<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-7258
CHARMING SHOPPES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1721355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 WINKS LANE, BENSALEM, PA 19020
(Address of principal executive offices) (Zip Code)
(215) 245-9100
(Registrant's telephone number, including Area Code)
NOT APPLICABLE
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES (X) NO ( )
The number of shares outstanding of the issuer's Common Stock, as of Octo-
ber 31, 1998, was 97,839,448 shares.
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
October 31, 1998 and January 31, 1998.............................. 1-2
Condensed Consolidated Statements of Operations (Unaudited)
Thirteen weeks ended October 31, 1998 and November 1, 1997......... 3
Condensed Consolidated Statements of Operations (Unaudited)
Thirty-nine weeks ended October 31, 1998 and November 1, 1997...... 4
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Thirty-nine weeks ended October 31, 1998 and November 1, 1997...... 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Thirty-nine weeks ended October 31, 1998 and November 1, 1997...... 6
Notes to Condensed Consolidated Financial Statements (Unaudited)...... 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................11-21
PART II. OTHER INFORMATION
Item 5. Other Information............................................ 22
Item 6. Exhibits and Reports on Form 8-K............................. 23
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
(In thousands) 1998 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................$ 32,633 $ 12,349
Available-for-sale securities (including fair
value adjustments of $(37) and $37, respectively).. 72,721 84,909
Merchandise inventories.............................. 217,000 175,785
Deferred taxes....................................... 6,587 863
Prepayments and other................................ 29,140 31,975
-------- --------
Total current assets................................. 358,081 305,881
Property, equipment, and leasehold improvements...... 439,071 443,017
Less: accumulated depreciation and amortization...... 266,648 257,013
-------- --------
Net property, equipment, and leasehold improvements.. 172,423 186,004
Available-for-sale securities (including fair
value adjustments of $906 and $474, respectively).. 152,159 207,191
Other assets......................................... 24,414 10,662
-------- --------
Total assets.........................................$707,077 $709,738
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(1)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
(In thousands) 1998 1998
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.....................................$ 83,198 $ 53,623
Accrued expenses..................................... 77,377 82,911
Income taxes payable................................. 0 6,123
Accrued restructuring expenses....................... 19,031 0
Current portion -- long-term debt.................... 16 16
-------- --------
Total current liabilities............................ 179,622 142,673
Deferred taxes....................................... 12,139 12,139
Long-term debt....................................... 122,279 138,116
Stockholders' equity
Common Stock $.10 par value
Authorized -- 300,000,000 shares
Issued -- 106,549,448 shares and
106,249,385 shares, respectively.................. 10,655 10,625
Additional paid-in capital........................... 65,170 64,019
Treasury stock at cost - 8,710,000 shares and
5,580,000 shares, respectively.................... (39,405) (25,382)
Deferred employee compensation....................... (1,239) (1,073)
Unrealized gains on available-for-sale
securities (net of income tax expense of
$304 and $179, respectively)...................... 565 332
Retained earnings.................................... 357,291 368,289
-------- --------
Total stockholders' equity........................... 393,037 416,810
-------- --------
Total liabilities and stockholders' equity...........$707,077 $709,738
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(2)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
October 31, November 1,
(In thousands except per-share amounts) 1998 1997
---- ----
<S> <C> <C>
Net sales...........................................$239,742 $236,203
Other income........................................ 3,921 4,423
-------- --------
Total revenue....................................... 243,663 240,626
-------- --------
Cost of goods sold, buying, and occupancy expenses.. 180,148 179,908
Selling, general, and administrative expenses....... 61,772 57,883
Non-recurring gain from asset securitization........ 0 (13,018)
Interest expense.................................... 2,395 2,590
-------- --------
Total expenses...................................... 244,315 227,363
-------- --------
Income (loss) before income taxes................... (652) 13,263
Income tax provision (benefit)...................... (228) 4,637
-------- --------
Net income (loss)...................................$ (424) $ 8,626
======== ========
Net income (loss) per share......................... $(0.00) $0.08
====== =====
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(3)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
October 31, November 1,
(In thousands except per-share amounts) 1998 1997
---- ----
<S> <C> <C>
Net sales...........................................$762,931 $737,587
Other income........................................ 12,242 11,491
-------- --------
Total revenue....................................... 775,173 749,078
-------- --------
Cost of goods sold, buying, and occupancy expenses.. 568,045 561,181
Selling, general, and administrative expenses....... 182,413 173,149
Restructuring charge................................ 34,000 0
Non-recurring gain from asset securitization........ 0 (13,018)
Interest expense.................................... 7,635 7,770
-------- --------
Total expenses...................................... 792,093 729,082
-------- --------
Income (loss) before income taxes................... (16,920) 19,996
Income tax provision (benefit)...................... (5,922) 6,859
-------- --------
Net income (loss)...................................$(10,998) $ 13,137
======== ========
Net income (loss) per share......................... $(0.11) $ 0.12
====== ======
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(4)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
October 31, November 1,
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Net income (loss).................................. $(10,998) $ 13,137
-------- --------
Other comprehensive income:
Unrealized gains on available-for-sale
securities, net of income tax expense of $210
and $192, respectively.......................... 390 356
Reclassification of realized gains on
available-for-sale securities, net of income
tax expense of $85 and $39, respectively........ (157) (73)
-------- --------
Total other comprehensive income, net of taxes.. 233 283
-------- --------
Comprehensive income (loss)........................ $(10,765) $ 13,420
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(5)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
October 31, November 1,
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Operating activities
Net income (loss)....................................$(10,998) $ 13,137
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 25,502 29,996
Non-recurring gain from asset securitization...... 0 (13,018)
Deferred income taxes............................. (5,849) 4,556
Amortization of deferred compensation expense..... 553 579
Write-down of capital assets due to restructuring. 10,000 0
Gain from disposition of capital assets........... (35) (107)
Gain on sale of available-for-sale securities..... (242) (112)
Changes in operating assets and liabilities:
Income tax refund receivable................... 0 3,684
Prepayments and other.......................... 2,790 (3,636)
Merchandise inventories........................ (41,215) (60,201)
Accounts payable............................... 29,575 46,229
Accrued expenses............................... (5,534) 2,498
Income taxes payable........................... (6,123) 3,745
Accrued restructuring expenses................. 19,031 0
-------- --------
Net cash provided by operating activities............ 17,455 27,350
-------- --------
Investing activities
Investment in capital assets......................... (20,418) (12,643)
Proceeds from sales of capital assets................ 60 2,603
Proceeds from sales of available-for-sale securities. 326,762 173,921
Gross purchases of available-for-sale securities.....(258,993) (239,813)
Increase in other assets............................. (15,229) (959)
-------- --------
Net cash provided by (used in) investing activities.. 32,182 (76,891)
-------- --------
Financing activities
Purchases of treasury stock.......................... (14,023) 0
Reduction of long-term borrowings.................... (15,837) (8)
Proceeds from exercise of stock options.............. 507 1,570
-------- --------
Net cash provided by (used in) financing activities.. (29,353) 1,562
-------- --------
Increase (Decrease) in cash and cash equivalents..... 20,284 (47,979)
Cash and cash equivalents, beginning of period....... 12,349 78,979
-------- --------
Cash and cash equivalents, end of period.............$ 32,633 $ 31,000
======== ========
<FN>
Certain prior-year amounts have been reclassified to conform to current-
year presentation
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
(6)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of October 31, 1998 and
the condensed consolidated statements of operations, comprehensive income
(loss), and cash flows for the thirteen and thirty-nine weeks ended October
31, 1998 and November 1, 1997 have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position at October 31, 1998 and the results of operations and cash flows
for the thirteen and thirty-nine weeks ended October 31, 1998 and November
1, 1997 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted ac-
counting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's January
31, 1998 Annual Report on Form 10-K. The results of operations for the
thirteen and thirty-nine weeks ended October 31, 1998 and November 1, 1997
are not necessarily indicative of operating results for the full fiscal
year.
2. Stockholders' Equity
During the thirty-nine weeks ended October 31, 1998, stockholders'
equity changed as a result of the following items: a decrease from a net
loss of $10,998,000; an increase from net unrealized gains on available-
for-sale securities of $233,000 (net of income taxes of $125,000); an in-
crease in common stock and additional paid-in capital of $478,000 from the
exercise of options for Common Stock; a decrease in paid-in capital of
$16,000 from shares of Common Stock tendered by employees in payment of
payroll taxes due from the exercise of stock options; a decrease from pur-
chases of treasury stock of $14,023,000; and an increase from amortization
of deferred compensation expense of $553,000.
3. Revolving Credit Facility
The Company has an agreement with a commercial finance company to
provide a revolving credit facility with a maximum availability of $150
million, subject to limitations based upon eligible inventory. On May 1,
1998, the expiration date of this facility was extended from June 1, 1998
to June 1, 1999.
(7)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Repurchases of Common Stock and Convertible Notes
In November 1997, the Company's Board of Directors approved the repur-
chase of up to 10,000,000 shares of the Company's Common Stock. During the
thirteen weeks ended October 31, 1998, the Company repurchased 2,330,000
shares of its Common Stock at an aggregate cost of $10,243,000. During the
thirty-nine weeks ended October 31, 1998, the Company repurchased 3,130,000
shares of its Common Stock at an aggregate cost of $14,023,000.
During the thirteen weeks ended October 31, 1998, the Company
repurchased $12,833,000 aggregate principal amount of its 7.5% Convertible
Subordinated Notes due 2006 ("the Notes") at a total cost of $12,351,000.
During the thirty-nine weeks ended October 31, 1998, the Company repur-
chased $15,833,000 aggregate principal amount of the Notes at a total cost
of $15,306,000. The gains or losses on the repurchases of the Notes were
not material.
5. Restructuring Charge
On March 5, 1998, the Company's Board of Directors approved a Restruc-
turing Plan (the "Plan") that resulted in a pre-tax charge of $34,000,000
during the thirteen weeks ended May 2, 1998. The Plan includes the down-
sizing of approximately 100 stores and the closing of approximately 65
under-performing stores. The Plan was approved in conjunction with the
decision to eliminate men's merchandise from the Company's stores.
The restructuring charge includes estimates of $10,000,000 for the
write-down of store fixtures and improvements, $11,400,000 for the early
termination and amendment of store leases, $8,300,000 for the cost of
renovating vacated store space, and $4,300,000 for other costs, including
severance benefits. The Company anticipates a workforce reduction of ap-
proximately 650 store employees. During the thirty-nine weeks ended
October 31, 1998, the Company closed 33 stores and reduced store employees
by approximately 330.
6. Non-Recurring Gain from Asset Securitization
In connection with the issuance in November 1997 of the Charming
Shoppes Master Trust Series 1997-1 Floating Rate Class A Asset-Backed
Certificates, the Company evaluated the fair value of its retained inter-
ests and related recourse provisions. As a result of such evaluation, the
Company recognized a non-recurring gain of $13,018,000 for the thirteen
weeks and thirty-nine weeks ended November 1, 1997.
(8)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Net Income (Loss) Per Share
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
(In thousands except October 31, November 1, October 31, November 1,
per-share amounts) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic net income (loss)
per share
Net income (loss)........... $ (424) $ 8,626 $(10,998) $ 13,137
Weighted average shares
outstanding.............. 98,860 106,088 99,952 105,839
-------- -------- -------- --------
Basic net income (loss)
per share................ $(.00) $ .08 $(.11) $ .12
======== ======== ======== ========
Net income (loss) per share,
assuming dilution
Dilutive effect of assumed
Exercise of stock options 0 1,675 0 1,585
-------- -------- -------- --------
Weighted average shares and
share equivalents
outstanding.............. 98,860 107,763 99,952 107,424
-------- -------- -------- --------
Net income (loss) per share,
assuming dilution........ $(.00) $ .08 $ (.11) $ .12
======== ======== ======== ========
</TABLE>
Options to purchase 11.1 million shares of the Company's Common Stock
at a weighted average exercise price of $5.25 per share, which were
outstanding at October 31, 1998, were excluded from the computation of net
loss per share assuming dilution for the periods ended October 31, 1998
because the effect would have been antidilutive. The assumed conversion of
the 7.5% Convertible Subordinated Notes due 2006 was excluded from the
computation of net income (loss) per share assuming dilution because the
effect would have been antidilutive.
