SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20548
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 August 3, 1996
[ ] Transition report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from -------- to ---------
Commission File Number: 1-1594
CROWLEY, MILNER AND COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0454910
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2301 West Lafayette Boulevard, Detroit, Michigan 48216
(Address of principal executive offices)(Zip Code)
(313) 962-2400
(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
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of Registrant's common stock, as of
September 17, 1996, was 1,472,678
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWLEY, MILNER AND COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
AUGUST 3 JULY 29 AUGUST 3 JULY 29
1996 1995 1996 1995
(as restated) (as restated)
----------- ----------- ----------- -----------
Net Sales $44,767,149 $44,956,521 $21,500,534 $21,363,131
Cost of merchandise
and services sold 30,838,884 31,993,561 14,003,501 14,361,644
----------- ----------- ----------- -----------
13,928,265 12,962,960 7,497,033 7,001,487
Operating, selling
general and admin-
istrative expenses 16,008,651 15,425,306 8,020,620 7,566,972
----------- ----------- ----------- -----------
(2,080,386) (2,462,346) (523,587) (565,485)
Other (charges) credits:
Interest expense (872,418) (816,039) (435,071) (427,562)
Investment Income 51,919 48,434 23,150 29,331
Other 1,888 155,858 855 112,250
Earnings from the
operation of
Steinbach Stores 1,393,917 - 741,058 -
----------- ----------- ----------- -----------
Loss before
income taxes (1,505,080) (3,074,093) (193,595) (851,466)
Income tax credit - - - -
----------- ----------- ----------- -----------
Net loss $(1,505,080) $(3,074,093) $ (193,595) $ (851,466)
=========== =========== =========== ===========
Net loss per share $(1.57) $(3.23) $ (.20) $ (.89)
====== ====== ====== ======
Dividends per share $ .00 $ .00 $ .00 $ .00
====== ====== ====== ======
Average number of
Common equivalent
shares outstanding during
the period 957,878 951,364 957,878 951,364
=========== =========== =========== ===========
<PAGE>
CROWLEY, MILNER AND COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
AUGUST 3 FEBRUARY 3 JULY 29
1996 1996 1995
(as restated) (as restated)
---------- ---------- ----------
ASSETS
Current assets
Cash and cash equivalents
(cash equivalents at
8/03/96-$292,927;
2/03/96-$241,047; and
7/29/95 - $338,090) $ 1,662,200 $ 540,613 $ 481,213
Accounts receivable(less:
allowances at 8/03/96-
$66,558; 2/03/96-$61,558;
and 7/29/95-$ 83,854) 2,461,731 2,014,918 750,787
Inventories at FIFO cost 19,855,739 21,250,958 20,010,169
Other current assets 2,408,562 2,567,954 1,879,462
----------- ----------- -----------
Total current assets 26,388,232 26,374,443 23,121,631
Other assets 4,741,098 4,766,006 4,804,740
Property, plant and equipment 23,830,520 23,594,510 24,986,611
Less: Allowance for
depreciation and
amortization 14,466,683 13,835,918 14,968,339
----------- ----------- -----------
9,363,837 9,758,592 10,018,272
----------- ----------- -----------
TOTAL ASSETS $40,493,167 $40,899,041 $37,944,643
=========== =========== ===========
<PAGE>
CROWLEY, MILNER AND COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
AUGUST 3 FEBRUARY 3 JULY 29
1996 1996 1995
(as restated) (as restated)
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable $ 5,080,371 $ 5,279,188 $ 4,126,343
Short term borrowings 10,108,641 8,499,392 7,554,728
Compensation and amounts
withheld therefrom 734,190 597,556 638,461
Taxes other than income
taxes 1,432,139 1,797,198 1,686,693
Income taxes 310,126 309,495 312,043
Current maturities of long
term debt 525,000 525,000 485,000
Capital lease obligations
- current 185,474 185,402 183,507
----------- ----------- -----------
Total Current Liabilities 18,375,941 17,193,231 14,986,775
Long Term Liabilities
Long term debt 5,325,000 5,325,000 5,850,000
Capital lease obligations 3,638,939 3,750,868 3,837,951
Other 1,761,165 1,757,278 1,605,811
----------- ----------- -----------
10,725,104 10,833,146 11,293,762
Shareholders' Equity
Common stock, authorized
4,000,000 shares;
outstanding 957,878
shares 957,878 966,069 951,364
Other capital 1,211,350 1,178,621 1,140,653
Retained Earnings 9,222,894 10,727,974 9,572,083
----------- ----------- -----------
11,392,122 12,872,664 11,664,106
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $40,493,167 $40,899,041 $37,944,643
=========== =========== ===========
<PAGE>
CROWLEY, MILNER AND COMPANY
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
AUGUST 3 JULY 29
1996 1995
(as restated)
---------- ----------
OPERATING ACTIVITIES
Net loss $(1,505,080) $(3,074,093)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 630,765 671,117
Amortization of restricted stock award 13,756 60,485
Changes in Operating Assets and Liabilities:
(Increase) decrease in net accounts receivable (446,813) 291,873
Decrease in inventories 1,395,219 1,999,972
Decrease in prepaid expenses
and other assets 184,300 496,517
Decrease in accounts payable (198,817) (1,687,080)
Decrease in accrued compensation
and other liabilities (223,907) (533,750)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (150,577) (1,774,959)
INVESTMENT ACTIVITIES
Purchase of Properties (236,010) (115,363)
----------- -----------
NET CASH USED IN INVESTMENT ACTIVITIES (236,010) (117,363)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 51,342,970 52,810,509
Principal payments on revolving line
of credit (49,733,721) (49,162,298)
Principal payments on capital lease
obligations (111,857) (85,188)
Purchase of common stock and stock options - (1,228,212)
Proceeds from sale of common stock 10,782 -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,508,174 2,334,811
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 1,121,587 442,489
Cash and cash equivalents at beginning of year 540,613 38,724
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,662,200 $ 481,213
=========== ===========
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
August 3, 1996
Note A - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
thirteen and twenty-six week periods ended August 3, 1996 are not
necessarily indicative of the results that may be expected for the year
ending February 1, 1997, due to the seasonal nature of the retail department
store business. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended February 3, 1996.
