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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 1998
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Commission file number 1-6049
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Dayton Hudson Corporation
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(Exact name of registrant as specified in its charter)
Minnesota 41-0215170
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(State of incorporation or organization) (I.R.S. Employer Identification No.)
777 Nicollet Mall Minneapolis, Minnesota 55402-2055
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 370-6948
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None
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(Former name, former address and former fiscal year,
if changed since last report.)
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.
The number of shares outstanding of common stock as of October 31, 1998 was
440,824,935.
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DAYTON HUDSON CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
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PAGE
NO.
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<S> <C>
PART I FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Results of Operations for the Three Months, Nine Months 1
and Twelve Months ended October 31, 1998 and November 1, 1997
Condensed Consolidated Statements of Financial Position at October 31, 1998, 2
January 31, 1998 and November 1, 1997
Condensed Consolidated Statements of Cash Flows for the Nine Months ended 3
October 31, 1998 and November 1, 1997
Notes to Condensed Consolidated Financial Statements 4-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION 7-12
PART II OTHER INFORMATION:
ITEM 5 - OTHER INFORMATION 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
Signatures 15
Exhibit Index 16
</TABLE>
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED Dayton Hudson Corporation
RESULTS OF OPERATIONS and Subsidiaries
(Millions of Dollars, Except Per Share Data) Three Months Ended Nine Months Ended Twelve Months Ended
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OCTOBER 31, November 1, OCTOBER 31, November 1, OCTOBER 31, November 1,
(Unaudited) 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 7,288 $ 6,622 $ 20,812 $ 18,804 $ 29,765 $ 26,971
COSTS AND EXPENSES:
Cost of retail sales, buying and occupancy 5,333 4,815 15,203 13,654 21,868 19,684
Selling, publicity and administrative 1,228 1,111 3,516 3,225 4,823 4,481
Depreciation and amortization 200 176 577 520 751 688
Interest expense, net 104 107 301 321 396 429
Taxes other than income taxes 121 116 364 346 488 462
Real estate repositioning charge - - - - - 134
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Total Costs and Expenses 6,986 6,325 19,961 18,066 28,326 25,878
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EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY
CHARGES 302 297 851 738 1,439 1,093
Provision for Income Taxes 119 118 336 292 569 432
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NET EARNINGS BEFORE EXTRAORDINARY CHARGES 183 179 515 446 870 661
Extraordinary Charges from Purchase and Redemption
of Debt, Net of Tax 1 19 3 51 3 52
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NET EARNINGS $ 182 $ 160 $ 512 $ 395 $ 867 $ 609
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BASIC EARNINGS PER SHARE:
Earnings Before Extraordinary Charges $ .40 $ .40 $ 1.14 $ .99 $ 1.94 $ 1.47
Extraordinary Charges - (.04) (.01) (.12) (.01) (.12)
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BASIC EARNINGS PER SHARE $ .40 $ .36 $ 1.13 $ .87 $ 1.93 $ 1.35
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DILUTED EARNINGS PER SHARE:
Earnings Before Extraordinary Charges $ .39 $ .38 $ 1.09 $ .94 $ 1.85 $ 1.40
Extraordinary Charges - (.04) (.01) (.11) (.01) (.11)
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DILUTED EARNINGS PER SHARE $ .39 $ .34 $ 1.08 $ .83 $ 1.84 $ 1.29
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DIVIDENDS DECLARED PER COMMON SHARE $ .09 $ .08 $ .27 $ .24 $ .36 $ .32
AVERAGE COMMON SHARES OUTSTANDING (Millions):
Basic 440.5 436.5 439.5 435.7 439.0 435.3
Diluted 466.3 463.8 466.8 463.3 466.3 461.5
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</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS Dayton Hudson Corporation
OF FINANCIAL POSITION and Subsidiaries
OCTOBER 31, January 31, November 1,
(Millions of Dollars) 1998 1998* 1997
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<S> <C> <C> <C>
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 239 $ 211 $ 220
Retained securitized receivables 1,357 1,555 1,338
Merchandise inventories 4,669 3,251 4,065
Other 677 544 426
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Total Current Assets 6,942 5,561 6,049
PROPERTY AND EQUIPMENT 12,624 11,513 11,234
Accumulated depreciation (3,823) (3,388) (3,304)
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Property and Equipment, net 8,801 8,125 7,930
OTHER 687 505 512
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TOTAL ASSETS $ 16,430 $ 14,191 $ 14,491
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 3,363 $ 2,727 $ 2,825
Current portion of long-term debt and notes payable 685 273 753
Other 1,520 1,556 1,375
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Total Current Liabilities 5,568 4,556 4,953
LONG-TERM DEBT 5,166 4,425 4,720
DEFERRED INCOME TAXES AND OTHER 783 720 666
CONVERTIBLE PREFERRED STOCK, NET 28 30 34
SHAREHOLDERS' INVESTMENT 4,885 4,460 4,118
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 16,430 $ 14,191 $ 14,491
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COMMON SHARES OUTSTANDING (Millions) 440.8 437.8 437.1
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</TABLE>
* The January 31, 1998 Consolidated Statement of Financial Position is condensed
from the audited financial statement.
See accompanying Notes to Condensed Consolidated Financial Statements.
2
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS Dayton Hudson Corporation
STATEMENTS OF CASH FLOWS and Subsidiaries
(Millions of Dollars) Nine Months Ended
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OCTOBER 31, November 1,
(Unaudited) 1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings before extraordinary charges $ 515 $ 446
Reconciliation to cash flow:
Depreciation and amortization 577 520
Deferred tax provision (17) (36)
Other non-cash items affecting earnings 28 54
Changes in operating accounts providing/(requiring) cash, net of
acquisitions:
Retained securitized receivables 243 (18)
Sold securitized receivables 400 400
Maturity of sold securitized receivables (400) -
Merchandise inventories (1,391) (1,034)
Accounts payable 549 280
Accrued liabilities 8 158
Income taxes payable (61) (94)
Other (147) (38)
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Cash Flow Provided by Operations 304 638
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INVESTING ACTIVITIES
Expenditures for property and equipment (1,237) (983)
Proceeds from disposals of property and equipment 36 114
Acquisition of subsidiaries, net of cash received (100) -
Other (8) -
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Cash Flow (Required) for Investing Activities (1,309) (869)
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Net Financing Requirements (1,005) (231)
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FINANCING ACTIVITIES
Increase in notes payable, net 829 747
Additions to long-term debt 400 175
Reductions of long-term debt (95) (568)
Dividends paid (133) (120)
Other 32 16
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Cash Flow Provided by Financing Activities 1,033 250
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Net Increase in Cash and Cash Equivalents 28 19
Cash and Cash Equivalents at Beginning of Period 211 201
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 239 $ 220
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</TABLE>
Amounts in this statement are presented on a cash basis and therefore may
differ from those shown elsewhere in this 10-Q report. Cash paid for income
taxes was $427 million and $402 million during the first nine months of 1998
and 1997, respectively. Cash paid for interest (including interest
capitalized) in the first nine months of 1998 and 1997 was $267 million and
$360 million, respectively.
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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NOTES TO CONDENSED CONSOLIDATED Dayton Hudson Corporation
FINANCIAL STATEMENTS and Subsidiaries
ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements should be read
in conjunction with the financial statement disclosures contained in our 1997
Annual Shareholders' Report throughout pages 25-36. As explained on page 35
of the Annual Report, the same accounting policies are followed in preparing
quarterly financial data as are followed in preparing annual data. In the
opinion of management, all adjustments necessary for a fair presentation of
quarterly operating results are reflected herein and are of a normal,
recurring nature.
Due to the seasonal nature of the retail industry, quarterly earnings are not
necessarily indicative of the results that may be expected for the full
fiscal year.
INTERNAL USE SOFTWARE
We adopted Statement of Position (SOP) 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" in first quarter
1998. The adoption resulted in expense savings which increased pre-tax
earnings by approximately $13 and $51 million, net of depreciation, for the
third quarter and first nine months of 1998, respectively ($.02 and $.07 per
share), which partially offset our other systems expenses.
