<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 July 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File 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 July
31, 1999, was 98,429,735 shares.
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
July 31, 1999 and January 30, 1999................................. 1-2
Condensed Consolidated Statements of Operations
Thirteen weeks ended July 31, 1999 and August 1, 1998.............. 3
Condensed Consolidated Statements of Operations
Twenty-six weeks ended July 31, 1999 and August 1, 1998............ 4
Condensed Consolidated Statements of Comprehensive Income (Loss)
Twenty-six weeks ended July 31, 1999 and August 1, 1998............ 5
Condensed Consolidated Statements of Cash Flows
Twenty-six weeks ended July 31, 1999 and August 1, 1998............ 6
Notes to Condensed Consolidated Financial Statements.................. 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................12-23
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 24
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......... 25
Item 6. Exhibits and Reports on Form 8-K.............................25-26
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 30,
(In thousands) 1999 1999
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................$ 29,006 $ 43,789
Available-for-sale securities (including fair value
adjustments of $0 and $19, respectively)........... 38,251 100,743
Merchandise inventories.............................. 197,490 171,327
Deferred taxes....................................... 15,194 15,194
Prepayments and other................................ 35,045 30,487
-------- --------
Total current assets................................. 314,986 361,540
-------- --------
Property, equipment, and leasehold improvements...... 399,024 391,152
Less: accumulated depreciation and amortization...... 250,850 236,569
-------- --------
Net property, equipment, and leasehold improvements.. 148,174 154,583
-------- --------
Available-for-sale securities (including fair value
adjustments of $(3,635) and $389, respectively).... 239,005 145,882
Other assets......................................... 27,875 22,644
-------- --------
Total assets.........................................$730,040 $684,649
======== ========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
</FN>
(1)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 30,
(In thousands) 1999 1999
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.....................................$ 89,694 $ 61,806
Accrued expenses..................................... 98,999 84,444
Income taxes payable................................. 12,419 4,552
Accrued restructuring expenses....................... 10,576 18,448
Current portion -- long-term debt.................... 16 16
-------- --------
Total current liabilities............................ 211,704 169,266
-------- --------
Deferred taxes....................................... 12,336 12,336
Long-term debt....................................... 96,140 119,475
Stockholders' equity
Common Stock $.10 par value
Authorized -- 300,000,000 shares
Issued -- 107,149,735 shares and
106,830,596 shares, respectively.................. 10,715 10,683
Additional paid-in capital........................... 66,026 64,924
Treasury stock at cost -- 8,720,000 shares and
8,710,000 shares, respectively.................... (39,444) (39,405)
Deferred employee compensation....................... (1,477) (1,051)
Accumulated other comprehensive income (loss)........ (2,341) 267
Retained earnings.................................... 376,381 348,154
-------- --------
Total stockholders' equity........................... 409,860 383,572
-------- --------
Total liabilities and stockholders' equity...........$730,040 $684,649
======== ========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
</FN>
(2)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
July 31, August 1,
(In thousands except per-share amounts) 1999 1998
---- ----
<S> <C> <C>
Net sales...........................................$311,743 $279,158
Other income........................................ 2,574 3,792
-------- --------
Total revenue....................................... 314,317 282,950
-------- --------
Cost of goods sold, buying, and occupancy expenses.. 214,772 205,445
Selling, general, and administrative expenses....... 66,362 60,536
Restructuring credit................................ (2,834) 0
Interest expense.................................... 1,824 2,619
-------- --------
Total expenses...................................... 280,124 268,600
-------- --------
Income before income taxes.......................... 34,193 14,350
Income tax provision................................ 11,968 5,022
-------- --------
Net income..........................................$ 22,225 $ 9,328
======== ========
Basic net income per share.......................... $ .23 $ .09
===== =====
Diluted net income per share........................ $ .21 $ .09
===== =====
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
</FN>
(3)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
July 31, August 1,
(In thousands except per-share amounts) 1999 1998
---- ----
<S> <C> <C>
Net sales...........................................$570,718 $523,189
Other income........................................ 5,597 8,321
-------- --------
Total revenue....................................... 576,315 531,510
-------- --------
Cost of goods sold, buying, and occupancy expenses.. 404,834 387,897
Selling, general, and administrative expenses....... 128,987 120,641
Restructuring charge (credit)....................... (2,834) 34,000
Interest expense.................................... 3,797 5,240
-------- --------
Total expenses...................................... 534,784 547,778
-------- --------
Income (loss) before income taxes and
Extraordinary item............................... 41,531 (16,268)
Income tax provision (benefit)...................... 14,536 (5,694)
-------- --------
Income (loss) before extraordinary item............. 26,995 (10,574)
Extraordinary item -- Gain on early retirement of
Debt, net of income taxes of $664................ 1,232 0
-------- --------
Net income (loss)...................................$ 28,227 $(10,574)
======== ========
Basic income (loss) per share:
Before extraordinary item........................... $ .28 $(.11)
Extraordinary item.................................. .01 .00
===== =====
Net income (loss)................................... $ .29 $(.11)
===== =====
Diluted income (loss) per share:
Before extraordinary item........................... $ .26 $(.11)
Extraordinary item.................................. .01 .00
===== =====
Net income (loss)................................... $ .27 $(.11)
===== =====
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
</FN>
(4)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
July 31, August 1,
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Net income (loss)................................... $28,227 $(10,574)
------- --------
Other comprehensive loss:
Unrealized losses on available-for-sale
securities, net of income tax benefit
of $1,798 and $221, respectively................. (3,282) (411)
Reclassification of realized losses (gains)
on available-for-sale securities, net of
income tax (benefit) expense of $(363) and
$74, respectively................................ 674 (139)
------- --------
Total other comprehensive loss, net of taxes..... (2,608) (550)
------- --------
Comprehensive income (loss)......................... $25,619 $(11,124)
======= ========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
</FN>
(5)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
July 31, August 1,
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Operating activities
Net income (loss)....................................$ 28,227 $(10,574)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 15,465 17,431
Deferred income taxes............................. 1,404 (5,381)
Write-down of capital assets due to restructuring. 0 10,000
Gain from disposition of capital assets........... (3,010) (45)
Gain on early retirement of debt.................. (1,896) 0
Loss (gain) on sale of available-for-sale
securities..................................... 1,037 (213)
Changes in operating assets and liabilities:
Merchandise inventories........................ (26,163) (19,206)
Accounts payable............................... 27,888 29,148
Prepayments and other.......................... (4,626) (947)
Accrued expenses............................... 14,555 (1,753)
Income taxes payable........................... 7,867 (6,123)
Accrued restructuring expenses................. (7,872) 22,839
-------- --------
Net cash provided by operating activities............ 52,876 35,176
-------- --------
Investing activities
Investment in capital assets......................... (14,483) (14,185)
Proceeds from sales of capital assets................ 9,454 51
Proceeds from sales of available-for-sale securities. 309,040 248,434
Gross purchases of available-for-sale securities.....(344,855) (219,813)
Increase in other assets............................. (6,163) (8,521)
-------- --------
Net cash (used in) provided by investing activities.. (47,007) 5,966
-------- --------
Financing activities
Reduction of long-term borrowings.................... (21,051) (3,004)
Purchases of treasury stock.......................... (39) (3,780)
Proceeds from exercise of stock options.............. 438 467
-------- --------
Net cash used in financing activities................ (20,652) (6,317)
-------- --------
(Decrease) Increase in cash and cash equivalents..... (14,783) 34,825
Cash and cash equivalents, beginning of period....... 43,789 12,349
-------- --------
Cash and cash equivalents, end of period.............$ 29,006 $ 47,174
======== ========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
</FN>
(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 July 31, 1999 and the con-
densed consolidated statements of operations, comprehensive income (loss),
and cash flows for the thirteen and twenty-six weeks ended July 31, 1999
and August 1, 1998 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 July 31,
1999 and the results of operations and cash flows for the thirteen and
twenty-six weeks ended July 31, 1999 and August 1, 1998 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
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 30, 1999
Annual Report on Form 10-K. The results of operations for the thirteen and
twenty-six weeks ended July 31, 1999 and August 1, 1998 are not necessarily
indicative of operating results for the full fiscal year.
2. Stockholders' Equity
During the twenty-six weeks ended July 31, 1999, stockholders' equity in-
creased $26,288,000. Stockholders' equity increased as the result of net
income of $28,227,000, payments of exercise price for stock options in the
amount of $369,000, and amortization of deferred compensation expense of
$339,000. These increases were partially offset by net unrealized losses
on available-for-sale securities of $2,608,000 (net of an income tax
benefit of $1,435,000) and purchases of treasury stock of $39,000.
3. Restructuring Charge (Credit)
In December 1998, the Company consolidated its distribution center oper-
ations in its Greencastle, Indiana facility and closed its Bensalem,
Pennsylvania distribution center. As a result, the Company recognized a
pre-tax restructuring charge of $20,246,000 during the fourth quarter of
the fiscal year ended January 30, 1999. The restructuring charge included
a $17,969,000 write-down of the cost of the Bensalem facilities to a net
realizable value of $5,662,000, based on an independent appraisal. The
restructuring charge also included estimated severance costs of $1,556,000
and other estimated non-recurring costs of $721,000 relating to the
closure.
(7)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the thirteen weeks ended July 31, 1999, the Company completed the
sale of the Bensalem facility and revised its estimate of costs relating to
the distribution center restructuring. As a result, the Company recognized
a pre-tax restructuring credit of $2,834,000 for the thirteen weeks ended
July 31, 1999. The credit primarily represents sales proceeds in excess of
the estimated net realizable value of the Bensalem facility. During the
twenty-six weeks ended July 31, 1999, the Company charged $991,000 of costs
against the distribution center restructuring accrual. At July 31, 1999,
the Company had remaining accrued restructuring charges of $750,000 relat-
ing to the closing of the Bensalem facility.
On March 5, 1998, the Company's Board of Directors approved a restructuring
plan ("the Plan") in conjunction with its decision to eliminate men's
merchandise from the Company's stores. The Plan resulted in a pre-tax
restructuring charge of $34,000,000 during the twenty-six weeks ended
August 1, 1998. During the thirteen weeks ended July 31, 1999, the Company
closed 5 stores and completed the downsizing of 2 stores in connection with
the Plan. To-date, 59 stores have been closed, and 12 additional stores
are scheduled for closing during the fiscal year ending January 29, 2000
("Fiscal 2000") in connection with the Plan. In addition, 48 stores have
been downsized to-date, 25 stores are scheduled for downsizing in Fiscal
2000, and approximately 35 stores are scheduled for downsizing thereafter.
The following table summarizes accrued restructuring charges related to the
Plan as of January 30, 1999 and payments charged against the accrual during
the twenty-six weeks ended July 31, 1999:
<TABLE>
<CAPTION>
Accrued at Accrued At
January 30, July 31,
(in thousands) 1999 Payments 1999
---- -------- ----
<S> <C> <C> <C>
Termination/amendment of store leases $ 8,095 $(1,679) $6,416
Renovation of vacated store space.... 5,534 (3,177) 2,357
Severance............................ 120 (20) 100
Other costs.......................... 3,429 (2,476) 953
------- ------- ------
$17,178 $(7,352) $9,826
======= ======= ======
</TABLE>
(8)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Gain on Early Retirement of Debt
During the first quarter of the current fiscal year, the Company repur-
chased $23,316,000 aggregate principal amount of its 7.5% Convertible
Subordinated Notes due 2006 at a total cost of $21,031,000. The notes had
an aggregate carrying value of $22,927,000 as of the repurchase dates. The
repurchases resulted in an extraordinary gain of $1,232,000, net of income
taxes of $664,000.
5. Net Income (Loss) Per Share
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
July 31, August 1, July 31, August 1,
(In thousands) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic weighted average
common shares outstanding.. 98,309 100,390 98,237 100,498
Dilutive effect of
stock options.............. 1,496 1,089 933 0
Dilutive effect of
convertible notes.......... 12,875 18,499 16,000 0
------- ------- ------- -------
Diluted weighted average
common shares and
equivalents outstanding.... 112,680 119,978 115,170 100,498
======= ======= ======= =======
Net income (loss)............. $22,225 $ 9,328 $28,227 $(10,574)
Decrease in interest expense
from assumed conversion of
notes, net of income taxes. 1,184 1,682 2,439 0
------- ------- ------- --------
Net income (loss) used to
determine diluted earnings
per share.................. $23,409 $11,010 $30,666 $(10,574)
======= ======= ======= ========
</TABLE>
(9)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Options to purchase 2.9 million shares and 3.4 million shares of Common
Stock at July 31, 1999 and August 1, 1998, respectively, with exercise
prices in excess of the average market price of the Company's Common Stock,
were excluded from the computation of diluted net income per share because
the effect would have been antidilutive. Options with exercise prices
below the average market price, having a dilutive effect of 0.9 million
shares, were excluded from the computation of net loss per share for the
twenty-six weeks ended August 1, 1998 because the effect would have been
antidilutive. The assumed conversion of the Company's 7.5% Convertible
Subordinated Notes due 2006 was excluded from the computation of diluted
net loss per share for the twenty-six weeks ended August 1, 1998 because
the effect would have been antidilutive.