Note B - Accounting Change
Effective May 4, 1996, the Company changed its method of valuing inventories
from the last-in, first-out (LIFO) to the first-in, first-out (FIFO) method.
The underlying rationale for this change, and the material impact the change
had on the Company's retained earnings, are discussed below. The change
from LIFO to FIFO has been applied retroactively. The effect of this
restatement was to increase the Company's retained earnings as of May 4,
1996, and as of January 28, 1995, by $5,919,420 and $5,135,672,
respectively. As a part of the restatement from LIFO to FIFO the Company
recorded a deferred tax asset of $1,580,000 and a current federal income tax
liability of $275,000 as a result of the taxable income which the Company
realized for federal income tax purposes due to this change in inventory
methods. The deferred tax asset results from the Company reorganizing a
portion of its net operating loss carryforward.
The Company's ability to obtain a steady flow of retail merchandise largely
is dependent on the short-term credit provided by its vendors that supply
the Company with its goods and their factors. Historically, the Company's
vendors have supplied the Company with goods on a "net 30-day" payment
basis. However, in light of the Company's net operating losses during
fiscal 1995 and the first six months of fiscal 1996, certain of the
Company's vendors and their factors have been requiring the Company to
maintain deposits with such vendors and/or pay for goods prior to shipment.
In addition, the Company has long-term indebtedness in connection with bonds
issued by The Economic Development Corporation of the City of Detroit. The
covenants for these bonds require (among other things) the Company must
maintain a net worth of not less than $5,000,000. Without the increase in
retained that resulted from the change from LIFO to FIFO, the minimum net
worth requirement might have been violated during the current fiscal year.
Given the emphasis on the Company's net worth placed by the Company's
vendors and their factors, management believes that a change in accounting
method for inventory valuation from LIFO to FIFO is appropriate. Management
also believes that the FIFO method of valuing inventories is preferable
because it provides a better measure of the current value of the inventories
and financial position of the Company.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Effective May 4, 1996, the Company changed its method of valuing inventories
from the last-in, first-out (LIFO) to the first-in, first-out (FIFO) method.
The underlying rationale for this change, and the material impact the change
had on the Company's retained earnings, are discussed below. The change
from LIFO to FIFO has been applied retroactively. The effect of this
restatement was to increase the Company's retained earnings as of May 4,
1996, and as of January 28, 1995, by $5,919,420 and $5,135,672,
respectively. As a part of the restatement from LIFO to FIFO the Company
recorded a deferred tax asset of $1,580,000 and a current federal income tax
liability of $275,000 as a result of the taxable income which the Company
realized for federal income tax purposes due to this change in inventory
methods. The deferred tax asset results from the Company reorganizing a
portion of its net operating loss carryforward.
The Company's ability to obtain a steady flow of retail merchandise largely
is dependent on the short-term credit provided by its vendors that supply
the Company with its goods and their factors. Historically, the Company's
vendors have supplied the Company with goods on a "net 30-day" payment
basis. However, in light of the Company's net operating losses during
fiscal 1995 and the first six months of fiscal 1996, certain of the
Company's vendors and their factors have been requiring the Company to
maintain deposits with such vendors and/or pay for goods prior to shipment.
In addition, the Company has long-term indebtedness in connection with bonds
issued by The Economic Development Corporation of the City of Detroit. The
covenants for these bonds require (among other things) the Company must
maintain a net worth of not less than $5,000,000. Without the increase in
retained that resulted from the change from LIFO to FIFO, the minimum net
worth requirement might have been violated during the current fiscal year.
Given the emphasis on the Company's net worth placed by the Company's
vendors and their factors, management believes that a change in accounting
method for inventory valuation from LIFO to FIFO is appropriate. Management
also believes that the FIFO method of valuing inventories is preferable
because it provides a better measure of the current value of the inventories
and financial position of the Company.
Net cash used in operating activities declined sharply for the six months
ended August 3, 1996, when compared with the same period last year. Net
cash used in operating activities amounted to $150,000 compared to
$1,775,000 last year. The decrease is primarily attributable to a reduction
in operating loss and a comparatively smaller decrease in accounts payable
for the period.
Net cash used in investment activities increased slightly for the six months
ended August 3, 1996, due to an increase in capital expenditures.