PER SHARE DATA
References to earnings per share relate to diluted earnings per share.
<TABLE>
<CAPTION>
Basic EPS Diluted EPS
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Three Months Nine Months Twelve Months Three Months Nine Months Twelve Months
Ended Ended Ended Ended Ended Ended
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OCT 31, Nov 1, OCT 31, Nov 1, OCT 31, Nov 1, OCT 31, Nov 1, OCT 31, Nov 1, OCT 31, Nov 1,
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings* $ 183 $ 179 $ 515 $ 446 $ 870 $ 661 $ 183 $ 179 $ 515 $ 446 $ 870 $ 661
Less: ESOP net earnings
adjustment (5) (5) (15) (15) (19) (20) (1) (3) (7) (10) (9) (13)
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Adjusted net earnings* $ 178 $ 174 $ 500 $ 431 $ 851 $ 641 $ 182 $ 176 $ 508 $ 436 $ 861 $ 648
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Weighted average common
shares outstanding 440.5 436.5 439.5 435.7 439.0 435.3 440.5 436.5 439.5 435.7 439.0 435.3
Performance shares - - - - - - .8 1.2 .9 1.4 .9 1.2
Stock options - - - - - - 4.3 3.9 5.2 3.7 5.0 2.3
Assumed conversion of
ESOP preferred shares - - - - - - 20.7 22.2 21.2 22.5 21.4 22.7
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Total common equivalent
shares outstanding 440.5 436.5 439.5 435.7 439.0 435.3 466.3 463.8 466.8 463.3 466.3 461.5
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Earnings Per Share* $ .40 $ .40 $ 1.14 $ .99 $ 1.94 $ 1.47 $ .39 $ .38 $ 1.09 $ .94 $ 1.85 $ 1.40
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</TABLE>
*Before extraordinary charges
4
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LONG-TERM DEBT
During the third quarter, we repurchased $4 million of high-coupon debt for
$5 million, resulting in an after-tax extraordinary charge of $1 million
(less than $.01 per share). The debt repurchased had an average interest rate
of 9.6 percent and an average remaining life of 13 years. Year-to-date, we
repurchased $16 million of high-coupon debt for $20 million, resulting in an
after-tax extraordinary charge of $3 million ($.01 per share). The
replacement of this debt with lower interest rate financing is expected to
result in future interest expense savings.
During the second quarter, we issued $200 million of long-term debt maturing
in June 2010, puttable in June 2000. In addition, we sold to a third party
the right to call and remarket these securities in June 2000 to their final
maturity. Also during the second quarter, we issued $200 million of long-term
debt with a coupon rate of 6.65%, maturing in August 2028.
SEGMENT DISCLOSURES (millions of dollars)
Revenues by segment were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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OCTOBER 31, November 1, OCTOBER 31, November 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Target $ 5,357 $ 4,778 $ 15,458 $ 13,695
Mervyn's 1,006 1,034 2,831 2,925
DSD 807 810 2,265 2,184
Corporate and other 118 - 258 -
----------- ----------- ----------- -----------
Total revenues $ 7,288 $ 6,622 $ 20,812 $ 18,804
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</TABLE>
Pre-tax segment profit and reconciliation to pre-tax earnings were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ----------------------------
OCTOBER 31, November 1, OCTOBER 31, November 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Target $ 293 $ 249 $ 932 $ 775
Mervyn's 53 68 136 176
DSD 78 70 164 138
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Total Pre-tax Segment Profit 424 387 1,232 1,089
Securitization adjustments:
SFAS 125 gain/(loss), net (3) 32 (3) 45
Interest equivalent (12) (7) (36) (20)
Interest expense, net (104) (107) (301) (321)
Corporate and other (3) (8) (41) (55)
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Earnings before income taxes
and extraordinary charges $ 302 $ 297 $ 851 $ 738
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</TABLE>
5
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ACCOUNTS RECEIVABLE SECURITIZATION
During the third quarter, Dayton Hudson Receivables Corporation (DHRC), a
special-purpose subsidiary, sold to the public $400 million of securitized
receivables. This issue of asset-backed securities has an expected maturity
of five years and a stated rate of 5.90%. Proceeds from the sale were used
for general corporate purposes, including funding the growth of receivables.
In conjunction with this transaction, DHRC retained a $123 million issue of
subordinated Class B asset-backed securities, which is classified in Retained
Securitized Receivables. As required by Statement of Financial Accounting
Standards (SFAS) No. 125, the sale transaction resulted in a pre-tax gain of
$35 million ($.05 per share). This gain was offset by a $38 million pre-tax
charge ($.05 per share) related to the maturity of our 1995 securitization.
The net impact resulted in a reduction of third quarter finance charge
revenues and pre-tax earnings of $3 million.
ACQUISITIONS
In the first quarter of 1998, we acquired The Associated Merchandising
Corporation, an international sourcing company for our three operating
divisions and other retailers, and Rivertown Trading Company, a direct
marketing firm. Both subsidiaries are included in the consolidated financial
statements. Their revenues and operating results are included in "Corporate
and other" and were immaterial in the third quarter and first nine months of
1998.
SUBSEQUENT EVENTS
DEBT ISSUANCE
On November 3, 1998 we issued $200 million of long-term debt with a coupon rate
of 5.875%, maturing in November 2008.
INVENTORY SHORTAGE
We have historically deducted for income tax purposes the inventory shortage
expense accrued for book purposes in a manner consistent with industry
practice. With respect to our 1983 Federal income tax return, the Internal
Revenue Service (IRS) challenged the practice of deducting accrued shortage
not verified with a year-end physical inventory. In second quarter of 1997,
the United States Tax Court (Tax Court) returned a judgment on this issue in
favor of the IRS. We appealed the decision to the United States Court of
Appeals for the Eighth Circuit (Appeals Court) and on August 14, 1998, the
Appeals Court reversed the Tax Court decision. On November 16, 1998, we
received notification that the IRS did not appeal the August decision and the
1983 case has been closed. While final resolution of subsequent years depends
on further action, if any, by the IRS, the beneficial effect of the outcome
of the 1983 case will be reflected as a reduction in the 1998 fourth quarter
and full year effective income tax rate.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1998
ANALYSIS OF OPERATIONS
The improvement in net earnings for the third quarter and first nine months of
1998 was due to strong performance at Target and DSD. Third quarter and
year-to-date 1998 and 1997 net earnings were as follows:
<TABLE>
<CAPTION>
Earnings Diluted Earnings Per Share
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Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
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OCT 31, Nov 1, OCT 31, Nov 1, OCT 31, Nov 1, OCT 31, Nov 1,
1998 1997 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings before unusual items $ 185 $ 160 $ 517 $ 419 $ .39 $ .34 $ 1.09 $ .88
Securitization gain, net of tax
(1998 pretax $35 mil, 1997 pretax
$32 and $45 mil) 21 19 21 27 .05 .04 .05 .06
Securitization loss, net of tax
(pretax $38 mil) (23) - (23) - (.05) - (.05) -
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Net SFAS 125 gain/(loss) (2) 19 (2) 27 - .04 - .06
Net earnings before extraordinary charges 183 179 515 446 .39 .38 1.09 .94
Extraordinary charges - debt repurchase,
net of tax (1) (19) (3) (51) - (.04) (.01) (.11)
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Net earnings $ 182 $ 160 $ 512 $ 395 $ .39 $ .34 $ 1.08 $ .83
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</TABLE>
REVENUES AND COMPARABLE-STORE SALES
Total revenues for the quarter increased 10.1 percent to $7,288 million
compared with $6,622 million for the same period a year ago. Total revenues
for the first nine months increased 10.7 percent to $20,812 million compared
with $18,804 million for the same period a year ago. Total comparable-store
sales (sales from stores open longer than one year) increased 3.7 percent and
4.7 percent for the three and nine-month periods, respectively.