8. Impact of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company is required to adopt this statement as of the
end of the fiscal year ending January 30, 1999. SFAS No. 131 requires
disclosure of certain information about operating segments, products and
services, geographic areas of operations, and major customers, and the
factors used by management to determine reportable segments. Adoption of
SFAS No. 131 will not affect the Company's financial position or results of
(9)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Impact of Recent Accounting Pronouncements (continued)
operations. Management has not completed its determination of the effect
that this statement will have on the Company's financial statement disclo-
sures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company is required to adopt this
statement as of the beginning of the fiscal year ending February 3, 2001.
SFAS No. 133 requires the recognition of all derivative instruments as
either assets or liabilities in the statement of financial position, and
the measurement of those instruments at fair value. The statement also
specifies the conditions under which derivative instruments qualify as
hedging activities, and the accounting for changes in the fair value of
derivatives designated as hedges. The Company currently manages a portion
of its interest rate risk through the use of derivative instruments that
cap a portion of the Company's interest rate risk. Management has not
completed its determination of the effect that SFAS 133 will have on the
Company's financial statements or financial statement disclosures.
9. Subsequent Event
On December 10, 1998, the Company's Board of Directors approved a plan
to record a one-time pre-tax charge of approximately $20,246,000 to account
for the cost of closing the Company's Bensalem, Pennsylvania distribution
center. This plan was approved in conjunction with the decision to
consolidate the Company's distribution center operations in the Company's
Greencastle, Indiana distribution center. The charge is to be recorded
during the fourth quarter ended January 30, 1999 in accordance with
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity," as the plan was approved subsequent to October 31, 1998.
(10)
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements con-
cerning the Company's operations, performance and financial condition. In
particular, it includes certain forward-looking statements regarding sales
performance, store openings and closings, capital requirements, the discus-
sion of management's expectations for Year 2000 compliance, and other
matters. Such forward-looking statements are subject to various risks and
uncertainties that could cause actual results to differ materially from
those indicated in the forward-looking statements due to a number of
factors. Such factors may include, but are not limited to, the following:
(i) rapid changes in, or miscalculation of, fashion trends; (ii) extreme or
unseasonable weather conditions; (iii) economic downturns, a weakness in
overall consumer demand, inflation, and cyclical variations in the retail
market for women's fashion apparel; (iv) risks attendant to the sourcing of
the Company's merchandise needs abroad, including exchange rate fluctua-
tions, political instability, trade sanctions or restrictions, changes in
quota and duty regulations, delays in shipping, or increased costs of
transportation; (v) competitive pressures; (vi) disruptions to operations
as a result of Y2K compliance issues, and; (vii) other risks and uncer-
tainties detailed in the Company's filings with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998 ("Fiscal 1998").
1998 STORE RESTRUCTURING AND ELIMINATION OF MEN'S MERCHANDISE FROM THE
COMPANY'S FASHION BUG STORES
On March 5, 1998, the Company's Board of Directors approved a restruc-
turing plan that resulted in a pre-tax charge of $34,000,000 during the
quarter ended May 2, 1998 ("Fiscal 1999 First Quarter"). The plan includes
the downsizing of approximately 100 stores and the closing of approximately
65 under-performing stores during the fiscal year ending January 30, 1999
("Fiscal 1999"). The plan was approved in conjunction with the decision to
eliminate men's merchandise from the Company's stores. In the fall of
1997, the Company eliminated men's merchandise from approximately 300 of
its stores in order to refine its product assortments. As of October 31,
1998 the Company has closed 33 stores, and expects to complete the balance
of the store closings by the end of Fiscal 1999. The Company anticipates
completing approximately 50 of the planned store downsizings by the end of
Fiscal 1999, with the remainder to be completed during the fiscal year
ending January 29, 2000 ("Fiscal 2000").
The Company expects that the elimination of men's merchandise will
allow for further development of product categories more closely related to
its existing women's apparel business. The Company plans to focus on the
development and expansion of its junior apparel, junior accessories, and
footwear categories. These businesses are expected to yield improved sales
(11)
<PAGE>
and gross margin productivity as compared to the men's merchandise. The
Company ceased selling men's merchandise by the end of October 1998, and
has repositioned the merchandise assortments in its stores.
Net sales of men's merchandise for the quarter ended October 31, 1998
("Fiscal 1999 Third Quarter") were $1,300,000, an 87% decrease from sales
of $10,200,000 for the quarter ended November 1, 1997 ("Fiscal 1998 Third
Quarter"). Net sales of men's merchandise for the nine months ended
October 31, 1998 were $14,300,000, a 56% decrease from sales of $32,800,000
for the nine months ended November 1, 1997. The decline in sales of men's
merchandise had a negative impact of 3.9% during the Fiscal 1999 Third
Quarter and 2.7% during the first nine months of Fiscal 1999 on the overall
decrease/increase in comparable store sales (sales generated by stores in
operation during the same weeks of each period). The Company expects that
the elimination of men's merchandise will have a negative impact of
approximately 6% on overall comparable store sales for the quarter ended
January 30, 1999 ("Fiscal 1999 Fourth Quarter").
1998 DISTRIBUTION CENTER RESTRUCTURING
On December 10, 1998, the Company's Board of Directors approved a plan
to record a one-time pre-tax charge of approximately $20,246,000 to account
for the cost of closing the Company's Bensalem, Pennsylvania distribution
center. This plan was approved in conjunction with the decision to
consolidate the Company's distribution center operations in the Company's
Greencastle, Indiana distribution center. The Company anticipates a
workforce reduction of 99 employees. Subsequent to the restructuring, the
Company plans to conduct its distribution center operations from the
Greencastle, Indiana facility, and plans to offer the Bensalem, Pennsyl-
vania facility for sale. The closing of the Bensalem distribution center
is expected to result in annual operating cost savings of approximately
$2,800,000. The charge is to be recorded during the fourth quarter ending
January 30, 1999 in accordance with Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity," as the plan was approved
subsequent to October 31, 1998.
(12)
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain
items appearing in the Condensed Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, buying,
and occupancy expenses.... 75.1 76.2 74.5 76.1
Selling, general, and
administrative expenses... 25.8 24.5 23.9 23.5
Restructuring charge......... -- -- 4.5 --
Non-recurring gain from
asset securitization...... -- 5.5 -- 1.8
Interest expense............. 1.0 1.1 1.0 1.1
Income tax provision (benefit) (0.1) 2.0 (0.8) 0.9
Net income (loss)............ (0.2) 3.7 (1.4) 1.8
</TABLE>
Thirteen Weeks Ended October 31, 1998 and November 1, 1997
Net sales for the Fiscal 1999 Third Quarter were $239,742,000, a 1.5%
increase from net sales of $236,203,000 for the Fiscal 1998 Third Quarter.
The Company experienced a 0.8% decrease in comparable store sales in the
Fiscal 1999 Third Quarter as compared to the Fiscal 1998 Third Quarter. In
addition, sales from new stores (sales generated by stores in operation
during the Fiscal 1999 Third Quarter that were not in operation during the
corresponding weeks of the Fiscal 1998 Third Quarter) in the Fiscal 1999
Third Quarter equaled 4.5% of Fiscal 1998 Third Quarter sales. Sales for
the Fiscal 1998 Third Quarter which were not comparable with sales for the
Fiscal 1999 Third Quarter as a result of the closing of stores in Fiscal
1998 and Fiscal 1999 equaled 2.2% of Fiscal 1998 Third Quarter sales. The
number of retail stores increased from 1,139 at November 1, 1997 to 1,156
at October 31, 1998.
Excluding the decrease in comparable store sales of men's merchandise
(see "1998 STORE RESTRUCTURING AND ELIMINATION OF MEN'S MERCHANDISE FROM
THE COMPANY'S FASHION BUG STORES" above), comparable store sales for the
Fiscal 1999 Third Quarter increased 3.1% as compared to the Fiscal 1998
Third Quarter. The increase in comparable store sales was achieved in the
Company's core merchandising departments, including sportswear, dresses,
intimate apparel, and girl's.
Cost of goods sold, buying, and occupancy expenses expressed as a
percentage of sales decreased 1.1% in the Fiscal 1999 Third Quarter as
compared to the Fiscal 1998 Third Quarter. Cost of goods sold as a
percentage of sales decreased 0.8% in the Fiscal 1999 Third Quarter as
compared to the Fiscal 1998 Third Quarter. The decrease in cost of goods
sold as a percentage of sales was primarily due to customer response to the
(13)
<PAGE>
Fall merchandise offering, which resulted in lower overall merchandise
markdowns as compared to the prior year. Increased markdowns on sales of
the remaining men's merchandise had a slight negative effect on gross
margin. Buying and occupancy expenses expressed as a percentage of sales
decreased 0.3% in the Fiscal 1999 Third Quarter as compared to the Fiscal
1998 Third Quarter. The decrease in buying and occupancy expenses was due
to a reduction in store occupancy expenses, primarily depreciation and
utility costs.
Selling, general and administrative expenses expressed as a percentage
of sales increased 1.3% in the Fiscal 1999 Third Quarter as compared to the
Fiscal 1998 Third Quarter. This was primarily attributable to an increase
in advertising expenditures related to the Company's new television and
radio campaign.
Interest expense expressed as a percentage of sales decreased 0.1% in
the Fiscal 1999 Third Quarter as compared to the Fiscal 1998 Third Quarter.
The decrease in interest expense is the result of the Company's repurchase
of $15.8 million of 7.5% Convertible Subordinated Notes due 2006 during the
first three quarters of Fiscal 1999.
The income tax benefit for the Fiscal 1999 Third Quarter was 35% of
the Company's pre-tax loss, as compared to a provision of 35% of the pre-
tax income for the Fiscal 1998 Third Quarter.
In connection with the issuance in November 1997 of the Charming
Shoppes Master Trust Series 1997-1 Floating Rate Class A Asset-Backed
Certificates, the Company evaluated the fair value of its retained inter-
ests and related recourse provisions. As a result of such evaluation, the
Company recognized a non-recurring gain of $13,018,000 during the thirteen
weeks ended November 1, 1997.
Thirty-nine Weeks Ended October 31, 1998 and November 1, 1997
Net sales for the first nine months of Fiscal 1999 were $762,931,000,
a 3.4% increase from net sales of $737,587,000 for the first nine months of
Fiscal 1998. The Company experienced a 1.1% increase in comparable store
sales in the first nine months of Fiscal 1999 as compared to the first nine
months of Fiscal 1998. Increased sales of sportswear, dresses, footwear,
intimate apparel, and girl's clothing were partially offset by decreases in
sales of men's clothing and outerwear (see "1998 STORE RESTRUCTURING AND
ELIMINATION OF MEN'S MERCHANDISE FROM THE COMPANY'S FASHION BUG STORES"
above). Excluding the decrease in comparable store sales of men's mer-
chandise, comparable store sales for the first nine months of Fiscal 1999
increased 3.8% as compared to the first nine months of Fiscal 1998. In
addition, sales from new stores for the first nine months of Fiscal 1999
equaled 4.0% of sales for the first nine months of Fiscal 1998. Sales for
the first nine months of Fiscal 1998 which were not comparable with sales
for the first nine months of Fiscal 1999 as a result of the closing of
stores in Fiscal 1998 and Fiscal 1999 equaled 1.7% of sales for the first
nine months of fiscal 1998.
(14)
<PAGE>
Cost of goods sold, buying, and occupancy expenses expressed as a
percentage of sales decreased 1.6% in the first nine months of Fiscal 1999
as compared to the first nine months of Fiscal 1998. Cost of goods sold as
a percentage of sales decreased 1.1% in the first nine months of Fiscal
1999 as compared to the first nine months of Fiscal 1998. The decrease in
cost of goods sold as a percentage of sales was primarily due to customer
response to the Company's merchandise offerings, which resulted in lower
merchandise markdowns as compared to the prior year. Increased markdowns
on sales of the remaining men's merchandise had a slight negative effect on
gross margin. Buying and occupancy expenses expressed as a percentage of
sales decreased 0.5% in the first nine months of Fiscal 1999 as compared to
the first nine months of Fiscal 1998. The decrease in buying and occupancy
expenses was due to a reduction in store occupancy expenses, primarily
depreciation and utility costs.