Net cash provided by financing activities declined slightly for the six
months ended August 3, 1996, compared to the same period last year. The
repurchase of outstanding stock and stock options from one of the Company's
primary shareholders in the six months ended July 29, 1995, caused higher
borrowings during that period. The borrowings outstanding on the Company's
short-term credit facility were significantly higher at August 3, 1996, than
at February 3, 1996, as a result of the vendors and their factors requiring
higher levels of deposits and prepayments on inventory orders.
Working capital was $8,012,000 at August 3, 1996 compared with $9,181,000 at
February 3, 1996 (as restated) and $8,135,000 (as restated) at July 29,
1995.
<PAGE>
Results of Operations
For the second quarter ended August 3, 1996, a net loss of $193,595 ($0.20
per share) was recorded, compared with a restated net loss of $851,466
($0.89 per share) for the second quarter last year (earnings were restated
as a result of a change from the LIFO inventory method to the FIFO inventory
method - see "Financial Condition" section). The impact of the change on
current year earnings was not material. For the six months ended August 3,
1996, the net loss was $1,505,080 ($1.57 per share), compared with a
restated net loss of $3,074,093 ($3.23 per share) recorded for the first six
months last year. Total and comparable store sales for the second quarter
increased 1.0% to $21,500,534 from $21,363,131 for the same period last
year. For the six month period, net sales were $44,767,149, a slight
decrease from the $44,956,521 recorded last year.
Gross margins for the quarter improved $495,546, or 7.1%, when compared to
last year's second quarter. Margins, as a percent of sales, were 34.9% for
the second quarter compared with 32.8% for the same period last year. Year
to date margin dollars have increased $965,305, or 7.4%, and as a percent of
sales are 31.1% compared with 28.8% for the same period last year. The
significant improvement in gross margins can be attributed to management's
efforts to enhance procedures to control inventory shrinkage, with a
particular focus in revising and implementing loss prevention techniques and
procedures.
Operating expenses increased $453,648, or 6.0%, for the second quarter, when
compared to the same period last year. Expenses as a percent of sales
amounted to 37.3% in the quarter compared with 35.4% for the second quarter
last year. An increase in payroll expense was the single largest
contributor to the overall expense increase for the second quarter,
accounting for $402,000, or 89%, of the increase in total operating
expenses. The increase in payroll expense was directly attributable to the
increased expenses in managing the Steinbach operation (see below).
Expenses for the six months ended August 3, 1996, have increased $583,000,
or 3.8%, when compared to the same period last year. For the six months,
operating expenses as a percent of sales were 35.8% compared with 34.4% for
the comparable period last year. The higher expense ratio is attributable
to the increased expense in operating the Steinbach operation.
Interest expense charges have increased for the second quarter and six month
periods ended August 3, 1996, when compared to the same period last year,
due primarily to the Company's increased utilization of the short term
working capital facilities provided by Congress Financial. As discussed
above under "Financial Condition", the increased utilization is due in part
to the Company's vendors and their factors requiring higher levels of
deposits and prepayments on inventory orders.
The decrease in other income for the second quarter was attributable to the
absence of a one-time lease termination settlement with a former tenant in
the Company's corporate office building which occurred during the second
quarter of 1995.
As discussed below under the caption "Recent Developments," the Company
acquired all of the stock of Steinbach Stores, Inc., an Ohio corporation
("Steinbach"), effective as of August 31, 1996 (the "Acquisition"). Pending
the consummation of the Acquisition, since December 31, 1995, the Company has
operated the 15 department stores to be acquired as part of the Acquisition
(the "Acquired Stores"), with all of the revenues and all of the costs and
expenses relating thereto accruing for the account of the Company. For the
second quarter and for the six months ended August 3, 1996, the Company
recorded a profit of $741,058, or $0.76 per share, and $1,393,917, or $1.46
per share, respectively, for the operation of these fifteen Acquired Stores.
Such profits are reflected in the Company's net loss for the second quarter
and for the six month period ended August 3, 1996. In addition almost all
of the corporate overhead relating to the operation of the 15 Acquired
Stores has been allocated to the Company. As a result of the closing of the
Steinbach Acquisition, the results of operations for the fifteen Acquired
Stores for all periods prior to August 31, 1996, will be recorded as a
separate line item, and the results of operations after August 31, 1996,
will be reported on a consolidated basis, in the Company's Statements of Income.
Since the Company has fully exhausted all tax loss carrybacks and is in a
net operating loss carryforward position it was unable to tax effect the
losses in either year's second quarter and six month periods, thus pre-tax
and after-tax results are the same.
Recent Developments
As previously reported by the Company in its Current Report on Form 8-K
dated August 31, 1996, effective August 31, 1996, the Company acquired from
the several shareholders (the "Steinbach Shareholders") of Steinbach, all of
the issued and outstanding shares of the capital stock of Steinbach, in
exchange for 514,800 shares of the Common Stock of the Company pursuant to
the terms of an Agreement and Plan of Reorganization, dated November 17,
1995, as amended, between the Company and the Steinbach Shareholders. As a
result of the foregoing, Steinbach, with its 15 retail department stores in
Connecticut, New Hampshire, New Jersey, New York and Vermont, became a
wholly-owned subsidiary of the Company as of August 31, 1996. As of the
date hereof, 1,472,678 shares of Common Stock of the Company are issued and
outstanding, after giving effect to the 514,800 shares issued to the
Steinbach Shareholders pursuant to the Acquisition (representing
approximately 35.0% of such issued and outstanding shares).