Year-over-year changes in revenues and comparable-store sales by business
segment were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
--------------------------------- ----------------------------------
Comparable- Comparable-
Revenues Store Sales Revenues Store Sales
------------ --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Target 12.1% 5.1% 12.9% 5.7%
Mervyn's (2.8) (1.2) (3.2) (0.6)
DSD (0.3) 1.3 3.7 4.9
------------ --------------- ------------- ---------------
Total 10.1% 3.7% 10.7% 4.7%
------------ --------------- ------------- ---------------
------------ --------------- ------------- ---------------
</TABLE>
Target's revenue results reflect strong new and comparable-store sales
growth. Mervyn's revenues and comparable-store sales declined, primarily
reflecting weak sales of men's apparel in the quarter and lower than expected
sales in its West Coast stores year-to-date. DSD's revenue results reflect
modest comparable store sales growth in the quarter and strong
comparable-store sales growth year-to-date.
7
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PRE-TAX SEGMENT PROFIT
Pre-tax segment profit is first-in, first-out (FIFO) earnings from operations
before securitization effects, interest, corporate and other, and unusual
items. Our third quarter pre-tax segment profit increased 10 percent to $424
million compared with $387 million for the same period a year ago. Pre-tax
segment profit in the first nine months increased 13 percent to $1,232
million compared with $1,089 million for the same period a year ago.
Year-over-year pre-tax segment profit growth was as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Percentage Change Percentage Change
----------------- -----------------
<S> <C> <C>
Target 18% 20%
Mervyn's (22) (23)
DSD 11 19
-------- ------
Total Pre-tax Segment Profit 10% 13%
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</TABLE>
TARGET'S third quarter and nine-month pre-tax profit increased 18 and 20
percent, respectively, over the same periods last year, reflecting
comparable-store sales growth of 5.1 and 5.7 percent, respectively. During
the third quarter and first nine months, the gross margin rate improved
primarily due to favorable markdown performance. The operating expense rate
during the third quarter remained essentially unchanged from last year,
reflecting improved store productivity offset by higher wage rates. For the
first nine months, the operating expense rate was favorable to last year due
to productivity improvements, partially offset by higher wage rates. We
expect mid single-digit comparable-store sales growth at Target in the fourth
quarter, and a pre-tax profit margin even with, or slightly expanded over,
1997.
MERVYN'S third quarter and nine-month pre-tax profit decreased 22 and 23
percent, respectively, from the same periods last year, reflecting
comparable-store sales declines of 1.2 and 0.6 percent, respectively. The
gross margin rate declined during the third quarter and first nine months due
to unfavorable markdown performance. The operating expense rate increased in
both periods due to lower sales leverage. We expect a slightly improved sales
trend relative to our year-to-date performance at Mervyn's during the fourth
quarter and pre-tax profit essentially in line with last year's level.
DSD'S third quarter and nine-month pre-tax profit increased 11 and 19
percent, respectively, from the same periods last year, reflecting
comparable-store sales growth of 1.3 and 4.9 percent, respectively. The gross
margin rate improvement in the third quarter and first nine months was
primarily due to improved markup resulting from our strategic repositioning
efforts during the past few years. During the third quarter, the operating
expense rate was higher primarily due to enhanced guest service. The
operating expense rate year-to-date is slightly favorable to last year due to
strong sales leverage, offset by enhanced guest service. We expect low
single-digit comparable-store sales growth at DSD in the fourth quarter, and
a modest increase in pre-tax profit.
8
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OTHER PERFORMANCE FACTORS
Our proprietary guest credit programs strategically support our core retail
operations and are an integral component of each business segment. Therefore,
credit contribution is reflected in each business segment's pre-tax profit.
Net of all expenses, including bad debt expense, pre-tax contribution from
guest credit increased over the prior year, for both the quarter and
nine-month period, principally due to continued growth of the Target Guest
Card. We expect to continue to grow guest credit's contribution during the
fourth quarter of 1998 by acquiring new accounts, increasing participation in
our guest loyalty programs and controlling bad debt expense.
The last-in first-out (LIFO) provision, included in cost of retail sales, was
zero in the third quarter and first nine months of both 1998 and 1997. The
cumulative LIFO provision was $92 million at October 31, 1998 and January 31,
1998, and $86 million at November 1, 1997.
"Interest equivalent", as shown in our pre-tax earnings reconciliation on
page 5, represents payments to holders of our sold securitized receivables
and is included in our Consolidated Results of Operations as a reduction of
finance charge revenues and bad debt expense. We expect interest equivalent
of approximately $12 million in the fourth quarter of this year. For
analytical purposes, management includes the interest equivalent in interest
expense.
Combined interest expense and interest equivalent increased $2 million in the
third quarter compared to the same period last year due to higher average
funded balances, partially offset by portfolio rate favorability. For the
first nine months combined interest expense and interest equivalent decreased
$4 million compared to the same period last year due to a lower average
portfolio interest rate, partially offset by higher average funded balances.
For the balance of 1998, combined interest expense and interest equivalent is
expected to increase modestly above 1997 as somewhat higher average funded
balances are partially offset by continued portfolio rate favorability.
The estimated annual effective income tax rate was 39.5 percent in the third
quarter and first nine months of both 1998 and 1997. As noted on page 6, we
anticipate a reduction in the fourth quarter and full year 1998 effective
income tax rate.
YEAR 2000 READINESS DISCLOSURE
We began mitigating the risks associated with the Year 2000 date conversion
in 1993. In 1997 we established a corporate-wide, comprehensive plan of
action designed to achieve an uninterrupted transition into the year 2000.
This project includes three major elements: 1) information technology (IT)
systems, 2) non-IT, or embedded technology, systems and 3) relationships with
our key business partners. The project is divided into five phases:
awareness, assessment, renovation, validation and implementation. We have
completed the awareness and assessment phases for all three elements, and are
currently at different points in the renovation, validation and
implementation phases for each of the elements. We are using both internal
and external resources to implement our plan.
9
<PAGE>
For our IT systems, we have assessed both existing and newly implemented
hardware and applications (software and operating systems), and have
finalized the development of plans to address all assessed risks.
Approximately 80 percent of our hardware is year 2000 compliant, and the
remainder is currently in the renovation phase. Approximately 70 percent of
our applications are compliant, with 30 percent in the renovation phase. We
anticipate completion of the validation, or testing, phase for our software
by early/mid 1999, and we intend to extensively test our key operating
systems, through simulation of the year 2000, in late 1998 and early/mid
1999. Our year 2000 readiness in this area has been significantly enhanced by
our recent, substantial common systems development initiatives through which
we have invested heavily in IT over the past two years.
We began addressing non-IT systems, or embedded technology/infrastructure,
risks at our stores, distribution centers and headquarters facilities early
in our initiative. Approximately 85 percent of our non-IT systems are
compliant and the remainder are currently in the renovation phase. Validation
and implementation are approximately 80 percent complete and we anticipate
substantial completion by early 1999.
We have identified our key business partners and have been working closely
with them to assess their readiness and mitigate the risk to us if they are
not prepared for the year 2000. We have installed the year 2000 compliant
version of Electronic Data Interchange (EDI) software and expect to finalize
testing of EDI and other electronic transmissions with key business partners
by mid/late 1999.
In planning for the most reasonably likely worst case scenarios, we have
addressed all three major elements in our project. We believe our IT systems
will be ready for the year 2000, but we may experience isolated incidences of
non-compliance. We plan to allocate internal resources and retain dedicated
consultants and vendor representatives to be ready to take action if these
events occur. Our contingency plans for non-IT systems are currently in
process, and we are simultaneously putting the required resources in place to
carry out those plans for key non-IT systems, such as those within our
stores. We are contacting many critical business partners to assess their
readiness and will finish developing appropriate contingency plans by mid
1999. Although we value our established relationships with key vendors,
substitute products for most of the goods we sell in our stores may be
obtained from other vendors. If certain vendors are unable to deliver product
on a timely basis, due to their own year 2000 issues, we anticipate there
will be others who will be able to deliver similar goods. However, the lead
time involved in sourcing certain goods may result in temporary shortages of
a few of those items. We also recognize the risks to us if other key
suppliers in areas such as utilities, communications, transportation, banking
and government are not ready for the year 2000, and are developing
contingency plans to minimize the potential adverse impacts of these risks.