6. Shareholder Rights Plan
In February 1999, the Company's Board of Directors adopted a Shareholder
Rights Plan to replace the existing Shareholder Rights Plan with effect
from April 26, 1999, when the existing Shareholder Rights Plan expired.
The Board of Directors also increased the authorized shares of Partici-
pating Series A Junior Preferred Stock, $1.00 par value, from 300,000
shares to 500,000 shares, and declared a dividend of one Right for each
outstanding share of Common Stock, payable as of the close of business on
April 26, 1999 to shareholders of record as of the close of business on
April 12, 1999. Such Rights only become exercisable or transferable apart
from the Common Stock ten days after a person or group (Acquiring Person)
acquires, or obtains the right to acquire, beneficial ownership of twenty
percent (20%) or more of the Company's outstanding common shares. Each
Right then may be exercised to acquire one three-hundredth of a share of
newly created Series A Junior Participating Preferred Stock or a combina-
tion of securities and assets of equivalent value at a purchase price of
$20, subject to adjustment.
Upon the occurrence of certain events (for example, if the Company is a
surviving corporation in a merger with an Acquiring Person), the Rights
entitle holders other than the Acquiring Person to acquire Common Stock
having a value of twice the exercise price of the Rights. Upon the
occurrence of certain other events (for example, if the Company is acquired
in a merger or other business combination transaction in which the Company
is not the surviving corporation), the rights entitle holders other than
the Acquiring Person to acquire Common Stock of the Acquiring Person having
a value twice the exercise price of the Rights. The Rights may be redeemed
by the Company at $.01 per Right at any time until the tenth day following
public announcement that a twenty percent (20%) position has been acquired.
The Rights will expire on April 25, 2009.
(10)
<PAGE>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Impact of Recent Accounting Pronouncements
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 2, 2002.
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.
8. Subsequent Event
On July 15, 1999, the Company announced an agreement for the purchase of
100% of the outstanding stock of Modern Woman Holdings, Inc. ("Modern
Woman") for $10 million. Modern Woman operates a chain of 137 retail
apparel stores in 25 states, specializing in large-size women's apparel.
Completion of the acquisition occurred on August 2, 1999. The acquisition
will be accounted for as a purchase, and the Company's prior-period results
will not be restated. The Company has not completed the allocation of the
purchase price to the net assets acquired. However, the Company antici-
pates that the fair value of the net assets acquired will exceed the
purchase price. The acquisition was financed through the use of
internally-generated funds.
(11)
<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 forward-looking statements regarding sales perfor-
mance, store openings and closings, cost savings, capital requirements,
management's expectations for Year 2000 compliance, and other matters.
Such forward-looking statements are subject to various risks and uncer-
tainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Such risks and uncertainties
may include, but are not limited to, (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)
the risks attendant to the sourcing of the Company's merchandise needs
abroad, including exchange rate fluctuations, political instability, trade
sanctions or restrictions, changes in quota and duty regulations, delays in
shipping or increased costs of transportation, (v) competitive pressures,
and (vi) disruptions to operations as a result of Year 2000 compliance
issues. These, and other risks and uncertainties, are detailed further in
this Item 2, in "Part I, Item 1 -- Business: Cautionary Statement for
Purposes of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995" of the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1999, and in the Company's reports filed with
the Securities and Exchange Commission from time to time.
(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 Twenty-six Weeks Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales...................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, buying,
and occupancy expenses...... 68.9 73.6 70.9 74.1
Selling, general, and
administrative expenses..... 21.3 21.7 22.6 23.1
Restructuring
charge (credit)............. (0.9) -- (0.5) 6.5
Interest expense............... 0.6 0.9 0.7 1.0
Income (loss) before income
taxes and extraordinary item 10.9 5.1 7.3 (3.1)
Income tax provision (benefit). 3.8 1.8 2.5 (1.1)
Gain on early retirement
of debt, net of taxes....... -- -- 0.2 --
Net income (loss).............. 7.1 3.3 5.0 (2.0)
</TABLE>
Thirteen Weeks Ended July 31, 1999 and August 1, 1998
Net sales for the quarter ended July 31, 1999 ("Fiscal 2000 Second Quar-
ter") were $311.7 million, an 11.7% increase from net sales of $279.2 mil-
lion for the quarter ended August 1, 1998 ("Fiscal 1999 Second Quarter").
Comparable store sales (sales generated by stores in operation during the
same weeks of each period) increased 11.4% in the Fiscal 2000 Second
Quarter as compared to the Fiscal 1999 Second Quarter. In addition, sales
from new stores (sales generated by stores in operation during the Fiscal
2000 Second Quarter that were not in operation during the corresponding
weeks of the Fiscal 1999 Second Quarter) in the Fiscal 2000 Second Quarter
equaled 4.1% of Fiscal 1999 Second Quarter sales. Sales for the Fiscal
1999 Second Quarter which were not comparable with sales for the Fiscal
2000 Second Quarter as a result of the closing of stores in Fiscal 1999 and
Fiscal 2000 equaled 3.5% of Fiscal 1999 Second Quarter sales. The number
of retail stores decreased from 1,158 at August 1, 1998 to 1,145 at July
31, 1999. Increases in comparable store sales were achieved in sportswear,
intimate apparel, accessories, and girls, reflecting favorable customer
response to the Company's summer and transitional fall merchandise
offerings. During the fiscal year ended January 30, 1999 ("Fiscal 1999"),
the Company eliminated sales of men's merchandise and re-merchandised the
selling space used for men's merchandise.
(13)
<PAGE>
Cost of goods sold, buying, and occupancy expenses expressed as a percent-
age of sales decreased 4.7% in the Fiscal 2000 Second Quarter as compared
to the Fiscal 1999 Second Quarter. Cost of goods sold as a percentage of
sales decreased 3.0% in the Fiscal 2000 Second Quarter as compared to the
Fiscal 1999 Second Quarter. The improvement in merchandise margins was
primarily a result of reduced levels of markdowns and store-wide promo-
tions. Merchandise margins also benefited from improved shrinkage rates
and improved results in sourcing operations. Buying and occupancy expenses
expressed as a percentage of sales decreased 1.7% in the Fiscal 2000 Second
Quarter as compared to the Fiscal 1999 Second Quarter. The decrease in
buying and occupancy expenses as a percentage of sales was due primarily to
the leveraging effect of the increase in sales volume. The Company also
benefited from cost savings as a result of the consolidation of the Com-
pany's distribution centers and a reduction in store occupancy expenses.
Selling, general, and administrative expenses expressed as a percentage of
sales decreased 0.4% in the Fiscal 2000 Second Quarter as compared to the
Fiscal 1999 Second Quarter, primarily as a result of the leveraging effect
of the increase in sales volume. Selling expenses increased in amount
primarily as a result of increases in payroll costs, store incentive
programs, and advertising, but were constant as a percentage of sales.
General and administrative expenses increased slightly in amount as com-
pared to the prior-year period, but decreased as a percentage of sales.
In December 1998, the Company consolidated its distribution center oper-
ations in its Greencastle, Indiana facility and closed its Bensalem,
Pennsylvania distribution center. As a result, the Company recognized a
pre-tax restructuring charge of $20.2 million during the fourth quarter of
Fiscal 1999. During the Fiscal 2000 Second Quarter, the Company completed
the sale of the Bensalem facility and revised its estimate of costs
relating to the distribution center restructuring. As a result, the Com-
pany recognized a pre-tax restructuring credit of $2.8 million for the
Fiscal 2000 Second Quarter. The credit primarily represents sales proceeds
in excess of the estimated net realizable value of the Bensalem facility.
Interest expense expressed as a percentage of sales decreased 0.3% in the
Fiscal 2000 Second Quarter as compared to the Fiscal 1999 Second Quarter.
The decrease in interest expense is a result of the Company's repurchase of
$42.0 million aggregate principal amount of its 7.5% Convertible Subordi-
nated Notes due 2006 during Fiscal 1999 and the quarter ended May 1, 1999
("Fiscal 2000 First Quarter").
Other income expressed as a percentage of sales decreased 0.6% in the
Fiscal 2000 Second Quarter as compared to the Fiscal 1999 Second Quarter.
The decrease was primarily a result of net realized losses from the sale of
available-for-sale securities during the Fiscal 2000 Second Quarter.
The income tax provision for the Fiscal 2000 Second Quarter was 35% of the
Company's pre-tax income, as compared to an income tax benefit of 35% of
the pre-tax loss for the Fiscal 1999 Second Quarter.
(14)
<PAGE>
Twenty-six Weeks Ended July 31, 1999 and August 1, 1998
Net sales for the first half of the fiscal year ended January 29, 2000
("Fiscal 2000") were $570.7 million, a 9.1% increase from net sales of
$523.2 million for the first half of Fiscal 1999. Comparable store sales
increased 8.7% in the first half of Fiscal 2000 as compared to the first
half of Fiscal 1999. In addition, sales from new stores for the first half
of Fiscal 2000 equaled 4.3% of sales for the first half of Fiscal 1999.
Sales for the first half of Fiscal 1999 for stores closed during Fiscal
1999 and Fiscal 2000 equaled 3.7% of Fiscal 1999 first half sales.
Increases in comparable store sales were achieved in sportswear, intimate
apparel, accessories, and girls, as favorable customer response to the
Company's spring merchandise offerings in the beginning of the year carried
over to the Company's summer and transitional fall merchandise offerings.
During Fiscal 1999, the Company eliminated sales of men's merchandise and
re-merchandised the selling space used for men's merchandise.
Cost of goods sold, buying, and occupancy expenses expressed as a percent-
age of sales decreased 3.2% in the first half of Fiscal 2000 as compared to
the first half of Fiscal 1999. Cost of goods sold as a percentage of sales
decreased 1.5% in the first half of Fiscal 2000 as compared to the first
half of Fiscal 1999. The improvement in merchandise margins was primarily
a result of the reduced levels of markdowns and store-wide promotions dur-
ing the current thirteen-week period. Merchandise margins also benefited
from improved shrinkage rates and improved results in sourcing operations.
Buying and occupancy expenses expressed as a percentage of sales decreased
1.5% in the first half of Fiscal 2000 as compared to the first half of
Fiscal 1999. The decrease in buying and occupancy expenses as a percentage
of sales was due primarily to the leveraging effect of the increase in
sales volume. The Company also benefited from cost savings as a result of
consolidation of the Company's distribution centers and a reduction in
store occupancy expenses.
Selling, general, and administrative expenses expressed as a percentage of
sales decreased 0.5% in the first half of Fiscal 2000 as compared to the
first half of Fiscal 1999, primarily as a result of the leveraging effect
of the increase in sales volume. Selling expenses increased in amount
primarily as a result of increases in payroll costs, store incentive
programs, and advertising, but were relatively constant as a percentage of
sales. General and administrative expenses increased slightly in amount as
compared to the prior-year period, but decreased as a percentage of sales.
In December 1998, the Company consolidated its distribution center oper-
ations in its Greencastle, Indiana facility and closed its Bensalem,
Pennsylvania distribution center. As a result, the Company recognized a
pre-tax restructuring charge of $20.2 million during the fourth quarter of
Fiscal 1999. During the first half of Fiscal 2000, the Company completed
the sale of the Bensalem facility and revised its estimate of costs relat-
ing to the distribution center restructuring. As a result, the Company
recognized a pre-tax restructuring credit of $2.8 million in the first half
of Fiscal 2000. The credit primarily represents sales proceeds in excess
of the estimated net realizable value of the Bensalem facility.