As previously reported by the Company in its Current Report on Form 8-K
dated August 31, 1996, effective September 5, 1996, Congress Financial
Corporation (Central), the Company and Steinbach entered into an Amended and
Restated Loan and Security Agreement (the "Amended Loan Agreement") pursuant
to which Congress Financialis providing, on an aggregate basis to the Company
and Steinbach, a fully secured line of credit of up to $24 million and,
included within such line of credit, a facility for letters of credit of up
to $5 million, with the interest rate on the foregoing, subject to certain
terms and conditions, at 25 basis points above the prime rate of CoreStates
Bank, N.A. The Amended Loan Agreement shall continue for a term ending on
November 4, 1999, and from year to year thereafter unless sooner terminated
pursuant to the terms thereof. The Amended Loan Agreement amends and
restates the Loan and Security Agreement, dated November 4, 1994, between
Congress Financial and the Company.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings in which the Company
is a party to which its assets are subject.
ITEM 2. CHANGES IN SECURITIES
Pursuant to the terms of the Amended and Restated Loan and
Security Agreement, dated September 5, 1996, among Congress
Financial Corporation (Central), the Company and Steinbach
Stores, Inc., the Company is prohibited from declaring or
paying any dividends on account of any shares of capital
stock.
In connection with the closing of the acquisition of
Steinbach Stores, Inc. pursuant to the terms of an Agreement
and Plan of Reorganization, dated November 17, 1995, as
amended, between the Company and the shareholders of
Steinbach Stores, Inc., the Board of Directors amended the
Bylaws of the Company, effective as of August 31, 1996, to
"opt out" of the provisions of Act 58 of the Public Acts of
1988 of the State of Michigan, more commonly known as
Chapter 7B of the Michigan Business Corporation Act
pertaining to so-called "control share acquisitions."
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 20, 1996, the Company's Annual Meeting of Shareholders was
held at the principal offices of the Company. Proxies for the
Annual Meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, and there was no
solicitation in opposition to management's nominees for election to
the Board of Directors and all such nominees were elected. The
matters voted on at the meeting (as more fully described in the
Proxy Statement, dated July 25, 1996), and the results of the
shareholder voting, were as follows:
1. Election of directors to hold office until Annual Meeting of
Shareholders in 1999.
Joseph C. Keys For 870,290; Withheld 3,577
Richard S. Keys For 870,290; Withheld 3,577
Paul R. Rentenbach For 870,290; Withheld 3,577
James L. Schaye, Jr. For 869,727; Withheld 4,140
2. To approve the issuance of 514,800 shares of common stock
pursuant to the Steinbach Acquisition Agreement;
For 601,585
Against 1,977
Abstain 20,780
Broker non-votes 249,525
3. To approve an amendment to the Crowley, Milner and Company
1992 Incentive Stock Plan (the "1992 Incentive Stock Plan")
to increase the number of shares of Common Stock authorized
for issuance under the 1992 Incentive Stock Plan from
200,000 shares to 300,000 shares;
For 583,062
Against 40,130
Abstain 1,150
Broker non-votes 249,525
4. Appointment of Ernst & Young LLP as auditors for fiscal year
ending February 1, 1997:
For 862,542
Against 4,129
Abstain 1,280
Broker non-votes 5,916
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. Description
--- -----------
3.2 Bylaws of the Company, as amended to date
10.8 Crowley, Milner and Company 1992 Incentive Stock Plan,
effective as of March 25, 1992, as amended to date
(previously filed as an exhibit to the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended
January 30, 1993, and as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3,
1996, and incorporated herein by reference, except for
Amendment No. 2 to such Incentive Stock Plan, which is filed
herewith).
18 Letter from Ernst & Young LLP regarding change in accounting
principle.
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
On September 16, 1996, the Company filed a Current Report on Form 8-
K, dated August 31, 1996, pursuant to which it reported (i) under
Items 1, 2 and 7 on the acquisition of all of the stock of Steinbach
Stores, Inc., an Ohio corporation, as of August 31, 1996, and (ii)
under Item 5 on the consummation of an Amended and Restated Loan and
Security Agreement, effective as of September 5, 1996, among the
Company, Steinbach Stores, Inc. and Congress Financial Corporation
(Central).
<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.
CROWLEY, MILNER AND COMPANY
(Registrant)
DATE September 17, 1996 By /S/ John R. Dallacqua
------------------------ ---------------------------
John R. Dallacqua
Vice President-Finance and Chief
Financial Officer (principal
financial and chief accounting
officer) and a duly authorized
officer of the registrant
<PAGE>
EXHIBIT INDEX
No. Description
- --- -----------
3.2 Bylaws of the Company, as amended to date
10.8 Crowley, Milner and Company 1992 Incentive Stock Plan, effective as
of March 25, 1992, as amended to date (previously filed as an
exhibit to the Company's Annual Report on Form 10-K, as amended, for
the fiscal year ended January 30, 1993, and as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996, and incorporated herein by reference, except for
Amendment No. 2 to such Incentive Stock Plan, which is filed
herewith).