In 1998 we have expensed $12 million related to year 2000 readiness. Prior to
1998, we expensed approximately $5 million. We estimate approximately another
$35 million will be expensed as incurred to complete the year 2000 readiness
program, with most of the spending occurring over the next nine months. In
addition, this program has accelerated the timing of approximately $30
million of planned capital expenditures. All expenditures related to our year
2000 readiness initiative will be funded by cash flow from operations and
will not materially impact our other operating or investment plans.
10
<PAGE>
ANALYSIS OF FINANCIAL CONDITION
Our financial condition remains strong. We continue to fund the growth in our
business through a combination of retained earnings, debt and sold
securitized receivables. The ratio of debt to total capitalization
attributable to our retail operations was 50 percent at the end of third
quarter 1998, compared with 53 percent a year ago and 45 percent at year-end.
Due to the seasonality of our business, quarterly comparisons will fluctuate,
but we expect our debt ratio to continue to be below last year for the
balance of 1998.
At October 31, 1998, working capital was $1,374 million, up 25 percent
compared with a year ago. Retained securitized receivables were essentially
even with last year. Compared with last year, merchandise inventories
increased $604 million, or 15 percent. This was primarily a result of new
store growth and the timing of inventory receipts at Target, as well as
Mervyn's planned investment in strategic categories and items, designed to
improve basic in-stock positions and support holiday merchandise programs.
The inventory growth was substantially funded by a $538 million, or 19
percent, increase in accounts payable.
Capital expenditures for the first nine months of 1998 were $1,237 million,
compared with $983 million for the same period a year ago; 82 percent of the
current year expenditures were made by Target, 10 percent by Mervyn's and 8
percent by DSD.
STORE DATA
During the quarter, we opened 23 net new Target stores and closed one
Mervyn's store. At October 31, 1998, Target operated 851 stores in 41 states,
Mervyn's operated 268 stores in 14 states and DSD operated 64 stores in eight
states.
Retail square footage was as follows:
<TABLE>
<CAPTION>
(In thousands, reflects total square feet, less office, OCTOBER 31, January 31, November 1,
warehouse and vacant space) 1998 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Target 94,193 87,158 86,865
Mervyn's 21,729 21,810 22,153
DSD 13,935 14,090 14,082
- --------------------------------------------------------------------------------------------------------------------
Total Retail Square Footage 129,857 123,058 123,100
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FORWARD-LOOKING STATEMENTS
The preceding Management's Discussion and Analysis contains forward-looking
statements regarding the Company's performance, liquidity and the adequacy of
its capital resources. Those statements are based on management's current
assumptions and expectations and are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected. As a
result, the Company cautions that the forward-looking statements are qualified
by the risks of increased competition, shifting consumer demand, changing
consumer credit markets and general economic conditions, hiring and retaining
effective team members, sourcing merchandise from domestic and international
vendors, preparing for the impact of year 2000, and other risks and
uncertainties. As a result, while management believes that there is a reasonable
basis for the forward-looking statements, undue reliance should not be placed on
those statements. Readers are encouraged to review Exhibit (99), filed with our
second quarter 1998 Form 10-Q, which contains additional important factors that
may cause actual results to differ materially from those predicted in the
forward-looking statements.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ANNUAL MEETING - ADVANCE NOTICE PROVISIONS AND DISCRETIONARY VOTING
Shareholders desiring to submit proposals for possible inclusion in the
Company's 1999 Proxy Statement must do so on or before December 14, 1998. Such
proposals should be sent to the Secretary of the Corporation at 777 Nicollet
Mall, Minneapolis, Minnesota 55402.
In addition, the Company's Restated Articles of Incorporation and By-Laws
establish advance notice provisions for shareholder proposals to be brought
before any meeting of shareholders without any discussion of the matter in
the proxy statement. The Restated Articles of Incorporation establish advance
notice provisions for shareholder proposals related to the nomination and
election of Directors and the By-Laws establish advance notice provisions for
all other shareholder proposals. If the Company does not receive timely
notice, the business will be excluded from consideration at the meeting.
The advance notice provisions in the Company's By-Laws were amended on
November 11, 1998. The amendment provides that if a shareholder desires to
bring business before our 1999 Annual Meeting that does not relate to the
nomination and election of Directors, written notice of such business must be
received by the Company's Secretary not less than 90 days prior to the first
anniversary of our 1998 Annual Meeting (which took place on May 20, 1998). As
a result, the written notice must be given to the Company's Secretary by
February 19, 1999, at the above address and be in proper form. These advance
notice provisions supersede the statutory notice period in the revised Rule
14a-4(c)(1) of the federal proxy rules, addressing the discretionary proxy
voting authority of the Board of Directors in connection with such
shareholder business. The 1999 Annual Meeting is expected to be held
Wednesday, May 19, 1999.
ON-LINE ANNUAL MEETING MATERIALS
For our 1999 Annual Shareholders' Meeting, Dayton Hudson is offering our
registered shareholders the opportunity to receive our Annual Report and Proxy
Statement over the Internet, RATHER THAN BY MAIL.
Shareholders wishing to take advantage of this opportunity are required to
complete an on-line consent form which is located at the following website
address:
http://www.vote-by-net.com/signup/dhc
To receive materials electronically, your consent must be received by March 26,
1999.
Instructions for accessing the on-line Annual Meeting materials will be sent to
consenting shareholders following our record date.
In addition to voting by proxy card or telephone, all shareholders will be able
to vote their proxies electronically for the 1999 Annual Shareholders' Meeting.
Information regarding this option will be available after March 26, 1999.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27) Exhibits
<TABLE>
<S> <C>
(2). Not applicable
(3)(i). Certificate of Designation, Preferences and Rights of
Series B-1 ESOP Convertible Preferred Stock of Dayton
Hudson Corporation
(3)(ii). By-Laws of Dayton Hudson Corporation (As Amended
Through November 11, 1998)
(4). Instruments defining the rights of security holders,
including indentures. Registrant agrees to furnish
the Commission on request copies of instruments with
respect to long-term debt.
(10). Not applicable
(11). Not applicable
(12). Statements re Computations of Ratios
(15). Not applicable
(18). Not applicable
(19). Not applicable
(22). Not applicable
(23). Not applicable
(24). Not applicable
(27)(i). Financial Data Schedule
(27)(ii). Amended Financial Data Schedule for Second Quarter 1998
</TABLE>
b) Reports on Form 8-K:
Registrant did not file any reports on Form 8-K during the
quarter ended October 31, 1998.
14
<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.