(15)
<PAGE>
On March 5, 1998, the Company's Board of Directors approved a restructuring
plan that resulted in a pre-tax charge of $34.0 million during the first
half of Fiscal 1999. The plan was approved in conjunction with the deci-
sion to eliminate men's merchandise from the Company's stores. During the
first half of Fiscal 2000, the Company closed 7 stores and completed the
downsizing of 18 stores in connection with the plan. To-date, 59 stores
have been closed, and 12 additional stores are scheduled for closing in
connection with the plan during the remainder of Fiscal 2000. In addition,
48 stores have been downsized to-date, 25 stores are scheduled for down-
sizing during the remainder of Fiscal 2000, and approximately 35 stores are
scheduled for downsizing thereafter.
Interest expense expressed as a percentage of sales decreased 0.3% in the
first half of Fiscal 2000 as compared to the first half of Fiscal 1999.
The decrease in interest expense is a result of the Company's repurchase of
$42.0 million aggregate principal amount of its 7.5% Convertible Subordi-
nated Notes due 2006 during Fiscal 1999 and the Fiscal 2000 First Quarter.
Other income expressed as a percentage of sales decreased 0.7% in the first
half of Fiscal 2000 as compared to the first half of Fiscal 1999. The
decrease was primarily a result of a decrease in interest income from the
Company's available-for-sale securities during the Fiscal 2000 First Quar-
ter and realized losses from the Company's available-for-sale securities
during the Fiscal 2000 Second Quarter. The Company utilized proceeds from
the sale of a portion of its available-for-sale securities during Fiscal
1999 and the Fiscal 2000 First Quarter to repurchase portions of the Com-
pany's convertible notes and common stock. In addition, average interest
rates on the securities declined during the period. The decrease in other
income was partially offset by the decrease in interest expense that
resulted from the repurchases of the convertible notes.
The income tax provision for the first half of Fiscal 2000 was 35% of the
Company's pre-tax income before extraordinary items, as compared to an
income tax benefit of 35% of the pre-tax loss for the first half of Fiscal
1999.
During the Fiscal 2000 First Quarter, the Company repurchased $23.3 million
aggregate principal amount of its 7.5% Convertible Subordinated Notes due
2006 at a total cost of $21.0 million. The notes had an aggregate carrying
value of $22.9 million as of the repurchase dates. The repurchases
resulted in an extraordinary gain of $1.2 million, net of income taxes of
$0.7 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are (i) cash flow from
operations, (ii) proprietary credit card receivables securitization agree-
ments, (iii) its long-term investment portfolio and (iv) its $150 million
revolving credit facility. As of July 31, 1999, the Company had working
capital of $103.3 million as compared to $192.3 million at January 30,
1999. Working capital at July 31, 1999 included $29.0 million of cash and
(16)
<PAGE>
cash equivalents, compared to cash and cash equivalents of $43.8 million at
January 30, 1999. The ratio of current assets to current liabilities was
1.5 to 1 at July 31, 1999 and 2.1 to 1 at January 30, 1999. The primary
reason for the decrease in working capital and the current ratio is a
change in the mix of investments in available-for-sale securities from
short-term maturities to long-term maturities. Short-term investments
decreased by $62.4 million from January 30, 1999 to July 31, 1999, while
long-term investments increased by $93.1 million during the same period.
Net cash provided by operating activities was $52.9 million for the first
half of Fiscal 2000, as compared to net cash provided by operating
activities of $35.2 million for the first half of Fiscal 1999. The $17.7
million increase in cash provided by operations was primarily the result of
the year-over-year improvement in the Company's operating income.
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. The facility, which
expires June 1, 2000, enables the Company to issue letters of credit for
overseas purchases of merchandise and provides for seasonal cash borrow-
ings, if necessary. The facility is secured by merchandise inventory,
furniture and fixtures at the retail stores, and certain other Company
assets. As of July 31, 1999, the availability under this facility was
approximately $113.5 million, against which the Company had outstanding
letters of credit of $44.5 million. There were no cash borrowings out-
standing under this agreement as of July 31, 1999. The agreement requires,
among other things, that the Company maintain a minimum net worth of $300
million and not pay dividends on its Common Stock.
Capital expenditures of $14.5 million during the first half of Fiscal 2000
were primarily for the construction, remodeling, and fixturing of new and
existing retail stores, loss-prevention equipment, systems technology, and
expansion of the Company's Greencastle, Indiana distribution center.
During Fiscal 2000, the Company anticipates incurring capital expenditures
of approximately $37 million, which are intended primarily for construc-
tion, remodeling, and fixturing of new and existing stores, investment in
management information systems technology, and expansion of the Company's
Greencastle, Indiana distribution center. The Company anticipates that
these capital expenditures will be financed principally through internally
generated funds. The Company plans to open approximately 80 new stores and
relocate 16 stores during Fiscal 2000. The majority of the new store
openings are expected to be in the West, Southwest, and Southeast regions
of the United States. During the first half of Fiscal 2000, the Company
opened 15 new stores, relocated 6 stores, and closed 5 stores.
(17)
<PAGE>
In connection with the Company's store restructuring plan, which was adop-
ted in conjunction with the decision to eliminate men's merchandise from
the Company's stores, and the consolidation of the Company's distribution
centers, the Company had approximately $10.6 million of accrued, unpaid
restructuring costs as of July 31, 1999. The Company expects to pay the
majority of these costs within twelve months, and has included them in
current liabilities. The Company anticipates that these restructuring
costs will be financed principally through internally generated funds. At
the present time, management does not expect any further change in the
estimated costs for the restructuring plans.
During the first half of Fiscal 2000, the Company repurchased $23.3 million
aggregate principal amount of its 7.5% Convertible Subordinated Notes due
2006 ("Notes") at a total cost of $21.0 million. As of July 31, 1999, the
Company has repurchased a total of $42.0 million aggregate principal amount
of Notes at a total cost of $38.8 million. The Company will continue to
evaluate market conditions to determine if additional Notes will be repur-
chased.
The Company's Board of Directors has approved the repurchase of up to 20
million shares of the Company's Common Stock. During the first half of
Fiscal 2000, the Company repurchased 10,000 shares of its Common Stock at a
cost of $39.0 thousand. As of July 31, 1999, the Company has repurchased a
total of 8.7 million shares at a total cost of $39.4 million. The Company
will continue to evaluate market conditions to determine if additional
shares of Common Stock will be repurchased.
The Company maintains a trust to which it transfers, at face value, its
interest in receivables created under the Company's proprietary credit card
program. The Company, together with the trust, has entered into various
securitization agreements whereby it can sell, on a revolving basis, inter-
ests in these receivables for a specified term. When the revolving period
terminates, an amortization period begins during which principal payments
are made to the party with whom the trust has entered into the securiti-
zation agreement. During the thirteen weeks ended July 31, 1999, the
Company, through the trust, completed an offering of $150 million of asset-
backed certificates with a five-year term to replace its five-year facility
that matured in April 1999. Charming Shoppes Receivables Corp., a wholly-
owned indirect subsidiary of the Company, is a special purpose corporation.
Its assets, comprising $32.9 million of the Charming Shoppes Master Trust
Certificates, will be available first and foremost to satisfy the claims of
its creditors, including certain claims of investors in the Charming
Shoppes Master Trust. The providers of the credit enhancements and trust
investors have no other recourse to the Company. The Company does not
receive collateral from any party to the securitization, and the Company
does not have any risk of counterparty non-performance. These securiti-
zation agreements improve the overall liquidity of the Company and lessen
the effect of interest rate volatility by providing short-term sources of
funding. Additional information regarding the Company's asset securitiza-
tion program is included in "Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company's
Annual Report on Form 10-K for the fiscal year ended January 30, 1999.
(18)
<PAGE>
On July 15, 1999, the Company announced an agreement for the purchase of
100% of the outstanding stock of Modern Woman Holdings, Inc. ("Modern
Woman") for $10.0 million. Modern Woman operates a chain of 137 retail
apparel stores in 25 states, specializing in large-size women's apparel.
Completion of the acquisition occurred on August 2, 1999. The acquisition
will be accounted for as a purchase, and the Company's prior-period results
will not be restated. The Company has not completed the allocation of the
purchase price to the net assets acquired. However, the Company antici-
pates that the fair value of the net assets acquired will exceed the
purchase price. The acquisition was financed through the use of
internally-generated funds.
The Company believes that cash flow from operations, its proprietary credit
card receivables securitization agreements, its long-term investment port-
folio, and its $150 million revolving credit facility are sufficient to
support current operations.
IMPACT OF YEAR 2000
For many years, dates have been stored in computer systems with two digit
rather than four digit years. The Year 2000 computer problem occurs when a
computer system cannot properly recognize dates stored with two digit years
beyond 1999. 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 fail-
ure. Systems must be remediated and tested in order to minimize the poten-
tial for failure caused by the Year 2000 computer calculation.
The Company uses computer equipment and software in its retailing opera-
tions to supply stores with products for sale, process customer trans-
actions, 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 to correct its computer systems,
equipment, and facilities so that they will be Year 2000 compliant. The
Company has also communicated with its important suppliers of merchandise
and services to ensure that they are addressing their Year 2000 issues.
An Executive Oversight Committee, made up of the Company's General Counsel,
Corporate Director of Human Resources, and Chief Financial Officer, over-
sees the Company's overall Year 2000 initiatives. The committee is imple-
menting a comprehensive Year 2000 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 Year 2000
readiness within and among the Company's departments and to evaluate the
state of Year 2000 readiness of outside vendors and suppliers. The Com-
pany's Corporate Audit Department facilitates the implementation of the
Year 2000 readiness program by identifying and reporting outstanding issues
to the committee for resolution, administering vendor compliance programs,
and monitoring the progress of each business unit. The Company's Year 2000
readiness program is currently on schedule. Internal resources and outside
consultants are being used to implement the Year 2000 readiness program.
(19)
<PAGE>
The Year 2000 readiness program consists of five phases, as follows:
(a) Standardization: The development of a set of policies, guidelines, and
standards to be used during the Year 2000 readiness program. Examples of
these include standard date routines to be used in computer programs, stan-
dard 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 all personnel follow
a consistent approach in implementing the Year 2000 readiness program.
(b) Evaluation: The identification and evaluation of the Company's busi-
ness systems so as to determine the method by which the systems will be
made Year 2000 compliant. All of these systems are prioritized for atten-
tion based on usage of dates, the extent to which they are critical to the
Company's business, and the likelihood of failure.
(c) Remediation: The development of a remediation strategy for each sys-
tem. Strategies include system replacement, remediation of existing sys-
tems, and coordination with the supplying vendor to provide a version that
is Year 2000 compliant.
(d) End-to-End Testing: The development and implementation of a testing
strategy and test plan for each system. Testing is designed to cover all
significant transition dates, and includes testing within and among sys-
tems, as well as data communications with critical vendors.
(e) Contingency Planning: The development of contingency plans if the Com-
pany does not successfully complete significant portions of its Year 2000
readiness program or if the critical vendors are not Year 2000 compliant.
Corporate Business Systems
The Company has been implementing its Year 2000 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, is included within
the scope of the Company's Year 2000 readiness program. These corporate
business systems are located at the Company's headquarters in Bensalem,
Pennsylvania, its distribution center in Greencastle, Indiana, and its pri-
vate label credit card operations in Milford, Ohio. They are also located
in the Company's 1,145 stores located in 44 states, its factory operations
in the Dominican Republic, and its international operations in Hong Kong,
Singapore, and Shanghai.
(20)
<PAGE>
The standardization, evaluation, and remediation phases covering these
corporate business systems have been completed. The end-to-end testing
phases are currently being implemented. The remediation phase for the
Company's mainframe systems is complete. The remediation phase for the
Company's non-mainframe systems is approximately 97% complete and will be
completed in the third quarter of Fiscal 2000. The remediation phase of
the Company's in-store systems has been completed. Comprehensive test
plans have been established for each corporate business system. The
end-to-end testing phase commenced during the fourth quarter of Fiscal 1999
and is now complete. Segmented tests are being conducted through the third
quarter of Fiscal 2000.
The Company's private label credit card organization is monitored and reg-
ulated by the office of the Comptroller of the Currency. The Comptroller
has performed quarterly Year 2000 reviews of this organization since the
first quarter of Fiscal 1999 and is scheduled to do so through Fiscal 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 stan-
dardization, evaluation, and remediation phases have been completed for the
internal credit systems.
The end-to-end testing phase of internal credit systems commenced during
the first quarter of Fiscal 2000 and was completed during the second
quarter of Fiscal 2000. The Company is regularly monitoring the progress
of its third-party credit processor in achieving Year 2000 compliance.
