation, in which case such notice shall
be deemed to be given when delivered into the control of the persons charged
with effecting such transmission, the transmission charge to be paid by the
Corporation or the person sending such notice and not by the addressee. Oral
notice or other in-hand delivery (in person or by telephone) shall be deemed
given at the time it is actually given.
5.2 Waiver of Notice. Whenever notice is required to be given under the
provisions of law, the Certificate of Incorporation or these By-Laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders, directors or members of a
committee of the directors need be specified in any written waiver of notice.
Section 6. OFFICERS AND AGENTS
6.1 Enumeration; Qualification. The officers of the Corporation shall be a
Chairman of the Board of Directors, a President, a Treasurer, a Secretary and
such other officers, if any, as the Board of Directors from time to time may in
its discretion elect or appoint including without limitation one or more Vice
Presidents. Any officer may be, but none need be, a director or stockholder. Any
two or more offices may be held by the same person. Any officer may be required
by the Board of Directors to secure the faithful performance of his duties to
the Corporation by giving bond in such amount and with sureties or otherwise as
the Board of Directors may determine.
6.2 Powers. Subject to law, to the Certificate of Incorporation and to the
other provisions of these By-Laws, each officer shall have, in addition to the
duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the Board of
Directors may from time to time designate.
6.3 Election. The Board of Directors at its first meeting after each annual
meeting of stockholders, or special meeting in place of an annual meeting, shall
choose a Chairman, a President, a Secretary and a Treasurer. Other officers may
be appointed by the Board of Directors at such meeting, at any other meeting or
by written consent. At any time or from time to time, the directors may delegate
to any officer their power to elect or appoint any other officer or any agents.
6.4 Tenure. Each officer shall hold office until the first meeting of the
Board of Directors following the next annual meeting of the stockholders and
until his successor is elected and qualified unless a shorter period shall have
been specified in terms of his election or appointment, or in each case until he
sooner dies, resigns, is removed or becomes disqualified. Each agent of the
Corporation shall retain his authority at the pleasure of the directors, or the
officer by whom he was appointed or by the officer who then holds agent
appointive power.
6.5 Resignation and Removal. Any officer may resign at any time by
delivering his resignation in writing to the President or the Secretary or to a
meeting of the Board of Directors. Such resignation shall be effective upon
receipt unless specified to be effective at some other time, and without in any
case the necessity of its being accepted unless the resignation shall so state.
The Board of Directors may at any time remove any officer either with or without
cause. The Board of Directors may at any time terminate or modify the authority
of any agent. No officer resigning and (except where a right to receive
compensation shall be expressly provided in a duly authorized written agreement
with the Corporation) no officer removed shall have any right to any
compensation as such officer for any period following his resignation or
removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise; unless in the case of
a resignation, the directors, or in the case of removal, the body actin on the
removal, shall in their or its discretion provide for compensation.
6.6 Vacancies. If the office of the Chairman, the President, the Treasurer
or the Secretary becomes vacant, the directors may elect a successor by vote of
a majority of the directors then in office. If the office of any other officer
becomes vacant, any person or body empowered to elect or appoint that office may
choose a successor. Each such successor shall hold office for the unexpired term
of his predecessor, and in the case of the Chairman, the President, the
Treasurer and the Secretary until his successor is chosen and qualified, or in
each case until he sooner dies, resigns, is removed or becomes disqualified.
Section 7. CAPITAL STOCK
7.1 Stock Certificates. Each stockholder shall be entitled to a certificate
stating the number and the class and the designation of the series, if any, of
the shares held by him, in such form as shall, in conformity to law, the
Certificate of Incorporation and the By-Laws, be prescribed from time to time by
the Board of Directors. Such certificate shall be signed by the President or a
Vice-President and (i) the Treasurer or an Assistant Treasurer or (ii) the
Secretary or an Assistant Secretary. Any of or all the signatures on the
certificate may be a facsimile. In case an officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent, or registrar at the time of its
issue.
7.2 Lost Certificates. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 8. TRANSFER OF SHARES OF STOCK
8.1 Transfer on Books. Subject to any restrictions with respect to the
transfer of shares of stock, shares of stock may be transferred on the books of
the Corporation by the surrender to the Corporation or its transfer agent of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the Board of Directors
or the transfer agent of the Corporation may reasonably require. Except as may
be otherwise required by law, by the Certificate of Incorporation or by these
By-Laws, the Corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to receive notice and to vote or to give any
consent with respect thereto and to be held liable for such calls and
assessments, if any, as may lawfully be made thereon, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
properly transferred on the books of the Corporation. It shall be the duty of
each stockholder to notify the Corporation of his post office address.