DAYTON HUDSON CORPORATION
Registrant
Date: December 11, 1998 By /s/ Douglas A. Scovanner
---------------------------
Douglas A. Scovanner
Senior Vice President and
Chief Financial Officer
Date: December 11, 1998 By /s/ J.A. Bogdan
----------------------------
JoAnn Bogdan
Controller and
Chief Accounting Officer
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
(3)(i). Certificate of Designation, Preferences and Rights of Series
B-1 ESOP Convertible Preferred Stock of Dayton Hudson Corporation
(3)(ii). By-Laws of Dayton Hudson Corporation (As Amended Through November
11, 1998)
(12). Statements re Computations of Ratios
(27)(i). Financial Data Schedule
(27)(ii). Amended Financial Data Schedule for Second Quarter 1998
</TABLE>
16
<PAGE>
EXHIBIT (12)
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES AND
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS FOR THE
NINE MONTHS ENDED OCTOBER 31, 1998 AND NOVEMBER 1, 1997
AND FOR THE FIVE YEARS ENDED JANUARY 31, 1998
(Millions of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
-------------------- -----------------------------------------------------
OCT. 31, Nov. 1, Jan. 31, Feb. 1, Feb 3, Jan. 28, Jan. 29,
1998 1997 1998 1997 1996 1995 1994
--------- ------- -------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES:
Earnings:
Consolidated net earnings before extraordinary
charges....................................... $ 515 $ 446 $ 802 $ 474 $ 311 $ 434 $ 375
Income taxes..................................... 336 292 524 309 190 280 232
--------- ------- -------- ------- ------ -------- --------
Total earnings before extraordinary charges... 851 738 1,326 783 501 714 607
--------- ------- -------- ------- ------ -------- --------
Fixed charges:
Interest expense................................. 316 335 437 464 461 439 459
Interest portion of rental expense............... 45 43 59 59 59 56 45
--------- ------- -------- ------- ------ -------- --------
Total fixed charges........................... 361 378 496 523 520 495 504
--------- ------- -------- ------- ------ -------- --------
Less:
Capitalized interest............................. (14) (12) (16) (16) (14) (7) (5)
--------- ------- -------- ------- ------ -------- --------
Fixed charges in earnings...................... 347 366 480 507 506 488 499
--------- ------- -------- ------- ------ -------- --------
Earnings available for fixed charges.............. $ 1,198 $ 1,104 $ 1,806 $ 1,290 $1,007 $ 1,202 $ 1,106
--------- ------- -------- ------- ------ -------- --------
--------- ------- -------- ------- ------ -------- --------
Ratio of earnings before extraordinary charges
to fixed charges............................. 3.32 2.92 3.65 2.46 1.94 2.43 2.19
--------- ------- -------- ------- ------ -------- --------
--------- ------- -------- ------- ------ -------- --------
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS:
Total fixed charges, as above..................... $ 361 $ 378 $ 495 $ 523 $ 520 $ 495 $ 504
Dividends on preferred stock
(pre-tax basis).................................. 25 27 36 37 37 39 39
--------- ------- -------- ------- ------ -------- --------
Total fixed charges and preferred
stock dividends............................. 386 405 531 560 557 534 543
--------- ------- -------- ------- ------ -------- --------
Earnings available for fixed charges
and preferred stock dividends.................... $ 1,198 $ 1,104 $ 1,806 $ 1,290 $1,007 $ 1,202 $ 1,106
--------- ------- -------- ------- ------ -------- --------
--------- ------- -------- ------- ------ -------- --------
Ratio of earnings before extraordinary charges to
fixed charges and preferred stock dividends.... 3.10 2.73 3.40 2.30 1.81 2.25 2.04
--------- ------- -------- ------- ------ -------- --------
--------- ------- -------- ------- ------ -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAYTON
HUDSON CORPORATION'S FORM 10Q FOR THE THIRD QUARTER ENDED OCTOBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 1,357
<ALLOWANCES> 0
<INVENTORY> 4,669
<CURRENT-ASSETS> 6,942
<PP&E> 12,624
<DEPRECIATION> 3,823
<TOTAL-ASSETS> 16,430
<CURRENT-LIABILITIES> 5,567
<BONDS> 5,166
28
0
<COMMON> 73
<OTHER-SE> 4,812
<TOTAL-LIABILITY-AND-EQUITY> 16,430
<SALES> 20,812
<TOTAL-REVENUES> 20,812
<CGS> 15,203
<TOTAL-COSTS> 15,203
<OTHER-EXPENSES> 4,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> 851
<INCOME-TAX> 336
<INCOME-CONTINUING> 515
<DISCONTINUED> 0
<EXTRAORDINARY> 3
<CHANGES> 0
<NET-INCOME> 512
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.08
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAYTON
HUDSON CORPORATION'S FORM 10Q FOR THE SECOND QUARTER ENDED AUGUST 1, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 1,295
<ALLOWANCES> 0
<INVENTORY> 3,697
<CURRENT-ASSETS> 6,155
<PP&E> 12,240
<DEPRECIATION> 3,676
<TOTAL-ASSETS> 15,308
<CURRENT-LIABILITIES> 4,665
<BONDS> 5,132
20
0
<COMMON> 73
<OTHER-SE> 4,668
<TOTAL-LIABILITY-AND-EQUITY> 15,308
<SALES> 13,524
<TOTAL-REVENUES> 13,524
<CGS> 9,870
<TOTAL-COSTS> 9,870
<OTHER-EXPENSES> 2,908
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> 549
<INCOME-TAX> 217
<INCOME-CONTINUING> 332
<DISCONTINUED> 0
<EXTRAORDINARY> 2
<CHANGES> 0
<NET-INCOME> 330
<EPS-PRIMARY> .73
<EPS-DILUTED> .69
</TABLE>
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B-1 ESOP CONVERTIBLE PREFERRED STOCK
OF
DAYTON HUDSON CORPORATION
Pursuant to Section 302A.401 of the Business Corporation Act
of the State of Minnesota
We, Robert J. Ulrich, Chairman and Chief Executive Officer, and James T.
Hale, Secretary, of Dayton Hudson Corporation, a corporation organized and
existing under the Business Corporation Act of the State of Minnesota, in
accordance with the provisions of Section 302A.401 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Restated Articles of Incorporation, as amended, of said Corporation, said
Board of Directors on September 9, 1998, authorized the creation and issuance
of a new series of Preferred Stock and determined the designation and amount
thereof, and the voting powers, preferences, rights and limitations of the
shares of such series and that the issuance of the shares of said series of
Preferred Stock shall be conclusive evidence of the terms of said series
established by said Board of Directors and the approval thereof by said Board
of Directors; and
That pursuant to the authority granted to it by the Restated Articles of
Incorporation, as amended, of said Corporation, said Board of Directors
adopted the following resolution establishing a series of Twenty Thousand
(20,000) shares of Preferred Stock designated as Series B-1 ESOP Convertible
Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of its Restated Articles of
Incorporation, as amended, a series of Preferred Stock of the Corporation be,
and it hereby is, created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT; SPECIAL PURPOSE RESTRICTED TRANSFER ISSUE.
(A) The shares of such series shall be designated as "Series B-1 ESOP
Convertible Preferred Stock" (the "Series B-1 Preferred Stock") and the number
of shares constituting such series shall be 20,000.
(B) Shares of Series B-1 Preferred Stock shall be issued only to a trustee
(the "Trustee") acting on behalf of the Dayton Hudson Corporation 401(k) Plan,
or any successor to such plan (the "Plan"). All references to the holder of
shares of Series B-1 Preferred Stock shall mean the
<PAGE>
Trustee or any company with which or into which the Trustee may merge or any
successor trustee under the trust agreement with respect to the Plan. In the
event of any transfer of record ownership of shares of Series B-1 Preferred
Stock to any person other than any successor trustee under the Plan, the
shares of Series B-1 Preferred Stock so transferred, upon such transfer and
without any further action by the Corporation or the holder thereof, shall be
automatically converted into shares of Common Stock on the terms otherwise
provided for the conversion of shares of Series B-1 Preferred Stock into
shares of Common Stock pursuant to Section 5 hereof and no such transferee
shall have any of the voting powers, preferences and relative, participating,
optional or special rights ascribed to shares of Series B-1 Preferred Stock
hereunder but, rather, only the powers and rights pertaining to the Common
Stock into which such shares of Series B-1 Preferred Stock shall be so
converted. In the event of such a conversion, the transferee of the shares
of Series B-1 Preferred Stock shall be treated for all purposes as the record
holder of the shares of Common Stock into which such shares of Series B-1
Preferred Stock have been automatically converted as of the date of such
transfer. Certificates representing shares of Series B-1 Preferred Stock
shall bear a legend to reflect the foregoing provisions. Notwithstanding the
foregoing provisions of this paragraph (B) of Section 1, shares of Series B-1
Preferred Stock (i) may be converted into shares of Common Stock as provided
by Section 5 hereof and the shares of Common Stock issued upon such
conversion may be transferred by the holder thereof as permitted by law and
(ii) shall be redeemable by the Corporation upon the terms and conditions
provided by Sections 6, 7 and 8 hereof.