Based on information provided to the Company by that third-party processor,
the standardization, evaluation, and remediation phases for the third-party
credit card processing system have been completed. Testing of the
third-party credit card processing system has commenced, and a majority of
the testing was completed during the second quarter of Fiscal 2000. The
remainder of this system testing is scheduled for completion during the
third quarter of Fiscal 2000.
Embedded Technologies
"Embedded technologies" refers 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 equipment in
the operation of its corporate and store facilities. This 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
(21)
<PAGE>
by the Year 2000 issue. The Company has taken an inventory of all such
equipment and has been having discussions with vendors who supply and/or
support such technology and equipment to assess the sensitivity of these
systems and equipment to the Year 2000 issue. In conjunction with the
Corporate Audit Department's program of auditing vendor preparedness for
Year 2000, the Company will be obtaining assurances from these vendors and,
to the extent possible, testing these systems to ensure Year 2000 com-
pliance. Private branch exchanges at the Company's Bensalem, Pennsylvania
corporate facilities are Year 2000 compliant. Telecommunication software
at the Company's corporate headquarters is in the process of being up-
graded, with completion scheduled for the third quarter of Fiscal 2000.
Distribution Center 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, palletizers, sor-
ters, scales, and radio frequency devices. Vendors have supplied software
and equipment that have been heavily customized for the Company's distri-
bution center configuration. The Company is working with appropriate
distribution center system vendors to perform all necessary Year 2000
remediation and testing services. The standardization and evaluation
phases covering the distribution center systems have been completed. The
remediation phase is currently being implemented, and it is anticipated
that the Company's vendors will deliver Year 2000 compliant systems to the
Company in several stages between the first quarter of Fiscal 2000 and the
third quarter of Fiscal 2000.
Vendors and Suppliers
The Company has initiated a formal communication program with significant
vendors to evaluate their Year 2000 compliance, and has been assessing
their responses to the Company's Year 2000 readiness questionnaire.
Comprehensive mailings were made during the fourth quarter of Fiscal 1999.
Questionnaires 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 Year 2000 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 Year 2000 compliant.
(22)
<PAGE>
Costs
The total cost of the Company's Year 2000 readiness program is estimated at
$6.6 million, of which approximately $1.3 million is for replacement
systems and the remainder is for remediation and upgrade costs. To-date,
$4.5 million of Year 2000 costs have been incurred, of which $2.4 million
were incurred through the end of Fiscal 1999. The Company expects to fund
the estimated balance of $2.1 million for its Year 2000 readiness program
from operating cash flows. The Company does not anticipate delaying any
significant information technology projects as a result of the Company's
Year 2000 compliance effort. Estimated future expenditures are not expec-
ted to have a material adverse effect on the Company's financial position,
results of operations, or cash flows.
Year 2000 Risk Assessment and Year 2000 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.
If the Company does not complete a significant portion of its Year 2000
readiness program in a timely fashion, its financial condition could 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 process of developing a
Year 2000 contingency plan, which is scheduled for completion during the
third quarter of Fiscal 2000. Despite such contingency plans, the Company
may be adversely affected by the failure of significant third-party vendors
to become Year 2000 compliant.
Projected completion dates and the estimated costs of the Company's Year
2000 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. Such forward-looking statements are subject
to various risks and uncertainties that could cause actual results to
differ materially from those indicated. Such risks and uncertainties may
include, but are not limited to, the ability of the Company, its critical
vendors, and service providers to complete Year 2000 compliance remediation
in a timely fashion; the ability to identify and correct all relevant com-
puter codes and embedded chips; delay in the rendition of remediation ser-
vices provided by third parties; and disruptions to operations as a result
of Year 2000 compliance issues. Readers are cautioned that forward-looking
statements contained herein should be read in conjunction with the disclo-
sures in "Part I, Item 1 -- Business: Cautionary Statements for Purposes of
the Safe Harbor Provisions of the Private Securities Litigation Reform Act
of 1995" of the Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999.
(23)
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company may be exposed to fluctuations in interest rates to the extent
that a portion of the investor certificates sold under its credit card
securitization program are floating-rate instruments. The Company regu-
larly monitors interest rate fluctuations and business implications sur-
rounding interest rate changes, and manages interest rate risk through the
use of derivative instruments.
As of July 31, 1999, the Company had rate exposure to floating-rate instru-
ments representing approximately $246 million, or 90% of all securitized
assets under the program. The Company has entered into certain interest
rate cap agreements that protect the Company's securitization master trust
if interest rates were to exceed 9% and 11%. The effect on the Company's
results of operations of a one percentage point change in short-term inter-
est rates by the end of Fiscal 2000 would not be material.
(24)
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on July 1, 1999.
(b) Not applicable.
(c) Dorrit J. Bern, Alan Rosskamm, and Kenneth S. Olshan were nominated
for election, in the Company's Proxy Statement, to serve three-year terms
as Class C Directors. The total number of shares represented at the Annual
Meeting were 89,516,557 shares. The following table indicates the number
of votes cast in favor of election and the number of votes withheld with
respect to each of the Class C Directors nominated:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
-------------------- --------- --------------
<S> <C> <C>
Dorrit J. Bern...... 73,965,802 15,550,755
Alan Rosskamm....... 73,930,494 15,586,063
Kenneth S. Olshan... 73,973,119 15,543,438
</TABLE>
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, Exhibits that were previously filed are
incorporated by reference. For Exhibits incorporated by reference, the
location of the Exhibit in the previous filing is indicated 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 The Charming Shoppes, Inc. Non-Employee Directors Compensation Pro-
gram, As Amended and Restated.
10.2 The Charming Shoppes, Inc. Non-Employee Directors Compensation Program
Stock Option Agreement.
10.3 The Charming Shoppes, Inc. Non-Employee Directors Compensation Program
Restricted Stock Agreement.
(25)
<PAGE>
10.4 Second Amended and Restated Pooling and Servicing Agreement, dated
as of November 25, 1997, as amended on July 22, 1999, among Charming
Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as
Servicer, and First Union National Bank as Trustee, incorporated by
reference to Form 8-K of Charming Shoppes Receivables Corp., (No. 333-
71757) dated July 22, 1999. (Exhibit No. 4.1).
10.5 Series 1999-1 Supplement, dated as of July 22, 1999, to Second
Amended and Restated Pooling and Service Agreement, dated as of November 25,
1997, as amended on July 22, 1999, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and First
Union National Bank, as Trustee, for $150,000,000 Charming Shoppes
Master Trust Asset-Backed Certificates Series 1999-1, incorporated by
reference to Form 8-K of Charming Shoppes Receivables Corp., (No. 333-
71757) dated July 22, 1999. (Exhibit No. 4.2).
27 Financial Data Schedule.
(b) Reports on Form 8-K
On July 30, 1999, Charming Shoppes Receivables Corp., an indirect wholly-
owned subsidiary of the Company, filed a report on Form 8-K dated July 22,
1999. The Form 8-K was filed to report the issuance, by Charming Shoppes
Master Trust, of a series of asset-backed certificates ("the Certifi-
cates"), entitled Series 1999-1. The Certificates were issued pursuant to
the Series 1999-1 Supplement, dated as of July 22, 1999 (filed as Exhibit
4.2 to the Form 8-K) to the Second Amended and Restated Pooling and Service
Agreement, dated as of November 25, 1997, as amended by the First Amendment
thereto on July 22, 1999 (filed as Exhibit 4.1 to the Form 8-K) among
Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc. as
Servicer, and First Union National Bank, as Trustee.
(26)
<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: September 10, 1999 DORRIT J. BERN
------------------ -------------------------------------
Dorrit J. Bern
Chairman of the Board
President and Chief Executive Officer
Date: September 10, 1999 ERIC M. SPECTER
------------------ -------------------------------------
Eric M. Specter
Executive Vice President
Chief Financial Officer
</TABLE>
(27)
EXHIBIT 3.2
BYLAWS
OF
CHARMING SHOPPES, INC.
(AS AMENDED THROUGH JULY 1, 1999)
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
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
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
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
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.
(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
(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.
(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.
(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.
(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 the anniversary of the date on
which notice of the date of the immediately preceding annual meeting was
mailed, provided that a proposal submitted by a shareholder for inclusion
in the corporation's proxy statement for an annual meeting which is
appropriate for inclusion therein and otherwise complies with Rule 14a-8
under the Securities Exchange Act of 1934 (including requirements as to
timeliness) shall be deemed to have also been submitted timely pursuant to
this Section 3.16(b), 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 later
than the close of business on the later of the 60th day prior to the annual
meeting date or the tenth day following the day on which 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 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 of
the corporation on September 22, 1998 and amended by the board of
directors on April 28, 1999)
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
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.
(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
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.
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.
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
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,
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.
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.
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 26, 1999, between the corporation and American Stock Transfer &
Trust Company (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.
(The provisions of this section were amended by the board of directors on
July 1, 1999)
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.
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.
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).
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.)
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.
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>
<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>
<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> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 29,006
<SECURITIES> 38,251
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 197,490
<CURRENT-ASSETS> 314,986
<PP&E> 399,024
<DEPRECIATION> 250,850
<TOTAL-ASSETS> 730,040
<CURRENT-LIABILITIES> 211,704
<BONDS> 96,140
0
0
<COMMON> 10,715
<OTHER-SE> 399,145
<TOTAL-LIABILITY-AND-EQUITY> 730,040
<SALES> 570,718
<TOTAL-REVENUES> 570,718
<CGS> 404,834
<TOTAL-COSTS> 404,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,797
<INCOME-PRETAX> 41,531
<INCOME-TAX> 14,536
<INCOME-CONTINUING> 26,995
<DISCONTINUED> 0
<EXTRAORDINARY> 1,232
<CHANGES> 0
<NET-INCOME> 28,227
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.27
</TABLE>
EXHIBIT 10.1
CHARMING SHOPPES, INC.
NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM
As Amended and Restated
1. General Authorization.
(a) Amendment and Restatement of the Program. The Board of Directors
has approved this Non-Employee Directors Compensation Program (the "Program")
of Charming Shoppes, Inc. (the "Company") as an amendment and restatement of
the Non-Employee Directors Compensation Program adopted by the Board on
August 21, 1996 (the "Prior Program"). Compensation of non-employee
directors from and after July 1, 1999 (the "Effective Date") shall be
governed by the Program. Such compensation before the Effective Date was
governed by the Prior Program and other policies of the Company then in
effect. Accordingly:
(i) The resolutions of the Board relating to the Prior Program, insofar
as those resolutions set forth the form, amount, and other terms of
compensation payable under the Prior Program after the Effective Date, are
hereby superseded and of no further force and effect, but other resolutions
relating to the Prior Program, including those under the caption "General,"
remain in full force and effect;
(ii) Compensation authorized under the Company's Compensation Program
for the Non-Employee Chairman of the Board of Directors (the "Chairman's
Program") is suspended; and
(iii) Automatic grants of options under the Company's 1989 Directors
Stock Option Plan are suspended;
provided, however, that the Board reserves the right to modify this Program
or reinstate the compensation authorized under the suspended plans.
(b) Purpose. The purpose of the Program is to advance the interests of
the Company and its shareholders by providing for fair and adequate
compensation of non-employee directors in order to attract and retain high
quality persons to serve as such and to enable such persons to increase their
proprietary interest in the Company. In furtherance of this purpose, the
Program provides for payment of cash fees, annual grants of options, an
initial grant to each newly elected or appointed director of Restricted
Stock, and the opportunity for a director to elect deferred and alternative
forms of compensation in lieu of cash fees for service as a director,
including Deferred Shares and deferred cash.
2. Definitions. In addition to the terms defined in Section 1, the
following terms shall be defined as set forth below:
(a) "Administrator" means the individual or committee specified in
Section 3(b) to whom the Board has delegated authority to administer the
Program.
(b) "Beneficiary" means the person(s) or trust(s) which have been
designated by a Participant in his or her most recent written beneficiary
designation filed with the Administrator to receive the benefits specified
under the Program upon such Participant's death. If, upon a Participant's
death, there is no designated Beneficiary or surviving designated
Beneficiary, then the term Beneficiary means the person(s) or trust(s)
entitled by will or the laws of descent and distribution to receive such
benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" and related terms are defined in Section 12.
(e) "Code" means the Internal Revenue Code of 1986, as amended,
including regulations thereunder and successor provisions and regulations
thereto.
(f) "Deferral Account" means the account established and maintained by
the Company for Deferred Shares and deferred cash credited under Section 9.
The Deferral Account and Deferred Shares and deferred cash credited thereto
will be maintained solely as bookkeeping entries by the Company to evidence
unfunded obligations of the Company.