Section 9. GENERAL PROVISIONS
9.1 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action to which
such record date relates. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting. If no record date is fixed,
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held;
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed; and
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating to such purpose.
9.2 Dividends. Dividends upon the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting or by
written consent, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate
ofIncorporation.
9.3 Payment of Dividends. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
9.4 Checks. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
9.5 Fiscal Year. The fiscal year of the Corporation shall end the Saturday
closest to the 31st of January unless otherwise determined by the Board of
Directors.
9.6 Seal. The Board of Directors may, by resolution, adopt a corporate
seal. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the Board
of Directors.
Section 10. INDEMNIFICATION
10.1 It being the intent of the Corporation to provide maximum protection
available under the law to its officers and directors, the Corporation shall
indemnify its officers and directors to the full extent the Corporation is
permitted or required to do so by the General Corporation Law of Delaware as the
same exists or hereafter may be amended. Such indemnification shall include
payment by the Corporation, in advance of the final disposition of a civil or
criminal action, suit or proceedings, of expenses incurred by a director or
officer in defending any such action, suit or proceeding upon receipt of any
undertaking by or on behalf of such director or officer to repay such payment if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation. The Corporation may accept any such undertaking without
reference to the financial ability of the person to make such repayment. As used
in this paragraph, the terms "director" and "officer" include their respective
heirs, executors, and administrators.
Section 11. AMENDMENTS
11.1 These By-Laws may be altered, amended or repealed or new By-Laws may
be adopted by the stockholders or by the Board of Directors when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors. If the power
to adopt, amend or repeal By-Laws is conferred upon the Board of Directors by
the Certificate of Incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal By-Laws.
EX-11
EARNINGS PER SHARE
Exhibit 11. Statement Re: Computation of Per Share Earnings
EX-11
EARNINGS PER SHARE
Three months Nine Months Twelve Months
October 31, 1998 October 31, 1998 October 31, 1998
-------------------------------- ---------
(in thousands except per share data)
Basic EPS Computation
Numerator:
Net income (loss) $ (8,746) $ (14,892) $(23,606)
Denominator:
Weighted average
common shares outstanding 15,867 15,789 15,773
--------------------------------------
Basic EPS $ (0.55) $ (0.94) $ (1.50)
Diluted EPS Computation
Numerator:
Net income (loss) $ (8,746) $ (14,892) $(23,606)
Denominator:
Weighted average common
shares outstanding 15,867 15,789 15,773
Stock options, excluding anti-dilutive options of 115, 66, and 63 shares
for the three, nine and twelve months ending
October 31, 1998, respectively. --- --- ---
--------------------------------------
Total Shares 5,867 15,789 15,773
Diluted EPS $ (0.55) $ (0.94) $ (1.50)
Three months Nine Months Twelve Months
November 1, 1997 November 1, 1997 November 1, 1997
---------------------------------------------
(in thousands except per share data)
Basic EPS Computation
Numerator:
Net income (loss) $ (567) $ (20,331) $(18,140)
Denominator:
Weighted average
common shares outstanding 15,641 15,623 15,616
Basic EPS $ (0.04) $ (1.30) $ (1.16)
Diluted EPS Computation
Numerator:
Net income (loss) $ (567) $ (20,331) $(18,140)
Denominator:
Weighted average common
shares outstanding 15,641 15,623 15,616
Stock options, excluding
anti-dilutive options 33, 44
and 52 shares for the three, nine
and twelve months ending
November 1, 1997, respectively. --- --- ---
Total Shares 15,641 15,623 15,616
Diluted EPS $ (0.04) $ (1.30) $ (1.16)
====================================
5
1000
9-mos
JAN-30-1999
AUG-02-1998
OCT-31-1998
1,490
0
786
0
58,938
72,832
51,573
31,676
102,999
35,449
0
0
0
161
67,389
102,999
149,193
149,193
117,013
117,013
57,686
0
469
(25,905)
(9,321)
(14,892)
0
0
0
(14,892)
(0.94)
(0.94)
5
1000
9-mos
JAN-31-1998
AUG-03-1997
NOV-01-1997
2,402
0
358
0
82,849
104,816
71,184
32,979
148,984
52,559
0
0
0
160
90,838
148,984
197,472
197,472
167,771
167,771
63,982
0
664
(34,851)
(14,333)
(20,331)
0
0
0
(20,331)
(1.30)
(1.30)