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series B-1 Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cash dividends ("Preferred Dividends") in an amount per
share equal to $56.20 per share per annum, and no more, payable quarterly in
arrears, one-quarter on the 10th day of March, one-quarter on the 10th day of
June, one-quarter on the 10th day of September and one-quarter on the 10th day
of December of each year (each a "Dividend Payment Date") commencing on December
10, 1998, to holders of record at the start of business on such Dividend Payment
Date. In the event that any Dividend Payment Date shall fall on any day other
than a "Business Day" (as hereinafter defined), the dividend payment due on such
Dividend Payment Date shall be paid on the Business Day immediately following
such Dividend Payment Date. Preferred Dividends shall begin to accrue on
outstanding shares of Series B-1 Preferred Stock from the date of issuance of
such shares of Series B-1 Preferred Stock. Preferred Dividends shall accrue on
a daily basis whether or not the Corporation shall have earnings or surplus at
the time, but Preferred Dividends accrued after issuance on the shares of Series
B-1 Preferred Stock for any period less than a full quarterly period between
Dividend Payment Dates (or, in the case of the first dividend payment, from the
date of issuance through December 10, 1998, which is the first Dividend Payment
Date) shall be computed on the basis of a 360-day year of 30-day months.
Accrued but unpaid Preferred Dividends shall cumulate as of the Dividend Payment
Date on which they first become payable, but no interest shall accrue on
accumulated but unpaid Preferred Dividends.
2
<PAGE>
(B) So long as any shares of Series B-1 Preferred Stock shall be
outstanding, no dividend shall be declared or paid or set apart for payment
on any other series of stock ranking on a parity with the Series B-1
Preferred Stock as to dividends, unless there shall also be or have been
declared and paid or set apart for payment on the Series B-1 Preferred Stock
dividends for all dividend payment periods of the Series B-1 Preferred Stock
ending on or before the dividend payment date of such parity stock, ratably
in proportion to the respective amounts of dividends accumulated and unpaid
through such dividend period on the Series B-1 Preferred Stock and
accumulated and unpaid or payable on such parity stock through the dividend
payment period on such parity stock next preceding such dividend payment
date. In the event that full cumulative dividends on the Series B-1
Preferred Stock have not been declared and paid or set apart for payment when
due, the Corporation shall not declare or pay or set apart for payment any
dividends or make any other distributions on, or make any payment on account
of the purchase, redemption or other retirement of any other class of stock
or series thereof of the Corporation ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Series B-1 Preferred Stock until full cumulative
dividends on the Series B-1 Preferred Stock shall have been paid or declared
and set apart for payment; PROVIDED, HOWEVER, that the foregoing shall not
apply to (i) any dividend payable solely in any shares of any stock ranking,
as to dividends and as to distributions in the event of a liquidation,
dissolution or winding-up of the Corporation, junior to the Series B-1
Preferred Stock or (ii) the acquisition of shares of any stock ranking, as to
dividends or as to distributions in the event of a liquidation, dissolution
or winding-up of the Corporation, junior to the Series B-1 Preferred Stock
either (A) pursuant to any employee or director incentive or benefit plan or
arrangement (including any employment, severance or consulting agreement) of
the Corporation or any subsidiary of the Corporation, heretofore or hereafter
adopted or (B) in exchange solely for shares of any other stock ranking, as
to dividends and as to distributions in the event of a liquidation,
dissolution or winding-up of the Corporation, junior to the Series B-1
Preferred Stock.
3. VOTING RIGHTS. The holders of shares of Series B-1 Preferred Stock
shall have the following voting rights:
(A) The holders of Series B-1 Preferred Stock shall be entitled to vote on
all matters submitted to a vote of the stockholders of the Corporation, voting
together with the holders of Series B ESOP Convertible Preferred Stock and
Common Stock as one class. The holder of each share of Series B-1 Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which such share of Series B-1 Preferred Stock could be
converted on the record date for determining the stockholders entitled to vote,
rounded to the nearest one-hundredth of a vote; it being understood that
whenever the "Conversion Price" (as defined in Section 5 hereof) is adjusted as
provided in Section 9 hereof, the voting rights of the Series B-1 Preferred
Stock shall also be similarly adjusted.
(B) Except as otherwise required by law or set forth herein, holders of
Series B-1 Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Series B ESOP Convertible Preferred Stock and Common Stock as set
forth herein) for the taking of any corporate action; PROVIDED,
3
<PAGE>
HOWEVER, that the vote of at least 66-2/3% of the outstanding shares of
Series B-1 Preferred Stock, voting separately as a series, shall be necessary
to adopt any alteration, amendment or repeal of any provision of the Restated
Articles of Incorporation of the Corporation, as amended, or this Resolution
(including any such alteration, amendment or repeal effected by any merger or
consolidation in which the Corporation is the surviving or resulting
corporation), if such amendment, alteration or repeal would alter or change
the powers, preferences, or special rights of the shares of Series B-1
Preferred Stock so as to affect them adversely.
4. LIQUIDATION, DISSOLUTION OR WINDING-UP.
(A) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the holders of Series B-1 Preferred Stock
shall be entitled to receive out of assets of the Corporation which remain
after satisfaction in full of all valid claims of creditors of the
Corporation and which are available for payment to stockholders, and subject
to the rights of the holders of any stock of the Corporation ranking senior
to or on a parity with the Series B-1 Preferred Stock in respect of
distributions upon liquidation, dissolution or winding-up of the Corporation,
before any amount shall be paid or distributed among the holders of Common
Stock or any other shares ranking junior to the Series B-1 Preferred Stock in
respect of distributions upon liquidation, dissolution or winding-up of the
Corporation, liquidating distributions in the amount of $864.60 per share,
plus an amount equal to all accrued and unpaid dividends thereon to the date
fixed for distribution, and no more. If, upon any liquidation, dissolution
or winding-up of the Corporation, the amounts payable with respect to the
Series B-1 Preferred Stock and any other stock ranking as to any such
distribution on a parity with the Series B-1 Preferred Stock are not paid in
full, the holders of the Series B-1 Preferred Stock and such other stock
shall share ratably in any distribution of assets in proportion to the full
respective preferential amounts to which they are entitled. After payment of
the full amount to which they are entitled as provided by the foregoing
provisions of this paragraph (A) of this Section 4, the holders of shares of
Series B-1 Preferred Stock shall not be entitled to any further right or
claim to any of the remaining assets of the Corporation.
(B) Neither the merger or consolidation of the Corporation with or into
any other corporation, nor the merger or consolidation of any other
corporation with or into the Corporation, nor the sale, lease, exchange or
other transfer of all or any portion of the assets of the Corporation, shall
be deemed to be a dissolution, liquidation or winding-up of the affairs of
the Corporation for purposes of this Section 4, but the holders of Series B-1
Preferred Stock shall nevertheless be entitled in the event of any such
merger or consolidation to the rights provided by Section 8 hereof.
(C) Written notice of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, stating the payment date or
dates when, and the place or places where, the amounts distributable to
holders of Series B-1 Preferred Stock in such circumstances shall be payable,
shall be given by hand delivery, by courier, by standard form of
telecommunication or by first-class mail (postage prepaid) delivered, sent or
mailed, as the case may be, not less than twenty (20) days prior to any
payment date stated therein, to the holders of Series B-1 Preferred
4
<PAGE>
Stock, at the address shown on the books of the Corporation or any transfer
agent for the Series B-1 Preferred Stock.
5. CONVERSION INTO COMMON STOCK.
(A) A holder of shares of Series B-1 Preferred Stock shall be entitled,
at any time prior to the close of business on the date fixed for redemption
of such shares pursuant to Sections 6, 7 and 8 hereof, to cause any or all of
such shares to be converted into shares of Common Stock, initially at a
conversion price equal to $14.41 per share of Common Stock, with each share
of Series B-1 Preferred Stock being valued at $864.60 for such purpose, and
which conversion price per share of Common Stock shall be adjusted as
hereinafter provided (and, as so adjusted, is hereinafter sometimes referred
to as the "Conversion Price") (that is, a conversion rate initially
equivalent to 60 shares of Common Stock for each share of Series B-1
Preferred Stock so converted, which is subject to adjustment as the
Conversion Price is adjusted as hereinafter provided).