Selling, general and administrative expenses expressed as a percentage
of sales increased 0.4% in the first nine months of Fiscal 1999 as compared
to the first nine months of Fiscal 1998. This was primarily attributable
to increased advertising expenditures related to the Company's television
and radio advertising campaign and the effect of Federal minimum wage
legislation.
On March 5, 1998, the Company's Board of Directors approved the
Restructuring Plan that resulted in a pre-tax charge of $34,000,000 during
the Fiscal 1999 First Quarter. The Plan includes the downsizing of approx-
imately 100 stores and the closing of approximately 65 under-performing
stores. The Plan was approved in conjunction with the decision to elimi-
nate men's merchandise from the Company's stores. The restructuring charge
includes estimates of $10,000,000 for the write-down of store fixtures and
improvements, $11,400,000 for the early termination and amendment of store
leases, $8,300,000 for the cost of renovating vacated store space, and
$4,300,000 for other costs, including severance benefits. The Company
anticipates a workforce reduction of approximately 650 store employees.
During the first nine months of Fiscal 1999, the Company closed 33 stores
and reduced store employees by approximately 330.
Interest expense expressed as a percentage of sales decreased 0.1% in
the first nine months of Fiscal 1999 as compared to the first nine months
of Fiscal 1998. The decrease in interest expense is the result of the
Company's repurchase of $15.8 million of 7.5% Convertible Subordinated
Notes due 2006 during the first three quarters of Fiscal 1999.
The income tax benefit for the first nine months of Fiscal 1999 was
35% of the Company's pre-tax loss, as compared to a provision of 34% of the
pre-tax income for the first nine months of Fiscal 1998. The increase in
the effective tax rate is primarily attributable to an increase in the
benefit attributable to permanent differences as a percentage of the loss
before income taxes.
(15)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are (i) cash flow
from operations, (ii) proprietary credit card receivables securitization
agreements, (iii) its long-term investment portfolio and (iv) its $150 mil-
lion revolving credit facility. As of October 31, 1998, the Company had
working capital of $178,459,000 as compared to $163,208,000 at January 31,
1998. Working capital at October 31, 1998 included $32,633,000 of cash and
cash equivalents, compared to cash and cash equivalents of $12,349,000 at
January 31, 1998. The ratio of current assets to current liabilities was
2.0 to 1 at October 31, 1998 and 2.1 to 1 at January 31, 1998.
Net cash provided by operating activities was $17,455,000 for the
first nine months of Fiscal 1999 as compared to net cash provided by
operating activities of $27,350,000 for the first nine months of Fiscal
1998. The reasons for the $9,895,000 decrease in cash provided by opera-
tions were (i) a decrease in the Company's net income of $24,135,000, which
includes the negative non-cash impact of a $10,000,000 write-down of cap-
ital assets due to restructuring, a $13,018,000 non-recurring gain from
asset securitization, and a $19,031,000 accrual for restructuring expenses,
and the positive non-cash impact of a $10,405,000 increase in current
deferred income taxes and a $4,520,000 decrease in depreciation and
amortization; (ii) a decrease of $2,332,000 in the Company's investment in
merchandise inventories, net of accounts payable; (iii) a decrease of
$13,552,000 in income taxes receivable/payable; and (iv) other net de-
creases of $1,664,000.
The Company has an agreement with a commercial finance company to
provide a revolving credit facility with a maximum availability of
$150,000,000, subject to limitations based upon eligible inventory. The
primary purpose of this facility is to enable the Company to issue letters
of credit for overseas purchases of merchandise as well as to provide for
seasonal cash borrowings. During Fiscal 1999, the expiration date of this
facility was extended from June 1, 1998 to June 1, 1999. This facility is
secured by merchandise inventory, furniture and fixtures at the retail
stores, and certain other Company assets. As of October 31, 1998 the
availability under this facility was approximately $121,372,000, against
which the Company had outstanding letters of credit of $27,325,000. There
were no cash borrowings outstanding under this agreement as of October 31,
1998. This agreement requires that, among other things, the Company main-
tain a minimum net worth of $350,000,000 and not pay dividends on its
Common Stock.
Capital expenditures of $20,418,000 during the first nine months of
Fiscal 1999 were primarily for the construction and fixturing of new and
existing retail stores. During Fiscal 1999, the Company anticipates in-
curring capital expenditures of approximately $25 million, which are
intended primarily for (i) remodeling and fixturing of existing retail
stores; (ii) construction and fixturing of new stores; and (iii) investment
in management information systems technology. The Company anticipates that
(16)
<PAGE>
capital expenditures will be financed principally through internally-
generated funds. The Company plans to open approximately 65 new stores
during Fiscal 1999, including 28 stores which were acquired during January
1998 from a competitor which had closed such locations. During the first
nine months of Fiscal 1999, the Company opened 54 new stores and closed 33
stores.
In connection with the store restructuring plan (see "1998 STORE
RESTRUCTURING AND ELIMINATION OF MEN'S MERCHANDISE FROM THE COMPANY'S
FASHION BUG STORES" above), as of October 31, 1998, the Company had approx-
imately $19,031,000 of accrued, unpaid restructuring costs. The Company
expects to pay the majority of these costs within twelve months, and has
included them in current liabilities.
In November 1997, the Company's Board of Directors approved the repur-
chase of up to 10,000,000 shares of the Company's Common Stock. During the
thirteen weeks ended October 31, 1998, the Company repurchased 2,330,000
shares of its Common Stock at an aggregate cost of $10,243,000. During the
thirty-nine weeks ended October 31, 1998, the Company repurchased 3,130,000
shares of its Common Stock at an aggregate cost of $14,023,000.
During the thirteen weeks ended October 31, 1998, the Company repur-
chased $12,833,000 aggregate principal amount of its 7.5% Convertible
Subordinated Notes due 2006 ("the Notes") at a total cost of $12,351,000.
During the thirty-nine weeks ended October 31, 1998, the Company repur-
chased $15,833,000 aggregate principal amount of the Notes at a total cost
of $15,306,000. The gains or losses on the repurchases of the Notes were
not material. The repurchases of the Notes will result in a reduction of
$1,187,000 in annual interest expense.
On October 2, 1995 the Company's Board of Directors announced an in-
definite suspension of dividends on the Company's Common Stock. In
addition, the Company's revolving credit facility requires the Company to
refrain from paying dividends on its Common Stock during the term of such
agreement.
IMPACT OF YEAR 2000
For many years, dates have been stored in computer systems with two
digit rather than four digit years to save costly computer space. The Year
2000 computer problem is caused by the inability of computer systems to
properly recognize and handle dates stored and processed with two digit
years beyond 1999. Comparisons or calculations may inaccurately interpret
a date stored in a format of "00" as the year 1900 rather than 2000,
resulting in improper computations, execution of faulty logic, or outright
computer system failure. Affected systems must be remediated and tested in
order to minimize the potential for failure caused by the Year 2000 ("Y2K")
computer calculation.
(17)
<PAGE>
The Company uses computer equipment and software in its retailing
operations to supply stores with products for sale, process customer
transactions, including credit transactions, and to record and report its
financial condition and results of operations. Since 1997 the Company has
been implementing a comprehensive program which is intended to ensure that
the Company's computer systems, equipment, facilities, and suppliers of
merchandise and services will be Y2K compliant.
An Executive Oversight Committee ("EOC") made up of the Company's
General Counsel, Corporate Director of Human Resources and Chief Financial
Officer, oversees the Company's overall Y2K initiatives. The EOC is imple-
menting a comprehensive Y2K Readiness Program, which has been adopted by
all business units of the Company. Individual department heads have
assigned resources to this program to coordinate and manage Y2K readiness
within and among the Company's departments and to evaluate the state of Y2K
readiness of outside vendors and suppliers. The Company's Corporate Audit
Department facilitates the implementation of the Y2K Readiness Program by
identifying and reporting outstanding issues to the EOC for resolution,
administering the Company's Y2K vendor compliance program, and monitoring
the progress of each business unit. The Company's Y2K Readiness Program is
currently on schedule. Internal resources and outside consultants are
being used to implement the Y2K Readiness Program.
The Y2K Readiness Program consists of five phases: (a) Standard-
ization: The Management Information Systems ("MIS") Department has
developed a set of policies, guidelines and standards to be used during the
Company's Y2K Readiness Program. Examples of these include standard date
routines to be used in computer programs, standard test plans to be used
for testing all systems, and guidelines for migrating a tested system into
the production environment. These policies, guidelines, and standards are
designed to ensure that a consistent approach is followed by all personnel
in effectuating the Y2K Readiness Program; (b) Evaluation: This phase in-
cludes the identification and evaluation of all of the Company's business
systems so as to determine the method to be used to insure that these
systems will be Y2K compliant. All such systems are prioritized for
attention based on usage of dates, the extent to which they are critical to
the Company's business, and the likelihood of failure; (c) Remediation: A
Y2K remediation strategy has been developed and is being implemented for
each system. Strategies include system replacement, remediation of exist-
ing systems, and coordination with the supplying vendor to provide a
version that is Y2K compliant; (d) End-to-End Testing: A testing strategy
and test plan for each system has been developed and is being implemented.
Testing is designed to cover all significant transition dates, and includes
testing within and among systems, as well as data communications with
critical vendors; and (e) Contingency Planning: This phase includes the
development of contingency plans in the event that the Company does not
successfully complete significant portions of its Y2K Readiness Program or
in the event that critical vendors are not Y2K compliant in a timely
manner.
(18)
<PAGE>
Corporate Business Systems
The Company has been implementing its Y2K Readiness Program for
corporate business systems since 1997. These systems include all mainframe
and non-mainframe systems and software, the corporate computing infrastruc-
ture and network of hardware and software, desktop equipment and software,
and external and internal communication software and equipment. Third-
party software, along with in-house developed systems, are included within
the scope of the Company's Y2K Readiness Program. These corporate business
systems are located at the Company's headquarters in Bensalem, Pennsyl-
vania, its distribution center in Greencastle, Indiana, and its private
label credit card operations in Milford, Ohio. They are also located in
the Company's approximately 1,160 stores located in 44 states, its factory
operations in the Dominican Republic, and its international operations in
Hong Kong, Singapore, and Shanghai.
The standardization and evaluation phases with respect to these cor-
porate business systems have been completed. The remediation and end-to-
end testing phases are currently being implemented. The remediation phase
for the Company's mainframe systems is approximately 95% complete and is
scheduled for completion by the end of Fiscal 1999. The remediation phase
for the Company's non-mainframe systems is approximately 40% complete and
is scheduled for completion during the quarter ending May 1, 1999 ("Fiscal
2000 First Quarter"). The remediation phase of the Company's in-store
systems has been completed. Comprehensive test plans are being established
for each corporate business system. The end-to-end testing phase will
commence during the quarter ending January 30, 1999 ("Fiscal 1999 Fourth
Quarter") and is scheduled for completion in the quarter ending July 31,
1999 ("Fiscal 2000 Second Quarter").
The Company's private label credit card organization is monitored and
regulated by the office of the Comptroller of the Currency ("OCC"). The
OCC has performed quarterly Y2K reviews of this organization since the
quarter ended April 30, 1998 and is scheduled to do so through the year
2000. This organization has two separate system components, namely,
internal credit systems and a third-party credit card processing system
used for all primary functions of the private label credit card program.
The standardization and evaluation phases have been completed with respect
to the internal credit systems. The remediation phase with respect to
these systems is scheduled to be completed during the Fiscal 2000 First
Quarter. The end-to-end testing phase is scheduled to commence during the
Fiscal 2000 First Quarter and is scheduled for completion during the Fiscal
2000 Second Quarter. The Company is regularly monitoring the progress of
its third-party credit processor in achieving Y2K compliance. Based on
information provided to the Company by that third-party processor, the
standardization and evaluation phases with respect to the third-party
credit card processing system has been completed and the remediation phase
is substantially complete, with full completion anticipated by the third-
party processor during the Company's Fiscal 2000 First Quarter. Similarly,
testing of the third-party credit card processing system has commenced and
is scheduled for completion during the Fiscal 2000 Second Quarter.
(19)
<PAGE>
Embedded Technologies
Embedded technologies refer to any equipment or machinery that relies
on a computer chip or microprocessor in order to operate. Examples include
office systems, such as fax machines and photocopiers; building systems
such as elevators, lighting, security systems, and environmental control
units; and business communication systems such as data switching equipment
and telephone exchange equipment. Certain microprocessors within such
equipment may fail if they cannot properly recognize dates into the year
2000.