(g) "Deferred Share" means a credit to a Participant's Deferral Account
under Section 9 which represents the right to receive a cash payment of the
Fair Market Value of one Share upon settlement of such Account.
(h) "Director Compensation" means annual retainer fees payable to a
director in his or her capacity as such for service on the Board and service
as chairman of any Board committee, and any other fees payable to a director
in his or her capacity as such for attending meetings and other service on
the Board and Board committees. Reimbursement of expenses does not
constitute Director Compensation.
(i) "Disability" means a Participant's termination of service as a
director of the Company due to a physical or mental incapacity of long
duration which renders the Participant unable to perform the duties of a
director of the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, including rules thereunder and successor provisions and rules
thereto.
(k) "Fair Market Value," means, with respect to Shares, the fair market
value of such Shares determined by such methods or procedures as shall be
established from time to time by the Board. Unless otherwise determined by
the Board, the Fair Market Value of a Share as of any given date means the
closing sale price of a Share reported on the Nasdaq National Market (or, if
Shares are then principally traded on a national securities exchange, in the
table reporting "composite transactions" for such exchange) in the Wall
Street Journal for such date, or, if no Shares were traded on that date, on
the next preceding day on which there was such a trade.
(l) "Mandatory Retirement" means the termination of a directors'
service in accordance with any mandatory retirement policy adopted by the
Board of Directors and then in effect.
(m) "Option" means the right, granted to a Participant under Section 8,
to purchase a specified number of Shares at the specified exercise price for
a specified period of time under the Program. All Options will be
non-qualified stock options.
(n) "Participant" means any person who has been granted an Option which
remains outstanding, has Deferred Shares or deferred cash credited to his or
her Deferral Account, or has elected to defer receipt of Director
Compensation in the form of Deferred Shares or deferred cash under the
Program.
(o) "Program Year" means, with respect to a Participant, the period
commencing at the time of election of the director at an annual meeting of
shareholders (or the election of a class of directors if the Company then has
a classified Board of Directors), or the director's initial appointment to
the Board if not at an annual meeting of shareholders, and continuing until
the close of business of the day preceding the next annual meeting of
shareholders.
(p) "Restricted Stock" means Shares granted under Section 7, subject to
a risk of forfeiture and restrictions on transfer for a specified period.
(q) "Shares" means shares of common stock of the Company and such other
securities as may be substituted or resubstituted for Shares pursuant to
Section 13(b).
(r) "Valuation Date" shall mean the close of business on the last
business day of each calendar quarter and, in the case of any final
distribution of deferred cash from a Participant's Deferral Account, the day
as of which such distribution is made; provided, however, that the
Administrator may specify a different Valuation Date in order to coordinate
the Participant's deferred cash balance with any actual investment by which
the deferred cash balance is to be measured.
3. Administration.
(a) Authority. Both the Board and the Administrator (subject to the
ability of the Board to restrict the Administrator) shall administer the
Program in accordance with its terms, and shall have all powers necessary to
accomplish such purpose, including the power and authority to construe and
interpret the Program, to define the terms used herein, to prescribe, amend
and rescind rules and regulations, agreements, forms, and notices relating to
the administration of the Program, and to make all other determinations
necessary or advisable for the administration of the Program. The
Administrator may perform any function of the Board under the Program, except
for establishing the form and amount of compensation under any provision,
adopting material amendments to the Program under Section 13(e), and any
other function from time to time specifically reserved by the Board to
itself. Any actions of the Board or the Administrator with respect to the
Program shall be final, conclusive, and binding upon all persons interested
in the Program, except that any action of the Administrator will not be
binding on the Board. The Board and Administrator may each appoint agents
and delegate thereto powers and duties under the Program, except as otherwise
limited by the Program.
(b) Administrator. The Administrator shall be the Executive Vice
President, General Counsel and Secretary of the Company, or, if that officer
is unavailable, the Executive Vice President, Chief Financial Officer and
Treasurer, or, if that officer is unavailable, the Executive Vice President
and Director of Human Resources; provided, however, that the Board may
designate a different individual or committee to serve as Administrator. In
any case in which a director is a member of the Administrator, such director
shall not act on or decide any matter relating solely to himself or herself
or any of his or her rights or benefits under the Program. No bond or other
security need be required of the Administrator or any member thereof in any
jurisdiction.
(c) Limitation of Liability. Each member of the Board and the
Administrator shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any officer or other
employee of the Company or any subsidiary, the Company's independent
certified public accountants, or any executive compensation consultant, legal
counsel, or other professional retained by the Company to assist in the
administration of the Program. No member of the Board or the Administrator,
nor any person to whom ministerial duties under the Program have been
delegated, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Program, and
any such person shall, to the extent permitted by law, be fully indemnified
and protected by the Company with respect to any such action, determination,
or interpretation.
4. Shares Available Under the Program. The total number of Shares
reserved and available for delivery under the Program (including the Prior
Program) shall be 700,000 less the number of Shares issued under the
Chairman's Program, subject to adjustment as provided in Section 13(b).
Shares that may be delivered under the Program may consist, in whole or in
part, of authorized and unissued Shares, treasury Shares or Shares acquired
in the market for the account of a Participant. For purposes of the Program,
if an Option expires for any reason without having been exercised in full or
Restricted Stock is forfeited or cancelled, the Shares subject to the
unexercised portion of such Option or to the forfeited or cancelled
Restricted Stock will again be available for delivery under the Program, and
Shares will not be considered deliverable or delivered in connection with
Deferred Shares settleable or settled only in cash.
5. Eligibility. Each non-employee director of the Company may
participate in the Program, subject to the terms hereof. No person other
than those specified in this Section 5 will be eligible to participate in the
Program. The Administrator will notify each person of his or her eligibility
to participate in an elective feature of the Program not later than 15 days
(or such other period as may be determined by the Administrator) prior to any
deadline for filing an election form.
6. Cash Fees. Each non-employee director shall be paid an annual
cash retainer fee, and each non-employee director serving as a chairperson of
a committee of the Board shall be paid an additional annual cash retainer
fee, in amounts to be determined by the Board from time to time, and such
other fees as may be authorized by the Board. The initial policy with
respect to these fees, continuing until modified or revoked by the Board,
shall be as follows:
(i) Annual cash retainer fee for service as non-employee director:
$20,000;
(ii) Annual cash retainer fee for service as chairperson of Board
committee: $3,000; and
(iii) Meeting fees: None.
Such fees shall be payable in installments in accordance with current
practice of the Company, unless otherwise determined by the Board.
Reasonable expenses of non-employee directors incurred in connection with
attendance at meetings and the performance of a director's duties shall be
reimbursed if authorized by and in accordance with policies established by
the Board from time to time.
7. Initial Grant of Restricted Stock. If, at the date of a person's
initial election or appointment as a member of the Board after the Effective
Date, such person is a non-employee director eligible to participate in the
Program, he or she shall be granted 10,000 Shares of Restricted Stock,
subject to adjustment as provided in Section 13(b). In addition, any person
who at the Effective Date is a non-employee director eligible to participate
in the Program and whose initial election or appointment as a member of the
Board occurred after the Company's 1999 fiscal year shall be granted 10,000
Shares of Restricted Stock. Restricted Stock granted under this Section 7
shall be subject to the following terms and conditions:
(a) Vesting and Forfeiture. An award granted under this Section 7, if
not previously forfeited, shall become vested and non-forfeitable as to one-
third of the number of Shares of Restricted Stock at the close of business on
June 1 of each of the three calendar years following the date of grant of
such award, rounded to the nearest number of whole Shares. In the event of
a Change in Control or termination of the Participant's service as a director
due to death or Disability, the award, if not previously vested or
forfeited, shall immediately vest and become non-forfeitable in full. In the
event of termination of the Participant's service as a director for reasons
other than death, Disability, or voluntary termination of service by the
Participant, the award, if not previously vested or forfeited, shall
immediately vest and become non-forfeitable as to that number of Shares of
Restricted Stock as would have vested and become non-forfeitable if the
Participant had continued to serve as a director through the anticipated date
of the next annual meeting of shareholders. Unless otherwise determined by
the Board, an award of Restricted Stock that has not vested at the time of
termination of the Participant's service as a director as provided herein
will cease to vest and will be forfeited upon such termination.
(b) Dividends on Restricted Stock. Dividends on Restricted Stock
declared and paid prior to the lapse of the risk of forfeiture on such
Restricted Stock shall be automatically reinvested in additional Shares of
Restricted Stock, which shall be subject to the same terms, including risk of
forfeiture, as the Restricted Stock on which the dividend was paid; provided,
however, that such dividends may instead be paid in cash, subject to such
terms as the Administrator may determine, if reinvestment of dividends is
determined by the Administrator to be administratively burdensome.
(c) Awards Nontransferable. Restricted Stock shall be nontransferable
by the Participant at any time that the award remains subject to a risk of
forfeiture.
(d) Other Matters. Restricted Stock shall be settled by delivery of a
Share certificate representing whole Shares, with cash paid in lieu of any
fractional Share. The foregoing notwithstanding, the Administrator may
deliver Shares upon lapse of restrictions in any other manner deemed
appropriate by the Administrator. Restricted Stock granted under the Program
may be evidenced in such manner as the Administrator shall determine. Unless
otherwise determined by the Administrator, if certificates representing
Restricted Stock are registered in the name of the Participant, such
certificates shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock, the Company
shall retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank,
relating to the Restricted Stock.
8. Annual Grants of Options. If, at the date of an annual meeting of
shareholders at which a director is elected or reelected as a member of the
Board (or at which members of another class of directors are elected or
reelected, if the Company then has a classified Board), a director is a non-
employee director eligible to participate in the Program at the close of
business on that date, he or she shall be granted an Option to purchase
20,000 Shares, subject to adjustment as provided in Section 13(b).
(a) Exercise Price. The exercise price per Share purchasable under an
Option will be equal to 100% of the Fair Market Value of a Share on the date
of grant of the Option.
(b) Option Term. Options, to the extent not previously forfeited,
shall expire at the earlier of (i) ten years after the date of grant, or (ii)
one year after the Participant ceases to serve as a director of the Company
for any reason except that, in the case of a termination due to Mandatory
Retirement, any portion of the Option that vests and becomes exercisable at
a date following the Mandatory Retirement, as provided in Section 8(c), shall
expire one year after the date such portion vests and becomes exercisable.
(Note: Portions of any Option that were vested and exercisable at the date
of Mandatory Retirement will expire one year after such Mandatory Retirement,
but in no event later than ten years after the date of grant).
(c) Vesting and Exercisability. Options not previously forfeited shall
vest and become exercisable by a Participant as to one-fifth of the number of
Shares at the close of business on June 1 of each of the five calendar years
following the date of grant of such award, rounded to the nearest number of
whole Shares; provided, however, that, if such Option has not previously
vested or been forfeited, it shall vest and become exercisable in full upon
a Change in Control, upon the Participant's death, or upon the termination of
the Participant's service as a director due to Disability; and provided
further, that if such Option has not previously vested or been forfeited, it
shall vest and become exercisable as to the "Pro Rata Shares" upon a
termination of the Participant's service as a director due to any reason
other than death, Disability or Mandatory Retirement. For purposes of this
Section 8(c), the "Pro Rata Shares" shall be the number of Shares determined
by multiplying (i) the number of Shares as to which the Option would have
vested and become exercisable if the Participant had continued to serve as a
director through the anticipated date of the next annual meeting of
shareholders by (ii) a fraction the numerator of which is the number of days
from the date of the latest annual meeting of shareholders through the date
of the Participant's termination and the denominator of which is 365 (rounded
up to the next whole share). Any portion of an Option that has not vested
and become exercisable at the date of a director's Mandatory Retirement shall
remain outstanding and vest and become exercisable at the time(s) specified
in the first sentence of this Section 8(c), provided that such Option shall
vest and become exercisable in full upon a Change in Control or the death of
the director, and each such portion of the Option shall expire at the end of
the one-year period following the date it becomes vested and exercisable as
provided in Section 8(b). Except in the case of a Mandatory Retirement or as
otherwise determined by the Board, any portion of a Participant's Option that
has not vested and become exercisable at the time of termination of the
Participant's service as a director as provided herein will cease to vest and
will be forfeited upon such termination.
(d) Payment. The exercise price of an Option shall be paid to the
Company either in cash or by the surrender of Shares, or any combination
thereof, or in such other form or manner as may be established by the
Administrator; provided, however, that, unless otherwise determined by the
Administrator, Shares shall not be surrendered in payment of the exercise
price if such surrender would result in additional accounting expense to the
Company.