(B) Any holder of shares of Series B-1 Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender the
certificate or certificates representing the shares of Series B-1 Preferred
Stock being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto),
at the principal executive office of the Corporation or the offices of the
transfer agent for the Series B-1 Preferred Stock or such office or offices
in the continental United States of an agent for conversion as may from time
to time be designated by notice to the holders of the Series B-1 Preferred
Stock by the Corporation or the transfer agent for the Series B-1 Preferred
Stock, accompanied by written notice of conversion. Such notice of
conversion shall specify (i) the number of shares of Series B-1 Preferred
Stock to be converted and the name or names in which such holder wishes the
certificate or certificates for Common Stock and for any shares of Series B-1
Preferred Stock not to be so converted to be issued and (ii) the address to
which such holder wishes delivery to be made of such new certificates to be
issued upon such conversion.
(C) Upon surrender of a certificate representing a share or shares of
Series B-1 Preferred Stock for conversion, the Corporation shall issue and
send by hand delivery, by courier or by first-class mail (postage prepaid) to
the holder thereof or to such holder's designee, at the address designated by
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled upon conversion. In the event
that there shall have been surrendered a certificate or certificates
representing shares of Series B-1 Preferred Stock, only part of which are to
be converted, the Corporation shall issue and deliver to such holder or such
holder's designee, in the manner set forth in the preceding sentence, a new
certificate or certificates representing the number of shares of Series B-1
Preferred Stock which shall not have been converted.
(D) The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of Series B-1 Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion
5
<PAGE>
thereof or (ii) the commencement of business on the second Business Day after
the surrender of the certificate or certificates for the shares of Series B-1
Preferred Stock to be converted, duly assigned or endorsed for transfer to
the Corporation (or accompanied by duly executed stock powers relating
thereto) and accompanied by all documentation required to effect the
conversion, as provided by this Resolution. On and after the effective date
of conversion, the person or persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock, but no allowance or
adjustment shall be made in respect of dividends payable to holders of Common
Stock in respect of any period prior to such effective date. The Corporation
shall not be obligated to pay any dividends which shall have been declared
and shall be payable to holders of shares of Series B-1 Preferred Stock on a
Dividend Payment Date if the record date for such dividend is subsequent to
the effective date of conversion of such shares.
(E) The Corporation shall not be obligated to deliver to holders of
Series B-1 Preferred Stock any fractional share or shares of Common Stock
issuable upon any conversion of such shares of Series B-1 Preferred Stock,
but in lieu thereof may make a cash payment in respect thereof in any manner
permitted by law.
(F) If the Corporation shall issue shares of Common Stock upon
conversion of shares of Series B-1 Preferred Stock as contemplated by this
Section 5, the Corporation shall, to the extent provided for, and subject to
the limitations set forth in, the Rights Agreement hereafter described, issue
together with each such share of Common Stock one right to purchase Series A
Junior Participating Preferred Stock of the Corporation (or other securities
in lieu thereof) pursuant to the Rights Agreement dated as of September 11,
1996 between the Corporation and Morgan Shareholder Services Trust Company as
Rights Agent, as such agreement may from time to time be amended (the "Rights
Agreement"), or any rights issued to holders of Common Stock of the
Corporation in addition thereto or in replacement therefor, whether or not
such rights shall be exercisable at such time, but only if such rights are
issued and outstanding and held by other holders of Common Stock of the
Corporation at such time and have not expired (such rights issued and
issuable pursuant to the Rights Agreement being hereinafter referred to as
the "Rights").
(G) The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for issuance upon the
conversion of shares of Series B-1 Preferred Stock as herein provided, free
from any preemptive rights, such number of shares of Common Stock as shall
from time to time be issuable upon the conversion of all the shares of Series
B-1 Preferred Stock then outstanding. The Corporation shall prepare and
shall use its best efforts to obtain and keep in force such governmental or
regulatory permits or other authorizations as may be required by law, and
shall comply with all requirements as to registration or qualification of the
Common Stock, in order to enable the Corporation lawfully to issue and
deliver to each holder of record of Series B-1 Preferred Stock such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all shares of Series B-1 Preferred Stock then outstanding
and convertible into shares of Common Stock.
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6. REDEMPTION AT THE OPTION OF THE CORPORATION.
(A) The Series B-1 Preferred Stock shall be redeemable, in whole or in
part, (i) at the option of the Corporation at any time after January 10, 2000
at $864.60 per share, plus an amount equal to all accrued and unpaid
dividends thereon to the date fixed for redemption, and (ii) as otherwise
permitted or required by this Section 6 and by Section 7 hereof. Payment of
the redemption price shall be made by the Corporation in cash or shares of
Common Stock, or a combination thereof, as permitted by paragraph (E) of this
Section 6. From and after the date fixed for redemption, dividends on shares
of Series B-1 Preferred Stock called for redemption will cease to accrue,
such shares will no longer be deemed to be outstanding and all rights in
respect of such shares of the Corporation shall cease, except the right to
receive the redemption price. If less than all of the outstanding shares of
Series B-1 Preferred Stock are to be redeemed, the Corporation shall either
redeem a portion of the shares of each holder determined pro rata based on
the number of shares held by each holder or shall select the shares to be
redeemed by lot, as may be determined by the Board of Directors of the
Corporation. If the full cumulative dividends have not been paid,
contemporaneously declared and set aside for payment on all outstanding
shares of Series B-1 Preferred Stock for all past Dividend Payment Dates, the
Company may not redeem fewer than all the outstanding shares of Series B-1
Preferred Stock pursuant to this Section 6.
(B) Unless otherwise required by law, notice of redemption will be sent
to the holders of Series B-1 Preferred Stock at the address shown on the
books of the Corporation or any transfer agent for the Series B-1 Preferred
Stock by hand delivery, by courier, by standard form of telecommunication or
by first-class mail (postage prepaid) delivered, sent or mailed, as the case
may be, not less than twenty (20) days nor more than sixty (60) days prior to
the redemption date. Each such notice shall state: (i) the redemption date;
(ii) the total number of shares of the Series B-1 Preferred Stock to be
redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii)
the redemption price; (iv) whether the redemption price shall be paid in cash
or in shares of Common Stock, or in a combination of such Common Stock and
cash; (v) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; (vi) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vii)
the conversion rights of the shares to be redeemed, the period within which
conversion rights may be exercised, and the Conversion Price and number of
shares of Common Stock issuable upon conversion of a share of Series B-1
Preferred Stock at the time. Upon surrender of the certificate for any
shares so called for redemption and not previously converted (properly
endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the date fixed for redemption and at
the redemption price set forth in this Section 6 or Section 7 hereof, as the
case may be.
(C) In the event (i) of a change in any statute, rule or regulation of the
United States of America which has the effect of limiting or making unavailable
to the Corporation all or any of the tax deductions for amounts paid (including
dividends) on the Series B-1 Preferred Stock when such amounts are used as
provided under Section 404(k)(2) of the Internal Revenue Code
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of 1986, as amended and in effect on the date shares of Series B-1 Preferred
Stock are initially issued or (ii) the Plan is not initially determined by
the Internal Revenue Service to be qualified within the meaning of Section
401(a) and Section 4975(e)(7) of the Internal Revenue Code of 1986, as
amended, the Corporation may, in its sole discretion and notwithstanding
anything to the contrary in paragraph (A) of this Section 6, elect to redeem
any or all of such shares for cash or, if the Corporation so elects, in
shares of Common Stock, or a combination of such shares of Common Stock and
cash, any such shares of Common Stock to be valued for such purpose at their
Fair Market Value (as defined in paragraph (G) of Section 9 hereof), at a
redemption price equal to the higher of (x) $864.60 per share plus accrued
and unpaid dividends thereon to the date fixed for redemption or (y) the fair
market value per share of Series B-1 Preferred Stock as determined by an
independent appraiser, appointed by the Corporation in accordance with the
provisions of the Plan, as of the most recent Valuation Date, as defined in
the Plan.