The Company uses various technologies and computer controlled equip-
ment in the operation of its corporate and stores facilities. Such
equipment includes security monitoring systems; primary and back-up power
supply systems; energy management systems; elevators, and office equipment.
Some of this equipment may contain embedded chip technology that may be
affected by the Y2K issue. The Company has taken an inventory of all such
equipment and commenced communication with vendors who supply and/or
support such technology and equipment to assess the sensitivity of such
systems and equipment to the Y2K issue. In conjunction with the Corporate
Audit department's program of auditing vendor preparedness for Y2K, the
Company will be obtaining assurances from such vendors and, to the extent
possible, testing these systems to ensure Y2K compliance. Private Branch
Exchanges ("PBX's") at the Company's Bensalem, Pennsylvania corporate
facilities are Y2K compliant. Telecommunication software at the Company's
corporate headquarters is in the process of being upgraded and is scheduled
for completion in the Fiscal 1999 Fourth Quarter.
Distribution Center ("DC") Computer Systems
The Company's Distribution Center, located in Greencastle, Indiana,
uses a variety of computer systems and embedded technology equipment for
its day-to-day operations. Shop floor machinery, interacting with complex
computer systems, monitors, processes, and controls plant processes and
material movement. Automated equipment includes conveyor systems, palle-
tizers, sorters, scales, and radio frequency devices. Software and equip-
ment provided by vendors has been heavily customized for the Company's DC
configuration. The Company is working with appropriate DC system vendors
to perform all necessary Y2K remediation and testing services. The stan-
dardization and evaluation phases with respect to the DC systems have been
completed. The remediation phase is currently being implemented, and it is
anticipated that the Company's vendors will deliver Y2K compliant systems
to the Company in several stages between the Fiscal 2000 First Quarter and
the quarter ending October 30, 1999 ("Fiscal 2000 Third Quarter").
(20)
<PAGE>
Vendors and Suppliers
The Company has initiated a formal communication program with signif-
icant vendors who evaluate Y2K compliance, and will be assessing their
responses to the Company's Y2K readiness questionnaire. Comprehensive
mailings are scheduled during the Fiscal 1999 Fourth Quarter. Question-
naires may be followed up with telephone interviews, and where necessary,
audits are being performed by the Company's Corporate Audit Department.
The Company cannot assure timely compliance of vendors and may be adversely
affected by the failure of a significant vendor to supply merchandise or
services due to Y2K compliance failures. Although the Company values its
relationship with significant vendors, it may use an alternative vendor if
it determines that a particular vendor is unlikely to be Y2K compliant.
Costs
The total cost of the Company's Y2K Readiness Program is estimated at
$6.6 million. To-date, $1.7 million of Y2K costs have been incurred, of
which $1.4 million have been incurred in the current fiscal year. Esti-
mated costs for Fiscal 2000 total $4.9 million, which the Company expects
to fund by operating cash flows. The Company does not anticipate delaying
any significant information technology project as a result of the Company's
Y2K compliance effort. Estimated future expenditures are not expected to
have a material adverse effect on the Company's financial position, results
of operations, or cash flows.
Y2K Risk Assessment and Y2K Contingency Planning
The Company is a retailer of women's apparel, and does not rely on a
single customer for any significant amount of sales. The Company does not
sell products which use computer systems, embedded chip technology, or
other devices that may be sensitive to dates.
Should the Company not complete a significant portion of its Y2K
Readiness Program in a timely fashion, its financial condition may be
materially adversely impacted; however, management does not consider the
possibility of such an occurrence to be likely at the present time. The
Company anticipates that the most reasonably likely worst case scenarios
include, but are not limited to, loss of communications to the stores, loss
of utilities, and the inability to process customer transactions or engage
in normal business activity. The Company is in the initial stages of
developing a Y2K contingency plan, which is scheduled for completion in the
Fiscal 2000 Third Quarter. Despite such contingency plans, the Company may
be adversely affected by the failure of a significant third-party vendor to
become Y2K compliant.
Projected completion dates and the estimated costs of the Company's
Y2K Readiness Program are based on management's best estimates for future
events and are forward-looking statements that may be updated as additional
information becomes available. Readers are cautioned that forward-looking
statements contained herein should be read in conjunction with the Com-
pany's disclosures under the heading "FORWARD-LOOKING STATEMENTS" preceding
this disclosure.
(21)
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Business to be Brought Before Shareholders' Meetings: Section 3.16 of
the Company' Bylaws, as amended, imposes certain limitations on the manner
in which business may be brought before an annual or special meeting of
shareholders. The Bylaws, as amended through September 22, 1998, are filed
as an exhibit to this Form 10-Q.
In general, business may be brought before a shareholders' meeting (i)
if the matter was specified in the written notice of the meeting given by
the Company; (ii) if raised by the Board of Directors; (iii) if raised by
the presiding officer at the meeting, unless a majority of the Board of
Directors objects; or (iv) at an annual meeting, if raised by or on behalf
of a shareholder entitled to vote at the meeting if a "Shareholder Notice"
has been given in accordance with the Bylaws. The presiding officer at a
meeting may refuse to permit business to be discussed or voted upon at a
meeting if not brought before the meeting in conformity with these require-
ments.
For a Shareholder Notice to be valid, it must be delivered to the Com-
pany's principal executive offices, addressed to the President, not earlier
than 90 days nor later than 60 days before the anniversary date of the pre-
vious annual meeting, except that, if the upcoming annual meeting is called
for a date that is not within 30 days of the anniversary of the previous
annual meeting, the deadline for such delivery is not earlier than 90 days
nor later than ten days after the day on which notice of the annual meeting
date was mailed or, if earlier, publicly disclosed by the Company. The
Shareholder Notice relating to a proposal must state or describe (i) the
name and address of the shareholder of record who intends to make the
proposal (the "Proposing Shareholder"); (ii) the name and address of the
beneficial owner of the shares, if different from the Proposing Shareholder
(the Proposing Shareholder and such beneficial owner being "Proponents");
(iii) the number of shares owned of record and beneficially by the
Proponents; (iv) any financial or other interest the Proponents may have in
the proposal; (v) any arrangement or understanding among the Proponents and
other persons regarding the proposal; (vi) the business the Proposing
Shareholder seeks to bring before the annual meeting, the reason for doing
so and the text of any resolution proposed to be adopted; and (vii) a
representation that the Proposing Shareholder is then, will be (or was) on
the record date for the annual meeting, and will be on the meeting date a
holder of record of shares entitled to vote at such meeting, and intends to
appear in person or by proxy at the meeting to bring the proposal before
the meeting.
Any shareholder proposal which is to be presented at the Company's
1999 Annual Meeting of Shareholders will be considered untimely for pur-
poses of Rules 14a-4 and 14a-5 if notice thereof has not been received by
the Company in a manner that would be deemed timely for purposes of the
Shareholder Notice requirement set forth in the Company's Bylaws, as
described above.
(22)
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is a list of Exhibits filed as part of this Quarterly
Report on Form 10-Q. Where so indicated by footnote, Exhibits that were
previously filed are incorporated by reference. For Exhibits incorporated
by reference, the location of the Exhibit in the previous filing is indi-
cated in parenthesis.
3.1 Restated Articles of Incorporation, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29, 1994.
(Exhibit 3.1)
3.2 Bylaws, as Amended and Restated
10.1 Amendment of Second Amended and Restated Loan and Security Agreement,
dated February 28, 1997 among Charming Shoppes, Inc., certain subsid-
iaries of the Company which are parties thereto, Borrower's Agent and
Congress Financial Corporation, dated as of May 1, 1998, incorporated
by reference to Form 10-Q for the quarter ended May 2, 1998. (Exhibit
10.1)
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
October 31, 1998.
(23)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
<TABLE>
<S> <C>
CHARMING SHOPPES, INC.
-------------------------------------
(Registrant)
Date: December 14, 1998 DORRIT J. BERN
----------------- -------------------------------------
Dorrit J. Bern
Chairman of the Board
President and Chief Executive Officer
Date: December 14, 1998 ERIC M. SPECTER
----------------- -------------------------------------
Eric M. Specter
Executive Vice President
Chief Financial Officer
(24)
</TABLE>
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
CHARMING SHOPPES, INC.
(AS AMENDED THROUGH SEPTEMBER 22, 1998)
<PAGE>
B Y L A W S
OF
CHARMING SHOPPES, INC.
(a Pennsylvania Registered Corporation)
ARTICLE I
Offices and Fiscal Year
Section 1.01. Registered Office. The registered office of the corporation
in the Commonwealth of Pennsylvania shall be at 450 Winks Lane, Bensalem,
Pennsylvania 19020, until otherwise established by an amendment of the
articles of incorporation (the "articles") or by the board of directors and
a record of such change is filed with the Department of State in the manner
provided by law.
Section 1.02. Other Offices. The corporation may also have offices at
such other places within or without the Commonwealth of Pennsylvania as the
board of directors may from time to time appoint or the business of the
corporation may require.
Section 1.03. Fiscal Year. The fiscal year of the corporation shall end
on the Saturday nearest January 31 in each year.
ARTICLE II
Notice - Waivers - Meetings Generally
Section 2.01. Manner of Giving Notice.
(a) General Rule -- Whenever written notice is required to be given to any
person under the provisions of the Business Corporation Law or by the
articles or these bylaws, it may be given to the person either personally
or by sending a copy thereof by first class or express mail, postage
prepaid, or by telegram (with messenger service specified), telex or TWX
(with answerback received) or courier service, charges prepaid, or by
facsimile transmission, to the address (or to the telex, TWX, facsimile or
telephone number) of the person appearing on the books of the corporation
or, in the case of directors, supplied by the director to the corporation
for the purpose of notice. If the corporation has more than 30
shareholders, notice of any regular or special meeting of the shareholders,
or any other notice required by the Business Corporation Law or by the
articles or these bylaws to be given to all shareholders or to all holders
of a class or series of shares, may be given by any class of postpaid mail
if the notice is deposited in the United States mail at least 20 days prior
to the day named for the meeting or any corporate or shareholder action
specified in the notice. If the notice is sent by mail, telegraph or
courier service, it shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to that person or, in the
<PAGE>
case of telex or TWX, when dispatched or, in the case of facsimile
transmission, when received. A notice of meeting shall specify the place,
day and hour of the meeting and any other information required by any other
provision of the Business Corporation Law, the articles or these bylaws.
(b) Adjourned Shareholder Meetings -- When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted at an adjourned meeting, other
than by announcement at the meeting at which the adjournment is taken,
unless the board fixes a new record date for the adjourned meeting in which
event notice shall be given in accordance with Section 2.03.
Section 2.02. Notice of Meetings of Board of Directors. Notice of a
regular meeting of the board of directors need not be given. Notice of
every special meeting of the board of directors shall be given to each
director by telephone or in writing at least 24 hours (in the case of
notice by telephone, telex, TWX or facsimile transmission) or 48 hours (in
the case of notice by telegraph, courier service or express mail) or five
days (in the case of notice by first class mail) before the time at which
the meeting is to be held. Every such notice shall state the time and
place of the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board need be specified
in a notice of the meeting.
Section 2.03. Notice of Meetings of Shareholders.
(a) General Rule -- Written notice of every meeting of the shareholders
shall be given by, or at the direction of, the secretary or other
authorized person to each shareholder of record entitled to vote at the
meeting at least (1) ten days prior to the day named for a meeting (and, in
case of a meeting called to consider a merger, consolidation, share
exchange or division, to each shareholder of record not entitled to vote at
the meeting) called to consider a fundamental change under 15 Pa.C.S.
Chapter 19 or (2) five days prior to the day named for the meeting in any
other case. If the secretary neglects or refuses to give notice of a
meeting, the person or persons calling the meeting may do so. In the case
of a special meeting of shareholders, the notice shall specify the general
nature of the business to be transacted.
(b) Notice of Action by Shareholders on Bylaws -- In the case of a
meeting of shareholders that has as one of its purposes action on the
bylaws, written notice shall be given to each shareholder that the purpose,
or one of the purposes, of the meeting is to consider the adoption,
amendment or repeal of the bylaws. There shall be included in, or enclosed
with, the notice a copy of the proposed amendment or a summary of the
changes to be effected thereby.