9. Deferral of Fees In Deferred Shares and Deferred Cash. Each
director of the Company who is eligible under Section 5 may elect, in accor-
dance with Section 9(a), to defer receipt of Director Compensation in the
form of Deferred Shares under Section 9(b) or deferred cash under Section
9(c).
(a) Elections. A director shall elect to participate in the deferral
feature under this Section 9 and the terms of such participation by filing an
election with the Company prior to the beginning of a Program Year (Program
Years generally will begin at each annual meeting of shareholders or, in the
case of a new director, upon initial appointment) or at such other date as
may be specified by the Administrator, provided that any date so specified
shall ensure effective deferral of taxation and otherwise comply with
applicable laws.
(i) Effect and Irrevocability of Elections. Elections shall be deemed
continuing, and therefore applicable to Program Years after the initial
Program Year covered by the election, until the election is modified or
superseded by the Participant. Elections other than those subject to Section
10(c) shall become irrevocable at the commencement of the Program Year to
which an election relates, unless the Administrator specifies a different
time. Elections relating to the time of settlement of a Deferral Account
shall become irrevocable at the time specified in Section 10(c). Elections
may be modified or revoked by filing a new election prior to the time the
election to be modified or revoked has become irrevocable. The latest
election filed with the Administrator shall be deemed to revoke all prior
inconsistent elections that remain revocable at the time of filing of the
latest election.
(ii) Matters To Be Elected. The Administrator will provide a form or
forms of election which will permit a director to make appropriate elections
with respect to all relevant matters under this Section 9 and Section 10.
(iii) Time of Filing Elections. An election must be received by the
Administrator prior to the deadline specified by the Administrator. Under no
circumstances may a Participant defer compensation to which the Participant
has attained, at the time of deferral, a legally enforceable right to current
receipt of such compensation.
(b) Deferral of Director Compensation in the Form of Deferred Shares.
If a Participant has elected to defer receipt of a specified amount of
Director Compensation in the form of Deferred Shares, a number of Deferred
Shares shall be credited to the Participant's Deferral Account, as of the
date such Director Compensation otherwise would have been payable to the
Participant but for such election to defer, equal to (i) such amount
otherwise payable divided by (ii) the Fair Market Value of a Share at that
date. Deferred Shares credited under this Section 9(b) shall be subject to
the terms and conditions of Deferred Shares specified in Sections 10(a),
10(b), and 10(c). The right and interest of each Participant in Deferred
Shares credited to the Participant's Deferral Account under this Section 9(b)
at all times will be nonforfeitable.
(c) Deferral of Director Compensation in the Form of Deferred Cash. If
a Participant has elected to defer receipt of a specified amount of Director
Compensation in the form of deferred cash, an amount equal to such specified
amount shall be credited to the Participant's Deferral Account as of the date
such Director Compensation otherwise would have been payable to the
Participant but for such election to defer. Deferred cash credited to a
Participant's Deferral Account may be invested in such investment vehicles,
other than an investment vehicle relating to the Company's stock, as may be
designated from time-to-time by the Board or Board committee. The terms of
any such investment (including relating to timing, crediting of earnings and
losses, and reallocation among investment vehicles) shall be subject to such
rules, regulations and determinations as may be adopted by the Administrator.
At any time that no other investment vehicle is available for deferred cash
balances under the Plan, interest shall be credited to a Participant's
Deferral Account at each Valuation Date in an amount equal to the average
daily cash balance in such Deferral Account since the last Valuation Date
multiplied by the interest rate as specified by the Board and applicable to
the period since the last Valuation Date. The initial policy with respect to
the interest rate under this Section 9(c), effective as of the Effective Date
and continuing until modified or revoked by the Board, shall be to credit
interest at the prime interest rate plus one percent, using for this purpose
the prime interest rate of First Union Bank effective on the date of the
latest annual meeting of shareholders of the Company. The Company may link
the earnings and losses under designated investment vehicles to the returns
of actual investments in such vehicles, which investments may be made
directly by the Company or through a rabbi trust or other intermediary;
provided, however, that the Participant shall have no rights with respect to
any specific assets that would cause the Participant to be other than an
unsecured creditor of the Company or to be otherwise in constructive receipt
of any cash or property. The right and interest of each Participant relating
to deferred cash credited to his or her Deferral Account at all times will be
nonforfeitable.
(d) Cessation of Service as a Director. If any Director Compensation
otherwise subject to an election would be paid to a Participant after he or
she has ceased to serve as a director, such payment shall not be subject to
deferral under this Section 9, but shall instead be paid in accordance with
the Company's regular non-employee director compensation policies.
10. Other Terms of Deferral Accounts.
(a) Dividend Equivalents on Deferred Shares. Dividend equivalents will
be credited on Deferred Shares credited to a Participant's Deferral Account
as follows:
(i) Cash and Non-Share Dividends. If the Company declares and pays
a dividend on Shares in the form of cash or property other than Shares, then
a number of additional Deferred Shares shall be credited to a Participant's
Deferral Account as of the payment date for such dividend equal to (i) the
number of Deferred Shares credited to the Account as of the record date for
such dividend, multiplied by (ii) the amount of cash plus the Fair Market
Value of any property other than Shares actually paid as a dividend on each
Share at such payment date, divided by (iii) the Fair Market Value of a Share
at such payment date.
(ii) Share Dividends and Splits. If the Company declares and pays a
dividend on Shares in the form of additional Shares, or there occurs a
forward split of Shares, then a number of additional Deferred Shares shall be
credited to the Participant's Deferral Account as of the payment date for
such dividend or forward Share split equal to (i) the number of Deferred
Shares credited to the Account as of the record date for such dividend or
split multiplied by (ii) the number of additional Shares actually paid as a
dividend or issued in such split in respect of each Share.
(b) Reallocation of Accounts. A Participant shall have no right to
have amounts credited as cash in his or her Deferral Account reallocated or
switched to Deferred Shares in such Account or amounts credited as Deferred
Shares in such Account reallocated or switched to deferred cash in such
Account, unless otherwise determined by the Board. The foregoing
notwithstanding, in the event of a Change in Control, unless otherwise
specifically elected by the Participant prior to the Change in Control, the
Participant's Deferred Share balance in his or her Deferral Account shall be
automatically converted into deferred cash based on the Fair Market Value of
Shares as of the close of business on the day of the Change in Control (or,
if no Shares remain outstanding at that time, as of the close of business on
the day preceding the Change in Control). If and to the extent authorized
under Section 9(c), amounts of deferred cash may be reallocated among
investment alternatives made available for cash deferrals under the Plan.
(c) Elections as to Settlement. Each Participant, while still a
director of the Company, shall file an election with the Administrator
specifying the time or times at which the Participant's Deferral Account will
be settled, following the Participant's termination of service as a director
of the Company, and whether distribution will be in a single lump sum or in
a number of annual installments not exceeding ten; provided, however, that,
if no valid election has been filed as to the time of settlement of a
Participant's Deferral Account or any portion thereof, such Deferral Account
or portion thereof shall be distributed in a single lump sum on the first
business day of the year following the year in which the Participant ceases
to serve as a director. If installments are elected, such installments must
be annual installments commencing not later than the first year following the
year in which the Participant ceases to serve as a director (on such annual
installment date as may be specified by the Administrator) and extending over
a period not to exceed ten years.
(i) Matters Covered by Election. Subject to the terms of the Program,
the Administrator shall determine whether all deferrals under the Program
must be subject to a single election as to the time or times of settlement,
or whether settlement elections may relate to deferrals relating to a
specified Program Year. If the Administrator permits elections to relate to
a specified Program Year, such election shall apply to the amounts originally
credited in respect of such Program Year and to any additional amounts
credited as dividend equivalents or interest in respect of such originally
credited amounts and previously credited additional amounts.
(ii) Modifying Elections. A Participant may modify a prior election
as to the time at which a Participant's Deferral Account (or portion thereof)
will be settled at any time prior to the time the Participant ceases to serve
as a director of the Company, subject to such requirements as may be
specified by the Administrator. Such modification shall be made by filing a
new election with the Administrator. The foregoing notwithstanding,
elections under this Section 10(c) shall not be permitted, including
elections which would have the effect of advancing the time of settlement of
any portion of the Deferral Account, if permitting such an election would
result in constructive receipt by the Participant of compensation in respect
of the Participant's Deferral Account prior to the actual settlement of such
Deferral Account.
(d) Statements. The Administrator will furnish statements to each
Participant reflecting the amounts credited to a Participant's Deferral
Account, transactions therein, and other related information no less
frequently than once each calendar year. Statements may be combined with
other information, including information with respect to other compensation
plans, being provided to the Participant.
(e) Fractional Shares. The amount of Deferred Shares credited to a
Deferral Account shall include fractional Shares calculated to at least three
decimal places.
11. Settlement of Deferral Accounts. The Company will settle a
Participant's Deferral Account by making one or more distributions to the
Participant (or his or her Beneficiary, following Participant's death) at the
time or times, in a lump sum or installments, as specified in the
Participant's election(s) filed in accordance with Section 10(c); provided,
however, that a Deferral Account will be settled at times earlier than those
specified in such election in accordance with Sections 11(b), 11(c) or 11(d).
(a) Form of Distribution. Distributions in settlement of a
Participant's Deferral Account shall be made only in cash, including in
settlement of Deferred Shares.
(b) Death or Disability. If a Participant ceases to serve as a
director due to death or Disability or dies prior to distribution of all
amounts from his or her Deferral Account, the Company shall make a single
lump-sum distribution to the Participant or his or her Beneficiary. Any such
distribution shall be made as soon as practicable following notification to
the Company of the Participant's death or Disability.
(c) Financial Emergency and Other Payments. Other provisions of the
Program notwithstanding, if, upon the written application of a Participant,
the Board determines that the Participant has a financial emergency of such
a substantial nature and beyond the Participant's control that payment of
amounts previously deferred under the Program is warranted, the Board may
direct the payment to the Participant of all or a portion of the balance of
a Deferral Account and the time and manner of such payment.
(d) Distribution Upon a Change in Control. Upon a Change in Control,
the Company shall make a single lump-sum distribution to the Participant in
settlement of his or her Deferral Account as promptly as practicable
following the Change in Control.
12. Definitions Relating to Change in Control. For purposes of this
Program, the following definitions shall apply:
(a) "Beneficial Owner," "Beneficially Owns," and "Beneficial Ownership"
shall have the meanings ascribed to such terms for purposes of Section 13(d)
of the Exchange Act and the rules thereunder, except that, for purposes of
this Section 12, "Beneficial Ownership" (and the related terms) shall include
Voting Securities that a Person has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants, options or
otherwise, regardless of whether any such right is exercisable within 60 days
of the date as of which Beneficial Ownership is to be determined.
(b) "Change in Control" means and shall be deemed to have occurred if,
after the Effective Date,
(i) any Person, other than the Company or a Related Party, acquires
directly or indirectly the Beneficial Ownership of any Voting Security of the
Company and immediately after such acquisition such Person has, directly or
indirectly, the Beneficial Ownership of Voting Securities representing 20
percent or more of the total voting power of all the then-outstanding Voting
Securities; or
(ii) those individuals who as of the Effective Date constitute the
Board or who thereafter are elected to the Board and whose election, or
nomination for election, to the Board was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were directors
as of the Effective Date or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
members of the Board; or
(iii) the shareholders of the Company approve a merger, consolidation,
recapitalization or reorganization of the Company, a reverse stock split of
outstanding Voting Securities, or an acquisition of securities or assets by
the Company (a "Transaction"), or consummation of such a Transaction if
shareholder approval is not obtained, other than a Transaction which would
result in the holders of Voting Securities having at least 80 percent of the
total voting power represented by the Voting Securities outstanding
immediately prior thereto continuing to hold Voting Securities or voting
securities of the surviving entity having at least 60 percent of the total
voting power represented by the Voting Securities or the voting securities of
such surviving entity outstanding immediately after such Transaction and in
or as a result of which the voting rights of each Voting Security relative to
the voting rights of all other Voting Securities are not altered; provided,
however, a Change in Control shall not be deemed to have occurred if the
Board of Directors shall have determined, by action taken prior to the
approval of the Transaction by shareholders or consummation of the
Transaction if shareholder approval is not obtained, that such Transaction
shall not constitute a Change in Control for purposes of all options then
outstanding under the Company's principal stock option plan for senior
executives, which determination, if made with respect to a Transaction, shall
not be deemed to constitute a determination with respect to any subsequent
Transaction; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets other than any
such transaction which would result in Related Parties owning or acquiring
more than 50 percent of the assets owned by the Company immediately prior to
the transaction.