18 Letter from Ernst & Young LLP regarding change in accounting
principle.
27 Financial Data Schedule (EDGAR filing only)
BYLAWS
OF
CROWLEY, MILNER AND COMPANY
(With all amendments through August 31, 1996)
ARTICLE I
STOCK
Section 1. CAPITAL STOCK. The capital stock of this corporation shall be
divided into shares and shall consist of the several classes of stock in the
amounts and of the par and/or no par value, with voting powers, preferences
and rights and with the qualifications, limitations or restrictions, as set
forth in the Articles of Incorporation of this corporation, as amended, from
time to time.
Section 2. CERTIFICATES OF SHARES. The Certificates for shares of the
Capital Stock of this company shall be in such form, not inconsistent with
the Articles of Incorporation of the company, as amended, as shall be
prepared or be approved by the Board of Directors. The Certificates shall
be signed by the President or Vice-President, and also by the Secretary.
Section 3. TRANSFER OF SHARES. The interest of each shareholder of the
corporation shall be evidenced by a certificate or certificates for shares
of stock in such form as the Board of Directors may from time to time
prescribe. The shares of stock of the corporation shall be transferable on
the books of the corporation by the holder thereof in person or by his
attorney, upon surrender for cancellation of a certificate or certificates
for the same number of shares, with an assignment and power of transfer
endorsed thereon or attached thereto, duly executed, and with such proof of
the authenticity of the signature as the corporation or its agents may
reasonably require.
Section 4. REGULATIONS. The Board of Directors shall have power and
authority to make all such rules and regulations, as they may deem expedient
concerning the issue, transfer and registration of certificates for shares
of the capital stock of the company. The Board of Directors may appoint
transfer agents and registrars of transfers, and may require all stock
certificates to bear the signature of a transfer agent and of a registrar of
transfers.
Section 5. CLOSING OF TRANSFER BOOKS. The Board of Directors shall have the
power to close the stock transfer books of the corporation for a period not
exceeding forty days preceding the date of any meeting of shareholders or
the date for payment of any dividend or the date for the allotment or rights
or the date when any change or conversion or exchange of capital stock shall
go into effect; provided, that in lieu of closing the stock transfer books
as aforesaid, the Board of Directors may fix in advance a date, not
exceeding forty days preceding the date of any meeting of shareholders, or
the date for the payment of any dividend, or the date for the allotment of
rights or the date when any change or conversion or exchange of capital
stock shall go into effect, as a record date for the determination of the
shareholders entitled to notice of, and to vote at, any such meeting, or to
receive payment of such dividend, or to receive such allotment or rights, or
to exercise such rights, as the case may be, notwithstanding any transfer of
any stock on the books of the corporation or otherwise after any such record
date fixed as aforesaid.
Section 6. LOST CERTIFICATES. In case of the loss, theft or destruction of
any certificate or shares of stock, upon due proof by the registered holder
or his representatives, by affidavit of such loss, theft or destruction, the
Secretary shall cause such certificates to be replaced, upon the corporation
or its agents being duly indemnified therefor.
Section 7. FISCAL YEAR. The Board of Directors may adopt a date from time
to time for the ending of the fiscal year of the company.
Section 8. CORPORATE SEAL. The Board of Directors shall provide a suitable
seal, which seal shall be in charge of the Secretary, and shall be used by
him.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. ANNUAL MEETING, TIME, PLACE AND PURPOSE. Meetings of the
shareholders of this corporation shall be held on such day and at such time
as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, for the purpose of electing Directors
and for the transaction of such other business as may be brought before the
meeting.
Section 2. SPECIAL MEETINGS, NOTICE. Special meetings of the shareholders
may be called by the President or Vice-President or upon order of a majority
of the Board of Directors or upon request of shareholders owning of record a
majority of the stock entitled to vote at such meeting at any time.
Section 3. NOTICE OF ANNUAL AND SPECIAL MEETINGS. Notice of each annual
and special meeting shall be given by mail, directed to the last known
address of each shareholder entitled to vote at such annual or special
meeting. The notice shall be posted at least ten (10) days prior to the
date of such meeting. Notice of special meetings shall indicate briefly the
general object or objects of such meeting.
Section 4. QUORUM. At any corporate meeting of shareholders, the holders
of a majority of shares outstanding and entitled to vote, present in person
or by proxy, shall constitute a quorum. Meetings at which less than a
quorum is represented may, however, be adjourned from time to time to a
further date by those who attend, without further notice other than the
announcement at such meeting, and when a quorum shall be present upon any
such adjourned day, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 5. VOTING. Each shareholder entitled to vote at any meeting shall
have one vote in person or by proxy for each share of stock held by him
which has voting power upon the matter in question at the time; but no proxy
shall be voted on after three years from its date, unless said proxy
provides for a longer period.
Section 6. ORGANIZATION. The President shall call meetings of the
shareholders to order and shall act as Chairman of such meeting, unless
otherwise determined by the holders of a majority of all the shares of the
capital stock issued and outstanding and entitled to vote at the meeting,
present in person or by proxy. The Secretary of the Company shall act as
Secretary of all meetings of the Company, but in the absence of the
Secretary at any meeting of the shareholders or his inability to act as
Secretary, the presiding officer may appoint any person to act as Secretary
of the meeting.