(c) Notice of Action by Shareholders on Fundamental Change -- In the
case of a meeting of the shareholders that has as one of its purposes
action with respect to any fundamental change under 15 Pa.C.S. Chapter 19,
each shareholder shall be given, together with written notice of the
meeting, a copy or summary of the amendment or plan to be considered at the
meeting in compliance with the provisions of Chapter 19.
(d) Notice of Action by Shareholders Giving Rise to Dissenters Rights --
In the case of a meeting of the shareholders that has as one of its
purposes action that would give rise to dissenters rights under the
<PAGE>
provisions of 15 Pa.C.S. Subchapter 15D, each shareholder shall be given,
together with written notice of the meeting:
(1) a statement that the shareholders have a right to dissent
and obtain payment of the fair value of their shares by
complying with the provisions of Subchapter 15D (relating to
dissenters rights); and
(2) a copy of Subchapter 15D.
Section 2.04. Waiver of Notice.
(a) Written Waiver -- Whenever any written notice is required to be
given under the provisions of the Business Corporation Law, the articles or
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of the notice. Neither the
business to be transacted at, nor the purpose of, a meeting need be
specified in the waiver of notice of the meeting.
(b) Waiver by Attendance -- Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a 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 was not
lawfully called or convened.
Section 2.05. Modification of Proposal Contained in Notice. Whenever the
language of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the Business
Corporation Law or the articles or these bylaws, the meeting considering
the resolution may without further notice adopt it with such clarifying or
other amendments as do not enlarge its original purpose.
Section 2.06. Exception to Requirement of Notice.
(a) General Rule -- Whenever any notice or communication is required to
be given to any person under the provisions of the Business Corporation Law
or by the articles or these bylaws or by the terms of any agreement or
other instrument or as a condition precedent to taking any corporate action
and communication with that person is then unlawful, the giving of the
notice or communication to that person shall not be required.
(b) Shareholders Without Forwarding Addresses -- Notice or other
communications need not be sent to any shareholder with whom the
corporation has been unable to communicate for more than 24 consecutive
months because communications to the shareholder are returned unclaimed or
the shareholder has otherwise failed to provide the corporation with a
current address. Whenever the shareholder provides the corporation with a
current address, the corporation shall commence sending notices and other
communications to the shareholder in the same manner as to other
shareholders.
Section 2.07. Use of Conference Telephone and Similar Equipment. Any
director may participate in any meeting of the board of directors, and the
board of directors may provide by resolution with respect to a specific
meeting or with respect to a class of meetings that one or more persons may
participate in a meeting of the shareholders of the corporation, by means
<PAGE>
of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute
presence in person at the meeting.
ARTICLE III
Shareholders
Section 3.01. Place of Meeting. All meetings of the shareholders of the
corporation shall be held at the registered office of the corporation
unless another place is designated by the board of directors in the notice
of a meeting.
Section 3.02. Annual Meeting. The board of directors may fix and
designate the date and time of the annual meeting of the shareholders, but
if no such date and time is fixed and designated by the board, the meeting
for any calendar year shall be held on the second Wednesday in June in such
year, if not a legal holiday under the laws of Pennsylvania, and, if a
legal holiday, then on the next succeeding business day, not a Saturday, at
10:00 o'clock A.M., and at said meeting the shareholders then entitled to
vote shall elect directors and shall transact such other business as may
properly be brought before the meeting. If the annual meeting shall not
have been called and held within six months after the designated time, any
shareholder may call the meeting at any time thereafter.
Section 3.03. Special Meetings. Special meetings of the shareholders may
be called at any time by the chairman of the board or the president or by
resolution of the board of directors. The person or resolution calling the
meeting may fix the date, time and place of the meeting, but if they are
not so fixed, it shall be the duty of the secretary to do so. A date fixed
by the secretary shall not be more than 60 days after the date of the
adoption of the resolution of the board calling the special meeting.
Section 3.04. Quorum and Adjournment.
(a) General Rule -- A meeting of shareholders of the corporation duly
called shall not be organized for the transaction of business unless a
quorum is present. The presence of shareholders entitled to cast at least
a majority of the votes that all shareholders are entitled to cast on a
particular matter to be acted upon at the meeting shall constitute a quorum
for the purposes of consideration and action on the matter. Shares of the
corporation owned, directly or indirectly, by it and controlled, directly
or indirectly, by the board of directors of this corporation, as such,
shall not be counted in determining the total number of outstanding shares
for quorum purposes at any given time.
(b) Withdrawal of a Quorum -- The shareholders present at a duly
organized meeting can continue to do business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
(c) Adjournments Generally -- Any regular or special meeting of the
shareholders, including one at which directors are to be elected and one
which cannot be organized because a quorum has not attended, may be
<PAGE>
adjourned for such period and to such place as the shareholders present and
entitled to vote shall direct.
(d) Electing Directors at Adjourned Meeting -- Those shareholders
entitled to vote who attend a meeting called for the election of directors
that has been previously adjourned for lack of a quorum, although less than
a quorum as fixed in this section, shall nevertheless constitute a quorum
for the purpose of electing directors.
(e) Other Action in Absence of Quorum -- Those shareholders entitled to
vote who attend a meeting of shareholders that has been previously
adjourned for one or more periods aggregating at least 15 days because of
an absence of a quorum, although less than a quorum as fixed in this
section, shall nevertheless constitute a quorum for the purpose of acting
upon any matter set forth in the notice of the meeting if the notice states
that those shareholders who attend the adjourned meeting shall nevertheless
constitute a quorum for the purpose of acting upon the matter.
Section 3.05. Action by Shareholders. Except as otherwise provided in the
Business Corporation Law or the articles or these bylaws, whenever any
corporate action is to be taken by vote of the shareholders of the
corporation, it shall be authorized upon receiving the affirmative vote of
a majority of the votes cast by all shareholders entitled to vote thereon
and, if any shareholders are entitled to vote thereon as a class, upon
receiving the affirmative vote of a majority of the votes cast by the
shareholders entitled to vote as a class.
Section 3.06. Organization. At every meeting of the shareholders, the
chairman of the board, if there be one, or, in the case of vacancy in
office or absence of the chairman of the board, one of the following
persons present in the order stated: the vice chairman of the board, if
there be one, the president, the vice presidents in their order of rank and
seniority, or a person chosen by vote of the shareholders present, shall
act as chairman of the meeting. The secretary or, in the absence of the
secretary, an assistant secretary, or, in the absence of both the secretary
and assistant secretaries, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting.
Section 3.07. Voting Rights of Shareholders. Unless otherwise provided in
the articles, every shareholder of the corporation shall be entitled to one
vote for every share standing in the name of the shareholder on the books
of the corporation.
Section 3.08. Voting and Other Action by Proxy.
(a) General Rule --
(1) Every shareholder entitled to vote at a meeting of
shareholders may authorize another person to act for the
shareholder by proxy.
(2) The presence of, or vote or other action at a meeting of
shareholders by a proxy of a shareholder shall constitute the
presence of, or vote or action by the shareholder.
<PAGE>
(3) Where two or more proxies of a shareholder are present, the
corporation shall, unless otherwise expressly provided in the
proxy, accept as the vote of all shares represented thereby
the vote cast by a majority of them and, if a majority of the
proxies cannot agree whether the shares represented shall be
voted or upon the manner of voting the shares, the voting of
the shares shall be divided equally among those persons.
(b) Execution and Filing -- Every proxy shall be executed in writing by
the shareholder or by the duly authorized attorney-in- fact of the
shareholder and filed with the secretary of the corporation. A telegram,
telex, cablegram, datagram or similar transmission from a shareholder or
attorney-in-fact, or a photographic, facsimile or similar reproduction of a
writing executed by a shareholder or attorney-in-fact:
(1) may be treated as properly executed for purposes of this
subsection; and
(2) shall be so treated if it sets forth a confidential and
unique identification number or other mark furnished by the
corporation to the shareholder for the purposes of a
particular meeting or transaction.
(c) Revocation -- A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provision in
the proxy to the contrary, but the revocation of a proxy shall not be
effective until written notice thereof has been given to the secretary of
the corporation. An unrevoked proxy shall not be valid after three years
from the date of its execution unless a longer time is expressly provided
therein. A proxy shall not be revoked by the death or incapacity of the
maker unless, before the vote is counted or the authority is exercised,
written notice of the death or incapacity is given to the secretary of the
corporation.
(d) Expenses -- The corporation shall pay the reasonable expenses of
solicitation of votes, proxies or consents of shareholders by or on behalf
of the board of directors or its nominees for election to the board,
including solicitation by professional proxy solicitors and otherwise.
Section 3.09. Voting by Fiduciaries and Pledgees. Shares of the
corporation standing in the name of a trustee or other fiduciary and shares
held by an assignee for the benefit of creditors or by a receiver may be
voted by the trustee, fiduciary, assignee or receiver. A shareholder whose
shares are pledged shall be entitled to vote the shares until the shares
have been transferred into the name of the pledgee, or a nominee of the
pledgee, but nothing in this section shall affect the validity of a proxy
given to a pledgee or nominee.
Section 3.10. Voting by Joint Holders of Shares.
(a) General Rule -- Where shares of the corporation are held jointly or
as tenants in common by two or more persons, as fiduciaries or otherwise:
(1) if only one or more of such persons is present in person or
by proxy, all of the shares standing in the names of such
persons shall be deemed to be represented for the purpose of
determining a quorum and the corporation shall accept as the
vote of all the shares the vote cast by a joint owner or a
majority of them; and
<PAGE>
(2) if the persons are equally divided upon whether the shares
held by them shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally
among the persons without prejudice to the rights of the
joint owners or the beneficial owners thereof among
themselves.
(b) Exception -- If there has been filed with the secretary of the
corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares,
the persons specified as having such voting power in the document latest in
date of operative effect so filed, and only those persons, shall be
entitled to vote the shares but only in accordance therewith.
Section 3.11. Voting by Corporations.
(a) Voting by Corporate Shareholders -- Any corporation that is a
shareholder of this corporation may vote at meetings of shareholders of
this corporation by any of its officers or agents, or by proxy appointed by
any officer or agent, unless some other person, by resolution of the board
of directors of the other corporation or a provision of its articles or
bylaws, a copy of which resolution or provision certified to be correct by
one of its officers has been filed with the secretary of this corporation,
is appointed its general or special proxy in which case that person shall
be entitled to vote the shares.
(b) Controlled Shares -- Shares of this corporation owned, directly or
indirectly, by it and controlled, directly or indirectly, by the board of
directors of this corporation, as such, shall not be voted at any meeting
and shall not be counted in determining the total number of outstanding
shares for voting purposes at any given time.
Section 3.12. Determination of Shareholders of Record.
(a) Fixing Record Date -- The board of directors may fix a time prior to
the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be
not more than 90 days prior to the date of the meeting of shareholders.
Only shareholders of record on the date fixed shall be so entitled
notwithstanding any transfer of shares on the books of the corporation
after any record date fixed as provided in this subsection. The board of
directors may similarly fix a record date for the determination of
shareholders of record for any other purpose. When a determination of
shareholders of record has been made as provided in this section for
purposes of a meeting, the determination shall apply to any adjournment
thereof unless the board fixes a new record date for the adjourned meeting.
(b) Determination When a Record Date is Not Fixed -- If a record date is
not fixed:
(1) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at
the close of business on the day next preceding the day on
which notice is given.
<PAGE>
(2) the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which
the board of directors adopts the resolution relating
thereto.
<PAGE>
(c) Certification by Nominee -- The board of directors may adopt a
procedure whereby a shareholder of the corporation may certify in writing
to the corporation that all or a portion of the shares registered in the
name of the shareholder are held for the account of a specified person or
persons. Upon receipt by the corporation of a certification complying with
the procedure, the persons specified in the certification shall be deemed,
for the purposes set forth in the certification, to be the holders of
record of the number of shares specified in place of the shareholder making
the certification.
Section 3.13. Voting Lists.
(a) General Rule -- The officer or agent having charge of the transfer
books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by
each. The list shall be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof except that,
if the corporation has 5,000 or more shareholders, in lieu of the making of
the list the corporation may make the information therein available at the
meeting by any other means.