(c) "Person" shall have the meaning ascribed for purposes of Section
13(d) of the Exchange Act and the rules thereunder.
(d) "Related Party" means (i) a majority-owned subsidiary of the Company;
or (ii) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any majority-owned subsidiary of the Company;
or (iii) a corporation owned directly or indirectly by the shareholders of
the Company in substantially the same proportion as their ownership of Voting
Securities; or (iv) if, prior to any acquisition of a Voting Security which
would result in any Person Beneficially Owning more than ten percent of any
outstanding class of Voting Security and which would be required to be
reported on a Schedule 13D or an amendment thereto, the Board approved the
initial transaction giving rise to an increase in Beneficial Ownership in
excess of ten percent and any subsequent transaction giving rise to any
further increase in Beneficial Ownership; provided, however, that such Person
has not, prior to obtaining Board approval of any such transaction, publicly
announced an intention to take actions which, if consummated or successful
(at a time such Person has not been deemed a "Related Party"), would
constitute a Change in Control.
(e) "Voting Securities" means any securities of the Company which carry
the right to vote generally in the election of directors.
13. General Provisions.
(a) Limits on Transferability. Restricted Stock prior to the lapse of
restrictions, Options, Deferred Shares, deferred cash, and all other rights
under the Program will not be transferable by a Participant except by will or
the laws of descent and distribution, or to a Beneficiary in the event of a
Participant's death, and will not otherwise be subject to alienation,
anticipation, encumbrance, garnishment, attachment, levy, execution or other
legal or equitable process, nor subject to the debts, contracts, liabilities
or engagements, or torts of any Participant or his or her Beneficiary. Any
attempt to alienate, sell, transfer, assign, pledge, garnish, attach or take
any other action subject to legal or equitable process or encumber or dispose
of any interest in the Program shall be void. The foregoing notwithstanding,
the Administrator may permit a Participant to transfer Options, Deferred
Shares, and related rights to one or more trusts, partnerships, or family
members during the lifetime of the Participant solely for estate planning
purposes, but only if and to the extent then consistent with the registration
of any offer and sale of Shares related thereto on Form S-8, Form S-3, or
such other registration form of the Securities and Exchange Commission as may
then be permitted to be filed with respect to the Program. The Company may
rely upon the beneficiary designation last filed in accordance with this
Section 13(a).
(b) Adjustments. In the event that any large, special and non-recurring
dividend or other distribution (whether in the form of cash, Shares, or other
property), recapitalization, forward or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, share exchange,
liquidation, dissolution or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Board to be
appropriate in order to prevent dilution or enlargement of a Participant's
rights under the Program, then the Board shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of Shares reserved
and available for delivery under the Program and to be subject to Restricted
Stock, Options, and Deferred Shares thereafter granted or credited, (ii) the
number of Shares subject to Restricted Stock and Options automatically
granted under Sections 7 and 8, (iii) the number and kind of Shares
outstanding as Restricted Stock, (iv) the number and kind of Shares
deliverable upon exercise of outstanding Options, and the exercise price per
Share thereof (provided that no fractional Shares will be delivered upon
exercise of any Option), and (v) the number and kind of Shares then credited
as Deferred Shares (taking into account any Deferred Shares credited as
dividend equivalents under Section 10(a)) and by reference to which Deferred
Shares are valued under the Program.
(c) Receipt and Release. Payments (in any form) to any Participant or
Beneficiary in accordance with the provisions of the Program shall, to the
extent thereof, be in full satisfaction of all claims for the compensation
deferred and relating to the Deferral Account to which the payments relate
against the Company, the Board, or the Administrator, and the Administrator
may require such Participant or Beneficiary, as a condition to such payments,
to execute a receipt and release to such effect. In the case of any payment
under the Program of less than all amounts then credited to a Deferral
Account in the form of Deferred Shares, the amounts paid shall be deemed to
relate to the Deferred Shares credited to the Account at the earliest time.
(d) Compliance. The Company shall have no obligation to settle any
Deferral Account of a Participant (in any form) until all legal and
contractual obligations of the Company relating to establishment of the
Program and such settlement shall have been complied with in full. In
addition, the Company shall impose such restrictions on Shares delivered to
a Participant hereunder and any other interest constituting a security as it
may deem advisable in order to comply with the Securities Act of 1933, as
amended, the requirements of the Nasdaq National Market or any other stock
exchange or automated quotation system upon which the Shares are then listed
or quoted, any state securities laws applicable to such a transfer, any
provision of the Company's Articles of Incorporation or By-Laws, or any other
law, regulation, or binding contract to which the Company is a party.
(e) Changes to the Program and Awards. The Board may amend, suspend,
discontinue, or terminate the Program, the authority to grant awards under
the Program, or any outstanding award (and any agreement relating thereto)
without the consent of any other party, including shareholders or
Participants; provided, however, that any amendment shall be subject to
shareholder approval if and to the extent then required under applicable
rules of the Nasdaq National Market or any other stock exchange or automated
quotation system upon which the Shares may then be listed or quoted; and
provided further, that, without the consent of an affected Participant, no
such action may materially impair the rights of such Participant under any
award theretofore granted. The foregoing notwithstanding, the Board, in its
sole discretion, may terminate the Program (in whole or in part) and may
distribute to any Participant (in whole or in part, and whether or not in
connection with a termination of the Program) the amounts credited to the
Participant's Deferral Account.
(f) Unfunded Status of Program; Creation of Trusts. The Program is
intended to constitute an "unfunded" Program for deferred compensation and
Participants shall rely solely on the unsecured promise of the Company for
payment hereunder (except insofar as Shares are issued in connection with
Restricted Stock). With respect to any payment not yet made to a Participant
under the Program, nothing contained in the Program shall give a Participant
any rights that are greater than those of a general unsecured creditor of the
Company; provided, however, that the Board may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Program, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Program unless the Board otherwise determines with
the consent of each affected Participant. The establishment and maintenance
of, or allocations and credits to, the Deferral Account of any Participant
shall not vest in any Participant any right, title or interest in and to any
Program assets or benefits except at the time or times and upon the terms and
conditions and to the extent expressly set forth in the Program and in
accordance with the terms of any trust.
(g) Other Participant Rights. No Participant shall have any of the
rights or privileges of a stockholder of the Company under the Program,
including as a result of the grant of an Option or crediting of Deferred
Shares or other amounts to a Deferral Account, or the creation of any Trust
and deposit of Shares therein, except at such time as such Option may have
been duly exercised or Shares may be actually delivered in settlement of a
Deferral Account, except that a Participant granted Restricted Stock shall
have rights of a stockholder except to the extent that those rights are
limited by the terms of the Program and the agreement relating to the
Restricted Stock. No provision of the Program, document relating to the
Program, or transaction hereunder shall confer upon any Participant any right
to continue to serve as a director of the Company or in any other capacity
with the Company or a subsidiary or to be nominated for reelection as a
director, or interfere in any way with the right of the Company to increase
or decrease the amount of any compensation payable to such Participant.
Subject to the limitations set forth in Section 13(a), the Program shall
inure to the benefit of, and be binding upon, the parties hereto and their
successors and assigns.
(h) Continued Service as an Employee. If a Participant ceases to serve
as a director and, immediately thereafter, is employed by the Company or any
subsidiary, then such Participant will not be deemed to have ceased to serve
as a director at that time, and his or her continued employment by the
Company or any subsidiary will be deemed to be continued service as a
director; provided, however, that, for purposes of Section 5, such former
director will not be deemed to be a non-employee director eligible for
further grants of awards.
(i) Governing Law. The validity, construction, and effect of the
Program, any rules and regulations under the Program, and any agreement under
the Program shall be determined in accordance with the Pennsylvania Business
Corporation Law, to the extent applicable, other laws (including those
governing contracts) of the Commonwealth of Pennsylvania, without giving
effect to principles of conflicts of laws, and applicable federal law.
(j) Limitation. A Participant and his or her Beneficiary shall assume
all risk in connection with any decrease in value of Restricted Stock,
Options, or Deferred Shares, and neither the Company, the Board nor the
Administrator shall be liable or responsible therefor.
(k) Severability. In the event that any provision of the Program shall
be declared illegal or invalid for any reason, said illegality or invalidity
shall not affect the remaining provisions of the Program but shall be fully
severable, and the Program shall be construed and enforced as if said illegal
or invalid provision had never been inserted herein.
(l) Nonexclusivity of the Program. The adoption of the Program by the
Board shall not be construed as creating any limitation on the power of the
Board to adopt such other compensatory arrangements for directors as it may
deem desirable.
(m) Effective Date and Program Termination. The Program shall become
effective as of the Effective Date. Unless earlier terminated by action of
the Board, the Program will remain in effect until such time as no Shares
remain available for delivery under the Program and the Company has no
further rights or obligations under the Program with respect to outstanding
Options or other awards under the Program.
CHARMING SHOPPES, INC.
Non-Employee Directors Compensation Program
2000 Program Year Election Form for Cash Compensation
By signing below, I irrevocably elect to receive or defer receipt of my
Director Compensation as specified below, in accordance with the Non-Employee
Directors Compensation Program (the "Program") of Charming Shoppes, Inc. (the
"Company"). This election is subject to the terms and conditions of the
Program, including Program definitions, which are incorporated herein by
reference.
Note: Return this Form to Corporate Services by June 29, 1999.
This Form applies to the 2000 Program Year, which begins at the
Company's Annual Meeting of Shareholders on July 1, 1999 and
extends until the Company's Annual Meeting of Shareholders in 2000
The elections on this form will automatically continue for the 2001
Program Year and Program Years thereafter unless you change them by
filing a new Form by the filing deadline for new Program Year
Amounts deferred as cash initially will bear interest, but the
Company may in the future provide other investment alternatives,
and may permit previously deferred cash to be switched to these new
alternatives
Once you have elected a deferred time of settlement, changes may be
made only in limited circumstances, and you may not elect earlier
settlement in any case
Settlement of a Deferral Account will be made on an accelerated
basis in the event of death or Disability or upon a Change in
Control
Form of Payment of Cash Fees.
If so indicated below, I elect to defer receipt of Director Compensation
as Deferred Shares and/or as deferred cash (deferrals occur when the
fees would otherwise be paid) as follows:
Pay as cash (this applies if no election is made) . . ._____%
Defer as Deferred Shares credited to
my Deferral Account . . . . . . . . . . . . . . . . . ._____%
Defer as cash credited to my Deferral
Account . . . . . . . . . . . . . . . . . . . . . . . ._____%
The percentages elected above should total 100%.
Time of Settlement
Settle amounts relating to the 2000 Program Year in my Deferral Account
by paying cash as follows (fill out Part A or Part B but not both):
A. Fixed Date. Settle at/commencing ___________ (month-day-year)
by (check one):
______ -- lump-sum payment at that date; or
______ -- payment of _____ annual installments (up to ten)
commencing at that date or, if earlier, January 2 of the year
following my termination of service as a Director.
B. Upon Termination of Service. Settle at/commencing January 2
of the year following my termination of service as a Director by
(check one):
______ -- lump-sum payment at that date; or
______ -- payment of ______ annual installments (up to ten).
Acknowledgment and Signature
This and other forms filed by the undersigned together with the Program
and written documents under the Program constitute the entire agreement
between the Company and the undersigned with respect to the matters covered
by this Form, and supersedes and terminates prior elections inconsistent
herewith to the extent they are revocable.
_____________ _______________________
(Date) (Signature of Director)
_____________________ ________________________
(Social Security No.) (Print Name of Director)
* * * * *
[To be completed by Corporate Services]
Filing Date
Date of Filing with the Company
(date received by Corporate Services): ________________, 1999
Agreement of Charming Shoppes, Inc.
Charming Shoppes, Inc. hereby agrees that this Election Form is valid and
that, therefore, the Director who executed this Election Form is a
Participant in the Program in accordance with the terms hereof.
CHARMING SHOPPES, INC.
By: _________________________
Name:
Title:
<TABLE>
<CAPTION>
IMMEDIATE STOCK CASH
DIRECTOR CASH PAYMENT DEFERRAL DEFERRAL SETTLEMENT
<S> <C> <C> <C> <C>
Kenneth S. Olshan 100% lump-sum (a)
Marjorie
Margolies-Mezvinsky 100%
Alan Rosskamm 100% lump-sum (b)
Marvin Slomowitz 100%
Joseph Castle 100%
Pamela Lewis 50% 50% lump-sum (b)
</TABLE>
[FN]
(a) upon termination of service
(b) fixed date
</FN>
<PAGE>
EXHIBIT 10.2
CHARMING SHOPPES, INC.
NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM
STOCK OPTION AGREEMENT
Agreement dated as of _____________ between CHARMING SHOPPES, INC. (the
"Company") and ______________________ ("Participant").
It is agreed as follows:
1. Grant of Option; Consideration.
The Company hereby confirms the grant, under and pursuant to the Non-
Employee Directors Compensation Program (the "Program"), to Participant on
________________ (the "Date of Grant") of a nonqualified stock option to
purchase up to _______ shares of the Company's common stock, par value $.10
per share (the "Shares"), at an exercise price of ______ per share, subject
to the terms and conditions set forth herein and in the Program (the
"Option"). The Option granted hereunder is not intended to constitute an
incentive stock option within the meaning of Section 422 of the Code.
Participant shall be required to pay no consideration for the grant of the
Option, but Participant's performance of services to the Company as a
director and his or her agreement to abide by the terms set forth in the
Program and this Stock Option Agreement (the "Agreement"), shall be deemed
to be consideration for this grant of the Option.
2. Incorporation of Program By Reference.
The Option has been granted to Participant under the Program, a copy of
which previously has been furnished to Participant. All of the terms,
conditions, and other provisions of the Program are hereby incorporated by
reference into this Agreement. Capitalized terms used in this Agreement
but not defined herein shall have the same meanings as in the Program. If
there is any conflict between the provisions of this Agreement and the
provisions of the Program, the provisions of the Program shall govern.
Participant hereby accepts the grant of the Option, acknowledges receipt of
the copy of the Program, and agrees to be bound by all the terms and
provisions thereof and hereof (as presently in effect or hereafter amended)
and by all decisions and determinations of the Board or Administrator under
the Program.
3. Option Terms.
(a) The Option, to the extent not previously forfeited, shall expire at
the earlier of (i) ten years after the date of grant, or (ii) one year
after Participant ceases to serve as a director of the Company for any
reason except that, in the case of a termination due to Mandatory
Retirement, any portion of the Option that vests and becomes exercisable at
a date following the Mandatory Retirement, as provided in Section 3(b),
shall expire one year after the date such portion vests and becomes
exercisable. (Note: Portions of any Option that were vested and
exercisable at the date of Mandatory Retirement will expire one year after
such Mandatory Retirement, but in no event later than ten years after the
date of grant).
<PAGE>
THE DATE OF GRANT OF THIS OPTION IS: ______________
GRANT NUMBER: _____________
(b) This Option may be exercised only if and to the extent that it has
become exercisable as specified in the Program and this Agreement. The
Option, if not previously forfeited, shall vest and become exercisable as
to one-fifth of the number of Shares at the close of business on June 1 of
each of the five calendar years following the date of grant, rounded to the
nearest number of whole Shares; provided, however, that, if the Option has
not previously vested or been forfeited, it shall vest and become
exercisable in full upon a Change in Control, upon Participant's death, or
upon the termination of Participant's service as a director due to
Disability; and provided further, that if such Option has not previously
vested or been forfeited, it shall vest and become exercisable as to the
"Pro Rata Shares," as defined in Section 8(c) of the Program, upon a
termination of Participant's service as a director due to any reason other
than death, Disability or Mandatory Retirement. Any portion of an Option
that has not vested and become exercisable at the date of Participant's
Mandatory Retirement shall remain outstanding and vest and become
exercisable at the time(s) specified in the second sentence of this Section
3(b), provided that such Option shall vest and become exercisable in full
upon a Change in Control or the death of Participant, and each such portion
of the Option shall expire at the end of the one-year period following the
date it becomes vested and exercisable as provided in Section 3(a) and this
Section 3(b). Except in the case of a Mandatory Retirement or as otherwise
determined by the Board, any portion of the Option that has not vested and
become exercisable at the time of termination of Participant's service as a
director as provided herein will cease to vest and will be forfeited upon
such termination.
(c) The number of Shares with respect to which the Option may be
exercised shall be cumulative so that if, in any of the aforementioned
periods, the full number of Shares shall not have been purchased, any such
unpurchased Shares shall continue to be included in the number of Shares
with respect to which this Option shall then be exercisable along with any
other Shares as to which this Option may become exercisable in accordance
with its terms.
4. Method of Exercise.
(a) The Option may be exercised as to any part of the Shares which may
then be purchased by delivery to and receipt by the Secretary of the
Company at 450 Winks Lane, Bensalem, Pennsylvania 19020, of a written
notice, signed by Participant, specifying the number of Shares which
Participant wishes to purchase, accompanied by payment in full of the
exercise price therefor in accordance with Section 8(d) of the Program. As
soon as practicable after the receipt of such notice and payment, the
Company shall deliver to Participant a stock certificate for the Shares so
purchased, with any requisite legend affixed. Subject to the provisions of
the Program, such exercise may include instructions to the Company to
deliver Shares due upon exercise of the Option to any registered broker or
dealer designated by the Administrator (a "Designated Broker") in lieu of
delivery to Participant. Such instructions must designate the account into
which the Shares are to be deposited. Participant may tender the notice of
exercise, which has been properly executed by Participant, and the
aforementioned delivery instructions to any Designated Broker together with
irrevocable instructions to the Designated Broker to promptly deliver to
the Company the cash amount of sale or loan proceeds from the Shares
sufficient to pay the exercise price, and thereupon the Company may issue
Shares and deliver them to such Designated Broker.
(b) Subject to Section 8(d) of the Program, the exercise price of the
Option shall be payable in cash or by certified or bank cashier's check,
provided, however, that, in lieu of payment in full in cash or by such
check, the exercise price may, if and to the extent then permitted by the
Administrator, upon written request of Participant, be paid in full or in
part by delivery and transfer to the Company of that number of shares of
the Company's common stock otherwise owned by Participant with an aggregate
fair market value (determined in accordance with procedures for valuing
shares as set forth in rules and regulations adopted by the Administrator
and in effect at the time Participant's notice of exercise is received by
the Company) equal to the aggregate exercise price of that number of Shares
for which the Option is being exercised or such lesser portion of the
aggregate purchase price as may be specified by Participant (in which case
the balance must be paid in cash or by certified or bank cashier's check).
5. Limits on Transfer of Option; Beneficiaries.
As provided in Section 13(a) of the Program, no right or interest of
Participant in the Option shall be pledged, encumbered or hypothecated to
or in favor of any third party or shall be subject to any lien, obligation,
or liability of Participant to any third party, and the Option shall not be
transferable to any third party by Participant otherwise than by will or
the laws of descent and distribution, and this Option shall be exercisable,
during the lifetime of Participant, only by Participant; provided, however,
that Participant will be entitled to designate a beneficiary or
beneficiaries to exercise his rights under this Option upon the death of
Participant in the manner and to the extent permitted by the Administrator
under the Program.
6. Miscellaneous.
This Agreement shall be binding upon the heirs, executors,
administrators, and successors of the parties. This Agreement constitutes
the entire agreement between the parties with respect to the Option, and
supersedes any prior agreements or documents with respect to the Option.
No amendment, alteration, suspension, discontinuation, or termination of
this Agreement which may impose any additional obligation upon the Company
shall be valid unless in a writing executed in the name and on behalf of
the Company, and no such amendment, alteration, suspension,
discontinuation, or termination of this Agreement which materially and
adversely affects the rights of Participant with respect to the Option
shall be valid unless in a writing executed by Participant.
CHARMING SHOPPES, INC.
BY:_____________________________________
(Authorized Officer)
PARTICIPANT:
________________________________________
<PAGE>
EXHIBIT 10.3
CHARMING SHOPPES, INC.
NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM
RESTRICTED STOCK AGREEMENT
Agreement dated as of ____________ between CHARMING SHOPPES, INC. (the
"Company") and ______________________ ("Participant").
It is agreed as follows:
1. Grant of Restricted Stock; Consideration.
The Company hereby confirms the grant, under and pursuant to the Non-
Employee Directors Compensation Program (the "Program"), to Participant on
____________ (the "Date of Grant") of _______ shares of the Company's
common stock, par value $0.10 per share ("Shares"), subject to the
restrictions as set forth herein and in the Program (the "Restricted
Stock"). Participant shall be required to pay no cash consideration for
the grant of the Restricted Stock, but Participant's performance of
services to the Company prior to the expiration of applicable restrictions
relating to the Restricted Stock and otherwise during the term of his or
her service as a director, and his or her agreement to abide by the terms
set forth in the Program and this Restricted Stock Agreement (the "Agree-
ment"), shall be deemed to be consideration for this grant of Restricted
Stock.
2. Incorporation of Program by Reference.
The Restricted Stock has been granted to Participant under the
Program, a copy of which previously has been furnished to Participant. All
of the terms, conditions, and other provisions of the Program are hereby
incorporated by reference into this Agreement. Capitalized terms used in
this Agreement but not defined herein shall have the same meanings as in
the Program. If there is any conflict between the provisions of this
Agreement and the provisions of the Program, the provisions of the Program
shall govern. Participant hereby accepts the grant of Restricted Stock,
acknowledges receipt of the copy of the Program, and agrees to be bound by
all the terms and provisions thereof and hereof (as presently in effect or
hereafter amended) and by all decisions and determinations of the Board or
Administrator under the Program.
3. Restrictions on Restricted Stock.
The terms and conditions of the Restricted Stock shall be those set
forth in Section 7 and other provisions of the Program. Under the vesting
and forfeiture provisions set forth in Program Section 7(a), the Restricted
Stock, if not previously forfeited, shall become vested and non-forfeitable
as to one-third
<PAGE>
THE DATE OF GRANT OF THIS OPTION IS: ____________
GRANT NUMBER: ___________
of the number of Shares of Restricted Stock at the close of business on
June 1 of each of the three calendar years following the Date of Grant,
rounded to the nearest number of whole Shares. In the event of a Change in
Control or termination of Participant's service as a director due to death
or Disability, the Restricted Stock, if not previously vested or forfeited,
shall immediately vest and become non-forfeitable in full. In the event of
termination of Participant's service as a director for reasons other than
death, Disability, or voluntary termination of service by Participant, the
award, if not previously vested or forfeited, shall immediately vest and
become non-forfeitable as to that number of Shares of Restricted Stock as
would have vested and become non-forfeitable if Participant had continued
to serve as a director through the anticipated date of the next annual
meeting of shareholders. Unless otherwise determined by the Board, an
award of Restricted Stock that has not vested at the time of termination of
Participant's service as a director as provided herein will cease to vest
and will be forfeited upon such termination. Program Sections 7(c) and
13(a) provide that Restricted Stock is non-transferable until the risk of
forfeiture has lapsed. Participant hereby agrees to execute and deliver to
the Company one or more stock powers, in the form attached hereto or such
other form as may be specified by the General Counsel to the Company,
authorizing the transfer of the Restricted Stock to the Company upon
forfeiture thereof, at the Date of Grant or upon request at any time
thereafter.
4. Miscellaneous.
This Agreement shall be binding upon the heirs, executors,
administrators, and successors of the parties. This Agreement constitutes
the entire agreement between the parties with respect to the Restricted
Stock granted hereby, and supersedes any prior agreements or documents with
respect to such Restricted Stock. No amendment, alteration, suspension,
discontinuation, or termination of this Agreement which may impose any
additional obligation upon the Company shall be valid unless in a writing
executed in the name and on behalf of the Company, and no such amendment,
alteration, suspension, discontinuation, or termination of this Agreement
which materially and adversely affects the rights of Participant with
respect to the Restricted Stock shall be valid unless in a writing executed
by Participant
CHARMING SHOPPES, INC.
BY:__________________________________
(Authorized Officer)
PARTICIPANT:
_____________________________________
Attachment: Form of Stock Power
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto Charming Shoppes, Inc. ______ shares of Common Stock, $0.10
par value per share, of Charming Shoppes, Inc., a Pennsylvania corporation
(the "Corporation"), registered in the name of the undersigned on the books
and records of the Corporation, and does hereby irrevocably constitute and
appoint Colin D. Stern and Anthony A. DeSabato, and each of them,
attorneys, to transfer the Common Stock on the books of the Corporation,
with full power of substitution in the premises.
_________________________________________
(Signature should be in exact form as on
Stock certificate)
Date______________________________________