Section 7. INSPECTORS AND TELLERS. At each annual meeting of the
shareholders all questions touching the qualifications of voters and the
validity of proxies and the acceptance or rejection of votes, shall be
decided by two Inspectors and Tellers; such Inspectors and Tellers may be
appointed by the Board of Directors before the meeting, or if no such
appointment shall have been made, then they shall be appointed by the
Presiding Officer at the meeting, or appointment may be made as provided by
statute. If, for any reason, any of the Inspectors and Tellers previously
appointed shall fail to attend, or be unable to serve, substitutes for those
so failing to attend or to serve, shall be appointed in like manner.
ARTICLE III
DIRECTORS
Section 1. NUMBER, CLASSIFICATION AND TERM; ELECTIONS. The business and
property of the company shall be managed and controlled by a board of not
less than nine directors nor more than fifteen directors as shall be fixed
from time to time by the Board of Directors. Each director shall hold
office for the term for which he is elected and thereafter until his
successor is elected and qualifies.
The Board of Directors shall be classified into three classes with staggered
terms of office. Each class shall be as nearly equal in number as possible.
Each class of directors shall be elected for a term of three years. At each
annual meeting of the shareholders, successors to the directors whose terms
expire in that year shall be elected to hold office for a term of three
years.
At any election of directors, nominations for the office of director may be
made by any shareholder present at the meeting. No person shall be eligible
for election to the office of director at any meeting of shareholders unless
he has been so nominated prior to the commencement of balloting. At each
election of directors the entire number of directors to be elected at such
meeting shall be balloted for at one and the same time and not separately.
Section 2. PLACE OF MEETING. The Directors shall hold their meetings at
the offices of the company except as otherwise specifically directed by a
majority of the Directors.
Section 3. MEETINGS. Meetings of the Board of Directors may be called at
any time by the President or Secretary, or by a majority of the Board of
Directors. Directors shall be notified in writing of the time and place of
all meetings of the Board, except the regular annual meeting held
immediately after the annual meeting of shareholders, at least two days
prior thereto. Meetings may be held at any time without notice if all the
Directors are present or if notice is waived by telegram, radiogram,
cablegram or other writing, either before or after the meeting, by those not
present.
Annual meetings of which no notice need be given shall be held each year
immediately following the annual meetings of shareholders in addition to
meetings called as aforesaid. Officers of the corporation shall be elected
at each annual meeting.
Section 4. QUORUM. A majority of the Board of Directors shall constitute a
quorum for the transaction of business, and if at any meeting of the Board
of Directors there be less than a quorum present, a majority of those
present may adjourn the meeting from time to time. Provided, that if the
Directors shall severally and/or collectively consent in writing to any
action to be taken by the corporation such action shall be as valid
corporate action as though it had been authorized as a meeting of the
Directors.
Section 5. VACANCIES. Vacancies in the Board of Directors may be filled by
election by the remaining members of the Board, though less than a quorum,
at any regular or special meeting, provided that at any special meeting of
the shareholders such election by the Directors may be set aside and such
vacancies filled by the shareholders. In case of any increase in the number
of Directors, the additional Directors may be elected by a majority of the
Board as constituted prior to such increase.
Section 6. COMPENSATION. No Director shall receive any salary or
compensation for his services as a Director, unless otherwise specially
ordered by the Board of Directors.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The Board of Directors shall elect or appoint a
President, a Secretary and a Treasurer, and may select a Chairman of the
Board, and one or more Vice Presidents, Assistant Secretaries or Assistant
Treasurers. The President and Chairman of the Board, if any, shall be
members of the Board of Directors. Any two or more of the above offices,
except those of President and Vice President, may be held by the same
person. No officer shall execute, acknowledge or verify an instrument in
more than one capacity if the instrument is required by law, the Articles of
Incorporation or these Bylaws to be executed, acknowledged, or verified by
one or more officers.
ARTICLE V
DUTIES OF OFFICERS
Section 1. CHAIRMAN. The Chairman of the Board, if such office is filled,
shall preside at all meetings of the shareholders and of the Board of
Directors at which the Chairman is present. The Chairman shall serve at the
pleasure of the Board, and the Board may leave such office vacant for any
length of time.
Section 2. PRESIDENT. The President shall act as the chief executive
officer of the corporation, and shall see that all orders and resolutions of
the Board are carried into effect. He shall have the general powers of
supervision and management usually vested in the chief executive officer of
a corporation, including the authority to vote all securities of other
corporations and business organizations which are held by the corporation,
and shall have the general powers of supervision and management over the
day-to-day operations of the corporation. In the absence or disability of
the Chairman of the Board, or if that office has not been filled, the
President also shall perform the duties and execute the powers of the
Chairman of the Board as set forth in these Bylaws.
Section 3. VICE PRESIDENTS. The Vice Presidents, in order of their
seniority, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President and shall perform such other
duties as the Board of Directors or the President may from time to time
prescribe.