(b) Effect of List -- Failure to comply with the requirements of this
section shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote
thereat to examine the list. The original share register or transfer book,
or a duplicate thereof kept in the Commonwealth of Pennsylvania, shall be
prima facie evidence as to who are the shareholders entitled to examine the
list or share register or transfer book or to vote at any meeting of
shareholders.
Section 3.14. Judges of Election.
(a) Appointment -- In advance of any meeting of shareholders of the
corporation, the board of directors may appoint judges of election, who
need not be shareholders, to act at the meeting or any adjournment thereof.
If judges of election are not so appointed, the presiding officer of the
meeting may, and on the request of any shareholder shall, appoint judges of
election at the meeting. The number of judges shall be one or three. A
person who is a candidate for an office to be filled at the meeting shall
not act as a judge.
(b) Vacancies -- In case any person appointed as a judge fails to appear
or fails or refuses to act, the vacancy may be filled by appointment made
by the board of directors in advance of the convening of the meeting or at
the meeting by the presiding officer thereof.
(c) Duties -- The judges of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, and the authenticity, validity and
effect of proxies, receive votes or ballots, hear and determine all
challenges and questions in any way arising in connection with nominations
by shareholders or the right to vote, count and tabulate all votes,
determine the result and do such acts as may be proper to conduct the
election or vote with fairness to all shareholders. The judges of election
shall perform their duties impartially, in good faith, to the best of their
ability and as expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be effective
in all respects as the decision, act or certificate of all.
<PAGE>
(d) Report -- On request of the presiding officer of the meeting or of
any shareholder, the judges shall make a report in writing of any challenge
or question or matter determined by them, and execute a certificate of any
fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts stated therein.
Section 3.15. Minors as Security Holders. The corporation may treat a
minor who holds shares or obligations of the corporation as having capacity
to receive and to empower others to receive dividends, interest, principal
and other payments or distributions, to vote or express consent or dissent
and to make elections and exercise rights relating to such shares or
obligations unless, in the case of payments or distributions on shares, the
corporate officer responsible for maintaining the list of shareholders or
the transfer agent of the corporation or, in the case of payments or
distributions on obligations, the treasurer or paying officer or agent has
received written notice that the holder is a minor.
Section 3.16. Business at Meetings of Shareholders.
(a) Except as otherwise provided by law, or the articles or in these
bylaws, or except as permitted by the presiding officer of the meeting in
the exercise of such officer's sole discretion in any specific instance,
the business which shall be voted upon or discussed at any annual or
special meeting of the shareholders (other than the nomination of directors
which shall be governed by Section 4.02(b) of these bylaws) shall (i) have
been specified in the written notice of the meeting (or any supplement
thereto) given by the corporation, (ii) be brought before the meeting at
the direction of the board of directors, (iii) be brought before the
meeting by the presiding officer of the meeting unless a majority of the
directors then in office object to such business being conducted at the
meeting, or (iv) in the case of an annual meeting of shareholders have been
specified in a written notice given to the corporation by or on behalf of
any shareholder who shall have been a shareholder of record on the record
date for such meeting and who shall continue to be entitled to vote thereat
(the "Shareholder Notice"), in accordance with all of the requirements set
forth below.
(b) Each Shareholder Notice must be delivered to, or mailed and received
at, the principal executive offices of the corporation addressed to the
attention of the president (i) in the case of an annual meeting that is
called for a date that is within 30 days before or after the anniversary
date of the immediately preceding annual meeting of shareholders, not less
than 60 days nor more than 90 days prior to such anniversary date, and (ii)
in the case of an annual meeting that is called for a date that is not
within 30 days before or after the anniversary date of the immediately
preceding annual meeting, not earlier than 90 days prior to such annual
meeting and not later than the close of business on the tenth day following
the earlier of the day on which notice of the date of the meeting was
mailed or public disclosure of the meeting date (which shall include
disclosure of the meeting date given to the national securities exchange or
the National Association of Securities Dealers) was made. Each such
Shareholder Notice must set forth (A) the name and address of the
shareholder who intends to bring the business before the annual meeting
("Proposing Shareholder"); (B) the name and address of the beneficial
owner, if different than the Proposing Shareholder, of any of the shares
owned of record by the Proposing Shareholder ("Beneficial Owner"); (C) the
number of shares of each class and series of shares of the corporation
<PAGE>
which are owned of record and beneficially by the Proposing Shareholder and
the number which are owned beneficially by any Beneficial Owner; (D) any
interest (other than an interest solely as a shareholder) which the
Proposing Shareholder or a Beneficial Owner has in the business being
proposed by the Proposing Shareholder; (E) a description of all
arrangements and understandings between the Proposing Shareholder and any
Beneficial Owner and any other person or persons (naming such person or
persons) pursuant to which the proposal in the Shareholder Notice is being
made; (F) a description of the business which the Proposing Shareholder
seeks to bring before the annual meeting, the reason for doing so and, if a
specific action is to be proposed, the text of the resolution or
resolutions which the Proposing Shareholder proposes that the corporation
adopt; and (G) a representation that the Proposing Shareholder is at the
time of giving the Shareholder Notice, was or will be on the record date
for the meeting, and will be on the meeting date a holder of record of
shares of the corporation entitled to vote at such meeting, and intends to
appear in person or by proxy at the meeting to bring the business specified
in the Shareholder Notice before the meeting. The presiding officer of the
meeting may, in such officer's sole discretion, refuse to acknowledge any
business proposed by a shareholder which the presiding officer determines
is not made in compliance with the foregoing procedure.
(The provisions of this section were adopted by the board of directors on
September 22, 1998)
ARTICLE IV
Board of Directors
Section 4.01. Powers; Personal Liability.
(a) General Rule -- Unless otherwise provided by statute, all powers
vested by law in the corporation shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be
managed under the direction of, the board of directors.
(b) Personal Liability of Directors -- A director shall not be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, on or after January 27, 1987 unless the
director has breached or failed to perform the duties of his office under
Section 8363 of the Pennsylvania Directors' Liability Act [now 15 Pa.C.S.
Subch. 17B], and the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness. The provisions of this subsection
shall not apply to the responsibility or liability of a director pursuant
to any criminal statute, or the liability of a director for the payment of
taxes pursuant to local, state or Federal law.
(The provisions of this subsection (b) were first adopted by the
shareholders of the corporation on May 20, 1987.)
(c) Notation of Dissent -- A director of the corporation who is present
at a meeting of the board of directors, or of a committee of the board, at
which action on any corporate matter is taken on which the director is
generally competent to act, shall be presumed to have assented to the
action taken unless his or her dissent is entered in the minutes of the
meeting or unless the director files his or her written dissent to the
action with the secretary of the meeting before the adjournment thereof or
transmits the dissent in writing to the secretary of the corporation
immediately after the adjournment of the meeting. The right to dissent
<PAGE>
shall not apply to a director who voted in favor of the action. Nothing in
this section shall bar a director from asserting that minutes of the
meeting incorrectly omitted his or her dissent if, promptly upon receipt of
a copy of such minutes, the director notifies the secretary, in writing, of
the asserted omission or inaccuracy.
Section 4.02. Qualifications and Selection of Directors.
(a) Qualifications -- Each director of the corporation shall be a
natural person of full age who need not be a resident of the Commonwealth
of Pennsylvania or a shareholder of the corporation.
(b) Nomination of Candidates -- Nominations of candidates for election
to the board of directors at a meeting of the shareholders may be made only
by the board of directors or a proxy committee appointed by the board of
directors or by any shareholder entitled to vote in such election. A
nomination may be made by a shareholder only if written notice of the
nomination has been given to the secretary of the corporation not later
than the date on which a shareholder proposal would be required to be
submitted to the corporation in order to be set forth in the corporation's
proxy statement pursuant to the applicable proxy rules of the Securities
and Exchange Commission. Each such notice shall set forth:
(1) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated;
(2) a representation that the shareholder is a holder of record
of shares of the corporation entitled to vote at the meeting
and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(3) a description of all arrangements or understandings between
the shareholder 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 the shareholder;
(4) such other information regarding each nominee proposed by
the shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission if the nominee had been
nominated by the board of directors; and
(5) the written consent of each nominee, signed by such
nominee, to serve as a director of the corporation if so
elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person by a shareholder not made in compliance with the foregoing
procedure.
(c) Election of Directors -- In elections for directors, voting need not
be by ballot, unless required by vote of the shareholders before the voting
for the election of directors begins. The candidates receiving the highest
number of votes from each class or group of classes, if any, entitled to
elect directors separately up to the number of directors to be elected by
the class or group of classes shall be elected. If at any meeting of
shareholders, directors of more than one class are to be elected, each
class of directors shall be elected in a separate election.
<PAGE>
(d) Alternate Directors -- A shareholder or group of shareholders
entitled to elect, appoint, designate or otherwise select one or more
directors may select an alternate for each director for a coextensive term.
After the adoption of this subsection (d) and prior to the 1993 Annual
Meeting of Shareholders, any director elected by the shareholders may
resign from office and the board of directors may elect the former director
as an alternate director, to serve until the 1993 Annual Meeting of
Shareholders. An alternate director may attend all meetings of the board
of directors. In the absence of a director from a meeting of the board,
the director's alternate may execute a written consent and exercise at the
meeting or in such consent all the powers of the absent director. When so
exercising the powers of the absent director, the alternate shall be
subject in all respects to the provisions of the Business Corporation Law,
the articles and these bylaws relating to directors of the corporation, and
the term "Director", when used in the Business Corporation Law, the
articles or these bylaws shall be construed to include and refer to any
alternate director, unless the context requires otherwise.
(The provisions of this subsection (d) were first adopted by the board of
directors of the corporation on January 21, 1993 and amended by the board
of directors on June 29, 1993)
Section 4.03. Number and Term of Office.
(a) Number -- The board of directors shall consist of such number of
directors, not less than six nor more than twelve, as may be determined
from time to time by resolution of the board of directors.
(b) Term of Office -- Each director shall hold office until the
expiration of the term for which he or she was selected and until a
successor has been selected and qualified or until his or her earlier
death, resignation or removal. A decrease in the number of directors shall
not have the effect of shortening the term of any incumbent director.
(c) Resignation -- Any director may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as shall be specified
in the notice of resignation.
(d) Classified Board of Directors -- The directors shall be classified
in respect of the time for which they shall severally hold office as
follows:
(1) each class shall be as nearly equal in number as possible.
(2) the term of office of at least one class shall expire in
each year.
(3) the members of each class shall be elected for a period of
three years.
Section 4.04. Vacancies.
(a) General Rule -- Vacancies in the board of directors, including
vacancies resulting from an increase in the number of directors, may be
filled by a majority vote of the remaining members of the board though less
than a quorum, or by a sole remaining director. In the case of a vacancy
in the board of directors resulting from an increase in the number of
directors, the person selected shall serve until the next annual meeting of
<PAGE>
shareholders and until a successor has been selected and qualified or until
his or her earlier death, resignation or removal. In any other case, each
person so selected shall be a director to serve until the next selection of
the class for which such director has been chosen, and until a successor
has been selected and qualified or until his or her earlier death,
resignation or removal. When the number of directors is increased by the
board and any newly created directorships are filled by the board, there
shall be no classification of the additional directors until the next
annual meeting of the shareholders.
(b) Action by Resigned Directors -- When one or more directors resign
from the board effective at a future date, the directors then in office,
including those who have so resigned, shall have power by the applicable
vote to fill the vacancies, the vote thereon to take effect when the
resignations become effective.
Section 4.05. Removal of Directors.
(a) Removal by the Shareholders -- The entire board of directors, or any
class of the board, or any individual director may be removed from office
without assigning any cause only by the affirmative vote of the holders of
not less than 80% of the combined voting power of the then outstanding
shares of stock of all classes and series of the corporation entitled to
vote generally in the election of directors, in each case voting as a
single class in accordance with the articles. In case the board or a class
of the board or any one or more directors are so removed, new directors may
be elected at the same meeting.
(b) Removal by the Board -- The board of directors may declare vacant
the office of a director who has been judicially declared of unsound mind
or who has been convicted of an offense punishable by imprisonment for a
term of more than one year or if, within 60 days after notice of his or her
selection, the director does not accept the office either in writing or by
attending a meeting of the board of directors.