Section 4. SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and of shareholders and shall record all votes and minutes of
all proceedings in a book to be kept for that purpose, shall give or cause
to be given notice of all meetings of the shareholders and of the Board of
Directors, and shall keep in safe custody the seal of the corporation and,
when authorized by the Board, affix the same to any instrument requiring it,
and when so affixed it shall be attested by the signature of the Secretary,
or by the signature of the Treasurer or an Assistant Secretary. The
Secretary may delegate any of the duties, powers and authorities of the
Secretary to one or more Assistant Secretaries, unless such delegation is
disapproved by the Board.
Section 5. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities; shall keep full and accurate accounts of
receipts and disbursements in books of the corporation; and shall deposit
all moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall render to the President and directors,
whenever they may require it, an account of his or her transactions as
Treasurer and of the financial condition of the corporation. The Treasurer
may delegate any of his or her duties, powers and authorities to one or more
Assistant Treasurers unless such delegation is disapproved by the Board of
Directors.
Section 6. EXECUTIVE COMMITTEE. The Board of Directors shall appoint an
Executive Committee of the Board which shall have and exercise the authority
of the Board of Directors in the management of the business of the
corporation between the meetings of the Board. The Executive Committee
shall consist of not less than three nor more than five members, as the
Board shall from time to time determine. All members of the Committee shall
be members of the Board and shall hold office at the pleasure of the Board,
except that the President shall be a member of the Committee. The Committee
shall have the power to fix the time of its meetings. Special meetings may
be called by any member of the Committee on one day's notice.
ARTICLE VI
CONTRACTS
Section 1. Formal contracts may be executed on behalf of this corporation
by the President or Vice-President and attested and the corporation seal
affixed by the Secretary or Assistant Secretary or executed in such other
manner as may be authorized by the Board of Directors.
ARTICLE VII
NOTICES TO SHAREHOLDERS, DIRECTORS AND OFFICERS
Section 1. GIVING NOTICE. Any notice required by statute or by these
Bylaws to be given, or which the company desired for any purpose or reason
to serve on, the shareholders or directors or any officer of the company
shall be deemed to be sufficient when given by depositing the same in a post
office box, in sealed postpaid wrapper addressed to such shareholder,
director or office at his last known address, and such notice shall be
deemed to have been given at the time of such mailing.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws, or any of them, may be altered, amended, added to
or repealed by a majority of the stock at any regular annual meeting of the
shareholders or at any special meeting, when the notice of such special
meeting shall contain a notice of such proposed change, or by a majority of
the Board of Directors, provided, that the Board of Directors shall not make
or alter any Bylaws fixing the qualifications, classifications or terms of
office of Directors.
Section 2. Every person becoming a shareholder in this company shall be
deemed to assent to these Bylaws and shall designate to the Secretary the
address to which he desires that the notice herein required to be given may
be sent, and all notices mailed to such addresses, with postage prepaid,
shall be considered as duly given at the date of mailing, and any person
failing to so designate his address shall be deemed to have waived notice of
such meeting.
ARTICLE IX
INDEMNIFICATION
Section 1. NON-DERIVATIVE ACTIONS. Subject to all of the other provisions
of this Article, 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 and whether formal or informal, other than
an action by or in the right of the corporation, by reason of the fact that
he is or was a director or officer of the corporation, or is or was serving
at the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, whether for profit or not, against
expenses, including attorneys' fees, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation or its shareholders, and with respect to any criminal
action or proceeding, if the person had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation or
its shareholders, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
Section 2. DERIVATIVE ACTIONS. Subject to all of the provisions of this
Article, the corporation shall indemnify any person who was or is a party to
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director or officer
of the corporation, or is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not, against expenses incurred, including
actual and reasonable attorney's fees, and amounts paid in settlement, by
him in connection with the action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation or its shareholders. However, indemnification shall not
be made in respect of any claim, issue or matter in which such person shall
have been found liable to the corporation unless and only to the extent that
the court in which such action or suit was brought has determined upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which such court considers proper.
Section 3. EXPENSES OF SUCCESSFUL DEFENSE. To the extent that a person has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section l or 2 of this Article, or in defense of
any claim, issue or matter in the action, suit or proceeding, he shall be
indemnified against expenses, including actual and reasonable attorneys'
fees, incurred by him in connection with the action, suit or proceeding and
any action, suit or proceeding brought to enforce the mandatory
indemnification provided by this Article IX.
Section 4. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification under Section l or 2 of this Article, unless ordered by a
court, shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the person is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Section l or 2, whichever is applicable. Such determination shall
be made in any of the following ways:
(a) By a majority vote of a quorum of the Board consisting of
directors who were not parties to such action, suit or proceeding.
(b) If the quorum described in clause (a) above is not obtainable,
then by a majority vote of a committee of directors who are not
parties to the action. The committee shall consist of not less than
two disinterested directors.
(c) By independent legal counsel in a written opinion.
(d) By the shareholders.
Section 5. PROPORTIONATE INDEMNITY. If a person is entitled to
indemnification under Section 1 or 2 of this Article for a portion of
expenses, including attorneys' fees, judgments, penalties, fines, and
amounts paid in settlement, but not for the total amount thereof, the
corporation may indemnify the person for the portion of the expenses,
judgments, penalties, fines, or amounts paid in settlement for which the
person is entitled to be indemnified.
Section 6. EXPENSE ADVANCE. Expenses incurred in defending a civil or
criminal action, suit or proceeding described in Section l or 2 of this
Article may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the person involved to repay the expenses if it is ultimately
determined that he is not entitled to be indemnified by the corporation.
The undertaking shall be by unlimited general obligation of the person on
whose behalf advances are made but need not be secured.
Section 7. FORMER DIRECTORS AND OFFICERS. The indemnification provided in
the foregoing Sections continues as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 8. INSURANCE; OTHER INDEMNIFICATION. (a) The corporation may
purchase and maintain insurance on behalf of any person who is or was a
director or officer of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would
have power to indemnify him against such liability under these Bylaws or the
laws of the State of Michigan.
(b) The indemnification or advancement of expenses provided under
this Article IX is not exclusive of other rights to which a person seeking
indemnification or advancement of expenses may be entitled under a
contractual arrangement with the corporation. However, the total amount of
expenses advanced or indemnified from all sources combined shall not exceed
the amount of actual expenses incurred by the person seeking indemnification
or advancement of expenses.
Section 9. CHANGES IN MICHIGAN LAW. In the event of any change of the
Michigan statutory provisions applicable to the corporation relating to the
subject matter of Article IX of these Bylaws, then the indemnification to
which any person shall be entitled hereunder shall be determined by such
changed provisions. The Board of Directors is authorized to amend these
Bylaws to conform to any such changed statutory provisions.
ARTICLE X
NON-APPLICABILITY OF CHAPTER 7B TO
CONTROL SHARE ACQUISITIONS
Section 1. NON-APPLICABILITY. The corporation shall not be subject to
Chapter 7B, "Control Share Acquisitions," of the Michigan Business
Corporation Act.
CROWLEY, MILNER AND COMPANY
AMENDMENT NO. 2
TO
1992 INCENTIVE STOCK PLAN
Effective March 19, 1996
CROWLEY, MILNER AND COMPANY
AMENDMENT NO. 2
TO
1992 INCENTIVE STOCK PLAN
Subject to shareholder approval, effective March 19, 1996, Section 5
of the Crowley, Milner and Company 1992 Incentive Stock Plan is amended and
restated to read in its entirety as follows:
"5. Stock. Subject to adjustment as provided in Section 10, the
total number of shares of Common Stock available for grants of Options and
awards of Restricted Stock under this Plan shall be three hundred thousand
(300,000). Shares subject to any unexercised portion of a terminated,
cancelled or expired Option granted hereunder, or Restricted Stock awarded
hereunder but subsequently forfeited and returned to the Corporation
pursuant to Section 8(b)(ii) hereof, may again be subjected to grants under
this Plan."
Capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the plan documents relative to the Crowley,
Milner and Company 1992 Incentive Stock Plan, effective March 25, 1992.
Except as set forth above with respect to Section 5 of the Plan, all
of the terms and conditions of the Plan shall continue and remain in full
force and effect.
The amendment to the Plan described herein shall be subject to the
approval of the holders of at least a majority of the Common Stock of the
Corporation present and entitled to vote at a meeting of shareholders of the
Corporation held within twelve (12) months after adoption of this Plan by
the Board. No Option granted or Restricted Stock awarded with respect to
the amendment to the Plan described herein may be exercised in whole or in
part until this Plan has been approved by the shareholders as provided
herein. If not approved by shareholders within such twelve (12) month
period, the amendment to the Plan described herein and any Options granted
or Restricted Stock awarded hereunder shall be rescinded.
* * *
This AMENDMENT NO. 2 TO 1992 INCENTIVE STOCK PLAN is hereby executed
as of the 19th day of March, 1996.
CROWLEY, MILNER AND COMPANY
By: /s/ DENNIS P. CALLAHAN
---------------------------
Dennis P. Callahan
Its: President
BOARD APPROVAL: March 19, 1996
SHAREHOLDER APPROVAL: August 20, 1996
ERNST & YOUNG LLP
Suite 1700
500 Woodward Avenue
Detroit, Michigan 48226-3426
September 17, 1996
Board of Directors
Crowley, Milner and Company
Detroit, Michigan
Note B of the notes to the three month and six month unaudited condensed
financial statements of Crowley, Milner and Company included in its Form 10-Q
for the quarter ended August 3, 1996 describes a change in the method of
determining inventory cost from the last in, first out (LIFO) method to the
first in, first out (FIFO) method. You have advised us that you believe
that the change is to a preferable method in your circumstances because the
FIFO method provides a better measure of the current value of the
inventories and the financial position of the Company given the minimum net
worth requirements mandated by a bond obligation, and the related emphasis
on the Company's equity placed by the Company's vendors and their factors.
There are no authoritative criteria for determining a "preferable" inventory
method based on the particular circumstances; however, we conclude that the
change in the method of determining inventory cost is to an acceptable
alternative method which, based on your business judgment to make this
change for the reasons cited above, is preferable in your circumstances. We
have not conducted an audit in accordance with generally accepted auditing
standards of any financial statements of the Company as of any date or for
any period subsequent to February 3, 1996 and therefore we do not express
any opinion on any financial statements of Crowley, Milner and Company
subsequent to that date.
/S/ Ernst & Young LLP
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