Section 4.06. Place of Meetings. Meetings of the board of directors may
be held at such place within or without the Commonwealth of Pennsylvania as
the board of directors may from time to time appoint or as may be
designated in the notice of the meeting.
Section 4.07. Organization of Meetings. At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the
board, if there be one, the president, the vice presidents in their order
of rank and seniority, or a person chosen by a majority of the directors
present, shall act as chairman of the meeting. The secretary or, in the
absence of the secretary, an assistant secretary, or, in the absence of the
secretary and the assistant secretaries, any person appointed by the
chairman of the meeting, shall act as secretary of the meeting.
Section 4.08. Regular Meetings. Regular meetings of the board of
directors shall be held at such time and place as shall be designated from
time to time by a majority of the board of directors or by the chairman or
the president.
Section 4.09. Special Meetings. Special meetings of the board of
directors shall be held whenever called by a majority of the board of
directors or by the chairman or the president.
<PAGE>
Section 4.10. Quorum of and Action by Directors.
(a) General Rule -- A majority of the directors in office of the
corporation shall be necessary to constitute a quorum for the transaction
of business and the acts of a majority of the directors present and voting
at a meeting at which a quorum is present shall be the acts of the board of
directors.
(b) Action by Written Consent -- Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting if,
prior or subsequent to the action, a consent or consents thereto by all of
the directors in office is filed with the secretary of the corporation.
Section 4.11. Executive and Other Committees.
(a) Establishment and Powers -- The board of directors may, by
resolution adopted by a majority of the directors in office, establish an
Executive Committee and one or more other committees to consist of one or
more directors of the corporation. Any committee, to the extent provided
in the resolution of the board of directors, shall have and may exercise
all of the powers and authority of the board of directors except that a
committee shall not have any power or authority as to the following:
(1) the submission to shareholders of any action requiring
approval of shareholders under the Business Corporation Law.
(2) the creation or filling of vacancies in the board of
directors.
(3) the adoption, amendment or repeal of these bylaws.
(4) the amendment or repeal of any resolution of the board that
by its terms is amendable or repealable only by the board.
(5) action on matters committed by a resolution of the board of
directors to another committee of the board.
(b) Alternate Committee Members -- The board may designate one or more
directors as alternate members of any committee who may replace any absent
or disqualified member at any meeting of the committee or for the purposes
of any written action by the committee. In the absence or disqualification
of a member and alternate member or members of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another
director to act at the meeting in the place of the absent or disqualified
member.
(c) Term -- Each committee of the board shall serve at the pleasure of
the board.
(d) Committee Procedures -- The term "board of directors" or "board,"
when used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the board of directors,
shall be construed to include and refer to the Executive Committee or any
other committee of the board, except that a meeting of the Executive
Committee may be called at any time by any member.
<PAGE>
Section 4.12. Compensation. The board of directors shall have the
authority to fix the compensation of directors for their services as
directors and a director may be a salaried officer of the corporation.
ARTICLE V
Officers
Section 5.01. Officers Generally.
(a) Number, Qualifications and Designation -- The officers of the
corporation shall be a president, one or more vice presidents, a secretary,
a treasurer, and such other officers as may be elected in accordance with
the provisions of Section 5.03. Officers may but need not be directors or
shareholders of the corporation. The president and secretary shall be
natural persons of full age. The treasurer may be a corporation, but if a
natural person shall be of full age. The board of directors may elect from
among the members of the board a chairman of the board and one or more vice
chairmen of the board who shall be officers of the corporation. Any number
of offices may be held by the same person.
(b) Bonding -- The corporation may secure the fidelity of any or all of
its officers by bond or otherwise.
(c) Standard of Care -- In lieu of the standards of conduct otherwise
provided by law, officers of the corporation shall be subject to the same
standards of conduct, including standards of care and loyalty and rights of
justifiable reliance, as shall at the time be applicable to directors of
the corporation. An officer of the corporation shall not be personally
liable, as such, to the corporation or its shareholders for monetary
damages for any action taken, or any failure to take any action, unless the
officer has breached or failed to perform the duties of his or her office
under the articles of incorporation, these bylaws, or the applicable
provisions of law and the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness. The provisions of this
subsection shall not apply to the responsibility or liability of an officer
pursuant to any criminal statute or for the payment of taxes pursuant to
local, state or federal law.
Section 5.02. Election, Term of Office and Resignations.
(a) Election and Term of Office -- The officers of the corporation,
except those elected by delegated authority pursuant to Section 5.03, shall
be elected annually by the board of directors, and each such officer shall
hold office for a term of one year and until a successor has been selected
and qualified or until his or her earlier death, resignation or removal.
(b) Resignations -- Any officer may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as may be specified
in the notice of resignation.
Section 5.03. Subordinate Officers, Committees and Agents. The board of
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation
may require, including one or more assistant secretaries, and one or more
assistant treasurers, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these bylaws, or
as the board of directors may from time to time determine. The board of
<PAGE>
directors may delegate to any officer or committee the power to elect
subordinate officers and to retain or appoint employees or other agents, or
committees thereof, and to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.
Section 5.04. Removal of Officers and Agents. Any officer or agent of the
corporation may be removed by the board of directors with or without cause.
The removal shall be without prejudice to the contract rights, if any, of
any person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
Section 5.05. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled
by the board of directors or by the officer or committee to which the power
to fill such office has been delegated pursuant to Section 5.03, as the
case may be, and if the office is one for which these bylaws prescribe a
term, shall be filled for the unexpired portion of the term.
Section 5.06. Authority.
(a) General Rule -- All officers of the corporation, as between
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or
pursuant to resolutions or orders of the board of directors or, in the
absence of controlling provisions in the resolutions or orders of the board
of directors, as may be determined by or pursuant to these bylaws.
(b) Voting and Acting with Securities Owned by the Corporation -- Each
of the chairman of the board and the president shall have the power and
authority to vote and act with respect to all stock and other securities in
any other corporation held by this corporation, unless the board of
directors confers such authority, which may be general or specific, upon
some other person. Any person so authorized to vote securities shall have
the power to appoint an attorney or attorneys, with general power of
substitution, as proxies for this corporation, with full power to vote and
act in behalf of this corporation with respect to such stock and other
securities.
(The provisions of this subsection (c) were amended by the board of
directors August 22, 1995)
Section 5.07. The Chairman of the Board. The chairman of the board shall
preside at all meetings of the shareholders and of the board of directors
and shall perform such other duties as may from time to time be requested
by the board of directors.
(The provisions of this section were amended by the board of directors on
August 22, 1995)
Section 5.08. Vice Chairmen of the Board of Directors. The vice chairmen
of the board, in their order of seniority as designated by the board if
there be more than one, shall preside during the temporary absence of the
chairman of the board at all meetings of the shareholders and of the board
of directors and shall perform such other duties as may from time to time
be requested by the chairman or the board of directors.
(The provisions of this section were amended by the board of directors on
August 22, 1995)
Section 5.09. The Chief Executive Officer. The chairman of the board or
the president, as designated from time to time by the board of directors,
<PAGE>
shall be the chief executive officer of the corporation. The chief
executive officer shall have general executive power to manage, control and
supervise the property, business and affairs of the corporation, subject,
however, to the control of the board of directors. The chief executive
officer shall sign, execute, and acknowledge, in the name of the
corporation, deeds, mortgages, bonds, contracts or other instruments,
authorized by the board of directors, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors,
or by these bylaws, to some other officer or agent of the corporation.
(The provisions of this section were adopted by the board of directors on
August 22, 1995)
Section 5.10. The President. The president shall perform such duties as
from time to time may be assigned by the board of directors or the chief
executive officer (unless the president shall be the chief executive
officer, in which case the president's duties shall be those specified in
Section 5.09).
(The provisions of this section were amended by the board of directors on
August 22, 1995)
Section 5.11. The Chief Operating Officer. The chief operating officer
shall perform such duties as from time to time may be assigned by the board
of directors or the chief executive officer.
(The provisions of this section were amended by the board of directors on
October 13, 1995)
Section 5.12. The Vice Presidents. The vice presidents, one or more of
whom may be designated executive, senior, group or administrative vice
president or given other descriptive titles, shall perform all duties as
may from time to time be assigned by the board of directors, the chairman
of the board or the president.
Section 5.13. The Secretary. The secretary or an assistant secretary
shall attend all meetings of the shareholders and of the board of directors
and all committees thereof and shall record all the votes of the
shareholders and of the directors and the minutes of the meetings of the
shareholders and of the board of directors and of committees of the board
in a book or books to be kept for that purpose; shall see that notices are
given and records and reports properly kept and filed by the corporation as
required by law; shall be the custodian of the seal of the corporation and
see that it is affixed to all documents to be executed on behalf of the
corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time
to time be assigned by the board of directors or the chairman of the board.
Section 5.14. The Treasurer. The treasurer shall be the principal officer
in charge of tax and financial matters of the corporation. The treasurer
or an assistant treasurer shall have or provide for the custody of the
funds or other property of the corporation; shall collect and receive or
provide for the collection and receipt of moneys earned by or in any manner
due to or received by the corporation; shall deposit all funds in his or
her custody as treasurer in such banks or other places of deposit as the
board of directors may from time to time designate; shall, whenever so
required by the board of directors, render an account showing all
transactions as treasurer, and the financial condition of the corporation;
and, in general, shall discharge such other duties as may from time to time
be assigned by the board of directors or the chairman of the board.
<PAGE>
Section 5.15. Delegation of Duties. In the absence of any officer or for
any other reason deemed sufficient by the board of directors or the
chairman of the board, the board of directors or the chairman of the board
may delegate, for the time being, any of the powers and duties of such
officer to any other officer or director or other person.
Section 5.16. Salaries. The salaries of the officers elected by the board
of directors shall be fixed from time to time by the board of directors or
by such officer or committee of the board as may be designated by
resolution of the board. The salaries or other compensation of any other
officers, employees and other agents shall be fixed from time to time by
the officer or committee to which the power to elect such officers or to
retain or appoint such employees or other agents has been delegated
pursuant to Section 5.03. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is
also a director of the corporation.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
Section 6.01. Share Certificates.
(a) Form of Certificates -- Certificates for shares of the corporation
shall be in such form as approved by the board of directors, and shall
state that the corporation is incorporated under the laws of the
Commonwealth of Pennsylvania, the name of the person to whom issued, and
the number and class of shares and the designation of the series (if any)
that the certificate represents. If the corporation is authorized to issue
shares of more than one class or series, certificates for shares of the
corporation shall set forth upon the face or back of the certificate (or
shall state on the face or back of the certificate that the corporation
will furnish to any shareholder upon request and without charge), a full or
summary statement of the designations, voting rights, preferences,
limitations and special rights of the shares of each class or series
authorized to be issued so far as they have been fixed and determined and
the authority of the board of directors to fix and determine the
designations, voting rights, preferences, limitations and special rights of
the classes and series of shares of the corporation.
(b) Share Register -- The share register or transfer books and blank
share certificates shall be kept by the secretary or by any transfer agent
or registrar designated by the board of directors for that purpose.
Section 6.02. Issuance. The share certificates of the corporation shall
be numbered and registered in the share register or transfer books of the
corporation as they are issued. They shall be executed in such manner as
the board of directors shall determine.
Section 6.03. Transfer. Transfers of shares shall be made on the share
register or transfer books of the corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by
an attorney lawfully constituted in writing. No transfer shall be made
inconsistent with the provisions of the Uniform Commercial Code, 13 Pa.C.S.
8101 et seq., and its amendments and supplements.
<PAGE>
Section 6.04. Record Holder of Shares. The corporation shall be entitled
to treat the person in whose name any share or shares of the corporation
stand on the books of the corporation as the absolute owner thereof, and
shall not be bound to recognize any equitable or other claim to, or
interest in, such share or shares on the part of any other person.
Section 6.05. Lost, Destroyed or Mutilated Certificates. The holder of
any shares of the corporation shall immediately notify the corporation of
any loss, destruction or mutilation of the certificate therefor, and the
board of directors may, in its discretion, cause a new certificate or
certificates to be issued to such holder, in case of mutilation of the
certificate, upon the surrender of the mutilated certificate or, in case of
loss or destruction of the certificate, upon satisfactory proof of such
loss or destruction and, if the board of directors shall so determine, the
deposit of a bond in such form and in such sum, and with such surety or
sureties, as it may direct.
Section 6.06. Rights. Rights issued pursuant to the Rights Agreement,
dated April 27, 1989, between the corporation and Mellon Bank (East) N.A.
(the "Rights Agreement") may be transferred by an Acquiring Person or an
Associate or Affiliate of an Acquiring Person (as such capitalized terms
are defined in the Rights Agreement) only in accordance with the terms of,
and subject to the restrictions contained in, the Rights Agreement.
ARTICLE VII
Indemnification of Directors, Officers and Other Authorized Representatives
(The provisions of this Article VII were first adopted by the shareholders
of the corporation on May 20, 1987.)
Section 7.01. General Rule. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, whether formal or informal, and
whether brought by or in the right of the corporation or otherwise, by
reason of the fact that he was a director, officer or employee of the
corporation (and may indemnify any person who was an agent of the
corporation), or a person serving at the request of the corporation as a
director, officer, partner, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, to the fullest extent permitted by law, including without
limitation indemnification against expenses (including attorneys' fees and
disbursements), damages, punitive damages, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by such person
in connection with such proceeding unless the act or failure to act giving
rise to the claim for indemnification is finally determined by a court to
have constituted willful misconduct or recklessness.
Section 7.02. Advancing Expenses. The corporation shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably
incurred in defending a civil or criminal action, suit or proceeding on
behalf of any person entitled to indemnification under Section 7.01 in
advance of the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation, and may pay such expenses in advance on behalf of any agent on
receipt of a similar undertaking. The financial ability of such person to
make such repayment shall not be prerequisite to the making of an advance.
<PAGE>
Section 7.03. Definitions. For the purposes of this Article:
(1) the corporation shall be deemed to have requested an
officer, director, employee or agent to serve as fiduciary
with respect to an employee benefit plan where the
performance by such person of duties to the corporation also
imposes duties on, or otherwise involves services by, such
person as a fiduciary with respect to the plan;
(2) excise taxes assessed with respect to any transaction with
an employee benefit plan shall be deemed "fines"; and
(3) action taken or omitted by such person with respect to an
employee benefit plan in the performance of duties for a
purpose reasonably believed to be in the interest of the
participants and beneficiaries of the plan shall be deemed to
be for a purpose which is not opposed to the best interests
of the corporation.
Section 7.04. Securing of Indemnification Obligations. To further effect,
satisfy or secure the indemnification obligations provided herein or
otherwise, the corporation may maintain insurance, obtain a letter of
credit, act as self-insurer, create a reserve, trust, escrow, cash
collateral or other fund or account, enter into indemnification agreements,
pledge or grant a security interest in any assets or properties of the
corporation, or use any other mechanism or arrangement whatsoever in such
amounts, at such costs, and upon such other terms and conditions as the
board of directors shall deem appropriate.
Section 7.05. Contract Rights; Amendment or Repeal. All rights of
indemnification under this Article shall be deemed a contract between the
corporation and the person entitled to indemnification under this Article
pursuant to which the corporation and each such person intend to be legally
bound. Any repeal, amendment or modification hereof shall be prospective
only and shall not limit, but may expand, any rights or obligations in
respect of any proceeding whether commenced prior to or after such change
to the extent such proceeding pertains to actions or failures to act
occurring prior to such change.
Section 7.06. Scope of Article. The indemnification, as authorized by
this Article, shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in any other capacity while holding such office. The
indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall continue as to a person who has ceased to
be an officer, director, employee or agent in respect of matters arising
prior to such time, and shall inure to the benefit of the heirs, executors
and administrators of such person.
<PAGE>
ARTICLE VIII
Miscellaneous
Section 8.01. Corporate Seal. The corporation shall have a corporate seal
in the form of a circle containing the name of the corporation, the year of
incorporation and such other details as may be approved by the board of
directors. The affixation of the corporate seal shall not be necessary to
the valid execution, assignment or endorsement by the corporation of any
instrument or other document.
Section 8.02. Checks and Other Instruments. All properly authorized
checks, notes, bonds, drafts, bills of exchange or other similar orders,
and all evidences of indebtedness of the corporation whatsoever, and all
properly authorized deeds, mortgages and other instruments requiring
execution by the corporation may be executed and delivered by the president
or any vice president or the treasurer of the corporation. The authority
to sign any such orders or instruments, which may be general or confined to
specific instances, may be conferred by the board of directors upon any
other person or persons, subject to such requirements as to
countersignature or other conditions as the board of directors from time to
time may determine. Facsimile signatures on checks, notes, bonds and other
instruments may be used if authorized by the board of directors. Any person
having authority to sign on behalf of the corporation may delegate, from
time to time, by instrument in writing, all or part of such authority to
any person or persons if authorized to do so by the board of directors.
Section 8.03. Contracts. Except as otherwise provided in the Business
Corporation Law in the case of transactions that require action by the
shareholders, the board of directors may authorize any officer or agent to
enter into any contract or to execute or deliver any instrument on behalf
of the corporation, and such authority may be general or confined to
specific instances.
Section 8.04. Interested Directors or Officers; Quorum.
(a) General Rule -- A contract or transaction between the corporation
and one or more of its directors or officers or between the corporation and
another corporation, partnership, joint venture, trust or other enterprise
in which one or more of its directors or officers are directors or officers
or have a financial or other interest, shall not be void or voidable solely
for that reason, or solely because the director or officer is present at or
participates in the meeting of the board of directors that authorizes the
contract or transaction, or solely because his, her or their votes are
counted for that purpose, if:
(1) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known
to the board of directors and the board authorizes the
contract or transaction by the affirmative votes of a
majority of the disinterested directors even though the
disinterested directors are less than a quorum;
(2) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed
or are known to the shareholders entitled to vote thereon and
the contract or transaction is specifically approved in good
faith by vote of those shareholders; 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 or the shareholders.
(b) Quorum -- Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board which
authorizes a contract or transaction specified in subsection (a).
<PAGE>
Section 8.05. Deposits. All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by
such one or more officers or employees of the corporation as the board of
directors shall from time to time designate.
Section 8.06. Corporate Records.
(a) Required Records -- The corporation shall keep complete and accurate
books and records of account, minutes of the proceedings of the
incorporators, shareholders and directors and a share register giving the
names and addresses of all shareholders and the number and class of shares
held by each. The share register shall be kept at either the registered
office of the corporation in the Commonwealth of Pennsylvania or at its
principal place of business wherever situated or at the office of its
registrar or transfer agent. Any books, minutes or other records may be in
written form or any other form capable of being converted into written form
within a reasonable time.
(b) Right of Inspection -- Every shareholder shall, upon written
verified demand stating the purpose thereof, have a right to examine, in
person or by agent or attorney, during the usual hours for business for any
proper purpose, the share register, books and records of account, and
records of the proceedings of the incorporators, shareholders and directors
and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to the interest of the person as a shareholder.
In every instance where an attorney or other agent is the person who seeks
the right of inspection, the demand shall be accompanied by a verified
power of attorney or other writing that authorizes the attorney or other
agent to so act on behalf of the shareholder. The demand shall be directed
to the corporation at its registered office in the Commonwealth of
Pennsylvania or at its principal place of business wherever situated.
Section 8.07. Control Transactions. Pursuant to a resolution of the board
of directors adopted on February 23, 1984, the corporation's bylaws were
amended (such amendment hereby incorporated in the current amendment and
restatement of these bylaws), in pertinent part, as follows:
"Section 910 [now 15 Pa.C.S. Subch. 25E] of the Pennsylvania
Business Corporation Law, entitled 'Right of Shareholders to
Receive Payment for Shares Following a Control Transaction' [now
Control Transactions] shall not be applicable to the Company."
Section 8.08. Control-Share Acquisitions. Subchapter 25G (relating to
control-share acquisitions) of 15 Pa.C.S. or any corresponding provision of
succeeding law shall not be applicable to the corporation.
(The provisions of this section were adopted by the board of directors on
July 12, 1990.)
Section 8.09. Disgorgement. Subchapter 25H (relating to disgorgement by
certain controlling shareholders following attempts to acquire control) of
15 Pa.C.S. or any corresponding provision of succeeding law shall not be
applicable to the corporation.
(The provisions of this section were adopted by the board of directors on
July 12, 1990.)
<PAGE>
Section 8.10. Amendment of Bylaws. These bylaws may be amended or
repealed, or new bylaws may be adopted, either (i) by vote of the
shareholders at any duly organized annual or special meeting of
shareholders, or (ii) with respect to those matters that are not by statute
committed expressly to the shareholders and regardless of whether the
shareholders have previously adopted or approved the bylaw being amended or
repealed, by vote of a majority of the board of directors of the
corporation in office at any regular or special meeting of directors. Any
change in these bylaws shall take effect when adopted unless otherwise
provided in the resolution effecting the change
<PAGE>
PENNSYLVANIA BUSINESS CORPORATION
BYLAW DERIVATION TABLE
<TABLE>
<CAPTION>
Bus. Corp. Law
BYLAW SECTION
<S> <C>
1.01 1507
1.02 1502(a)(15)
1.03 1554
2.01 1702
2.02 1703(b)
2.03(a) 1704(b) and (c)
(b) 1504(a)
(c) 1906(c), 1913(a), 1923(a), 1952(c), 1962(b), 1973
(d) 1571(d)
2.04 1705
2.05 1706
2.06 1707
2.07 1708
3.01 1704(a)
3.02 1755(a)
3.03 1755(b), 2521
3.04(a) 1756(a)(1), 1762(c)
(b) 1756(a)(2)
(c) 1755(c), 1756(a)(3), 2522
(d) 1756(b)(1)
(e) 1756(b)(2)
3.05 1726(a)(4), 1757(a), 1766(a)
3.06 none
3.07 1758(a)
3.08(a) 1759(a)
(b) 1759(b)
(c) 1757(c)
(d) 1759(e)
3.09 1760
3.10 1761
3.11 1762(a), (c)
3.12 1763
3.13 1764
3.14 1765
3.15 1769(a)
3.16 1504(a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BCL
BYLAW SECTION
<S> <C>
4.01(a) 1721
(b) 1712
(c) 1715
4.02(a) 1722
(b) 1758(b)
(c) 1725(a)
(d) 1725(c)
4.03(a) 1723
(b) 1724(a)
(c) 1724(a)
(d) 1724(b); Articles of Incorporation, Section 7(a)
4.04 1725(b); Articles of Incorporation, Section 7(a)
4.05 1726; Articles of Incorporation, Section 7(b)
4.06 1703(a)
4.07 none
4.08 none
4.09 none
4.10 1727
4.11 1731
4.12 1730
5.01 1732(a), 1712
5.02 1732(a)
5.03 1732(a)
5.04 1733
5.05 1732(a)
5.06 1732(b)
5.07 none
5.08 none
5.09 none
5.10 none
5.11 none
5.12 none
5.13 none
6.01(a) 1528(c), (d)
(b) 1508(a), 1732(b)
6.02 none
6.03 1529(a)
6.04 1103 (shareholder), 1764(b)
6.05 none
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BCL
BYLAW SECTION
<S> <C>
6.06 none
7.01 1746
7.02 1746
7.03 1746
7.04 1746
7.05 1746
7.06 1746
8.01 1502(a)(3); cf. 1109 and 1506(b)
8.02 1504
8.03 1504
8.04 1728
8.05 1504
8.06 1508(a), (b)
8.07 Subch. 25E
8.08 Subch. 25G
8.09 Subch. 25H
8.10 1504
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 32,633
<SECURITIES> 72,721
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 217,000
<CURRENT-ASSETS> 358,081
<PP&E> 439,071
<DEPRECIATION> 266,648
<TOTAL-ASSETS> 707,077
<CURRENT-LIABILITIES> 179,622
<BONDS> 122,279
0
0
<COMMON> 10,655
<OTHER-SE> 382,382
<TOTAL-LIABILITY-AND-EQUITY> 707,077
<SALES> 762,931
<TOTAL-REVENUES> 762,931
<CGS> 568,045
<TOTAL-COSTS> 568,045
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,635
<INCOME-PRETAX> (16,920)
<INCOME-TAX> (5,922)
<INCOME-CONTINUING> (10,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,998)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