(D) In the event that the Plan is terminated or the employee stock
ownership plan feature of the Plan is terminated or eliminated from the Plan
in accordance with its terms, and notwithstanding anything to the contrary in
paragraph (A) of this Section 6, the Corporation shall, as soon thereafter as
practicable, call for redemption all then outstanding shares of Series B-1
Preferred Stock for cash or, if the Corporation so elects, in shares of
Common Stock and cash, any such shares of Common Stock to be valued for such
purpose at their Fair Market Value (as defined in paragraph (G) of Section 9
hereof), at a redemption price equal to the higher of (x) $864.60 per share
plus accrued and unpaid dividends thereon to the date fixed for redemption or
(y) the fair market value per share of Series B-1 Preferred Stock as
determined by an independent appraiser, appointed by the Corporation in
accordance with the provisions of the Plan, as of the most recent Valuation
Date, as defined in the Plan.
(E) The Corporation, at its option, may make payment of the redemption
price required upon redemption of shares of Series B-1 Preferred Stock in
cash or in shares of Common Stock, or in a combination of such Common Stock
and cash, any such shares of Common Stock to be valued for such purposes at
their Fair Market Value (as defined in paragraph (G) of Section 9 hereof).
7. OTHER REDEMPTION RIGHTS. Shares of Series B-1 Preferred Stock
shall be redeemed by the Corporation for cash or, if the Corporation so
elects, in shares of Common Stock, or a combination of such shares and cash,
any such shares of Common Stock to be valued for such purpose at their Fair
Market Value (as defined in paragraph (G) of Section 9 hereof), at a
redemption price of $864.60 per share plus accrued and unpaid dividends
thereon to the date fixed for redemption, at the option of the holder, at any
time and from time to time upon notice to the Corporation given not less than
five (5) business days prior to the date fixed by the holder in such notice
for such redemption, upon certification by such holder to the Corporation of
the following events: (i) when and to the extent necessary for such holder
to make any payments of principal, interest or premium due and payable
(whether as scheduled, upon acceleration or otherwise) under note from the
Plan to the Corporation or any indebtedness, expenses or costs incurred by
the holder for the benefit of the Plan; or (ii) in the event that the Plan is
not initially determined by the Internal Revenue Service to be qualified
within the meaning of Section 401(a) and Section 4975(e)(7) of the Internal
Revenue Code of 1986, as amended. Shares of Series B-1 Preferred
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Stock shall also be redeemed by the Corporation for cash or, if the
Corporation so elects, in shares of Common Stock, or a combination of such
shares and cash, any such shares of Common Stock to be valued for such
purpose at their Fair Market Value (as defined in paragraph (G) of Section 9
hereof), at a redemption price equal to the higher of (x) $864.60 per share
plus accrued and unpaid dividends thereon to the date fixed for redemption or
(y) the fair market value per share of Series B-1 Preferred Stock as
determined by an independent appraiser appointed by the Corporation in
accordance with the provisions of the Plan, as of the most recent Valuation
Date, as defined in the Plan, at the option of the holder, at any time and
from time to time upon notice to the Corporation given not less than five (5)
business days prior to the date fixed by the holder in such notice for such
redemption, upon certification by such holder to the Corporation that it is
necessary for such holder to provide for distributions required to be made
under, or to satisfy an investment election provided to participants in
accordance with Section 9.6 of, the Plan.
8. CONSOLIDATION, MERGER, ETC.
(A) In the event that the Corporation shall consummate any
consolidation or merger or similar business combination, pursuant to which
the outstanding shares of Common Stock are by operation of law exchanged
solely for or changed, reclassified or converted solely into stock of any
successor or resulting corporation (including the Corporation) that
constitutes "qualifying employer securities" with respect to a holder of
Series B-1 Preferred Stock within the meaning of Section 409(1) of the
Internal Revenue Code of 1986, as amended, and Section 407(d)(5) of the
Employee Retirement Income Security Act of 1974, as amended, or any successor
provisions of law, and, if applicable, for a cash payment in lieu of
fractional shares, if any, the shares of Series B-1 Preferred Stock of such
holder shall, in connection with such consolidation, merger or similar
business combination, be assumed by and shall become preferred stock of such
successor or resulting corporation, having in respect of such corporation,
insofar as possible, the same powers, preferences and relative,
participating, optional or other special rights (including the redemption
rights provided by Sections 6, 7 and 8 hereof), and the qualifications,
limitations or restrictions thereon, that the Series B-1 Preferred Stock had
immediately prior to such transaction, except that after such transaction
each share of the Series B-1 Preferred Stock shall be convertible, otherwise
on the terms and conditions provided by Section 5 hereof, into the number and
kind of qualifying employer securities so receivable by a holder of the
number of shares of Common Stock into which such shares of Series B-1
Preferred Stock could have been converted immediately prior to such
transaction; PROVIDED, HOWEVER, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holders of the
Series B-1 Preferred Stock, then the shares of Series B-1 Preferred Stock
shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in kind)
receivable by a holder of the number of shares of Common Stock into which
such shares of Series B-1 Preferred Stock could have been converted
immediately prior to such transaction if such holder of Common Stock failed
to exercise any rights of election to receive any kind or amount of stock,
securities, cash or other property (other than such qualifying employer
securities and a cash payment, if applicable, in lieu of fractional shares)
receivable upon such transaction (provided that, if the kind or amount of
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qualifying employer securities receivable upon such transaction is not the
same for each non-electing share, then the kind and amount so receivable upon
such transaction for each non-electing share shall be the kind and amount so
receivable per share by the plurality of the non-electing shares). The
rights of the Series B-1 Preferred Stock as preferred stock of such successor
or resulting corporation shall successively be subject to adjustments
pursuant to Section 3 and Section 9 hereof after any such transaction as
nearly equivalent as practicable to the adjustment provided for by such
sections prior to such transaction. The Corporation shall not consummate any
such merger, consolidation or similar transaction unless all then outstanding
shares of Series B-1 Preferred Stock shall be assumed and authorized by the
successor or resulting corporation as aforesaid.
(B) In the event that the Corporation shall consummate any
consolidation or merger or similar business combination, pursuant to which
the outstanding shares of Common Stock are by operation of law exchanged for
or changed, reclassified or converted into other stock or securities or cash
or any other property, or any combination thereof, other than any such
consideration which is constituted solely of qualifying employer securities
(as referred to in paragraph (A) of this Section 8) and cash payments, if
applicable, in lieu of fractional shares, outstanding shares of Series B-1
Preferred Stock shall, without any action on the part of the Corporation or
any holder thereof (but subject to paragraph (C) of this Section 8), be
automatically converted by virtue of such merger, consolidation or similar
transaction immediately prior to such consummation into the number of shares
of Common Stock into which such shares of Series B-1 Preferred Stock could
have been converted at such time so that each share of Series B-1 Preferred
Stock shall, by virtue of such transaction and on the same terms as apply to
the holders of Common Stock, be converted into or exchanged for the aggregate
amount of stock, securities, cash or other property (payable in like kind)
receivable by a holder of the number of shares of Common Stock into which
such shares of Series B-1 Preferred Stock could have been converted
immediately prior to such transaction; PROVIDED, HOWEVER, that if by virtue
of the structure of such transaction, a holder of Common Stock is required to
make an election with respect to the nature and kind of consideration to be
received in such transaction, which election cannot practicably be made by
the holders of the Series B-1 Preferred Stock, then the shares of Series B-1
Preferred Stock shall, by virtue of such transaction and on the same terms as
apply to the holders of Common Stock, be converted into or exchanged for the
aggregate amount of stock, securities, cash or other property (payable in
kind) receivable by a holder of the number of shares of Common Stock into
which such shares of Series B-1 Preferred Stock could have been converted
immediately prior to such transaction if such holder of Common Stock failed
to exercise any rights of election as to the kind or amount of stock,
securities, cash or other property receivable upon such transaction (provided
that, if the kind or amount of stock, securities, cash or other property
receivable upon such transaction is not the same for each non-electing share,
then the kind and amount of stock, securities, cash or other property
receivable upon such transaction for each non-electing share shall be the
kind and amount so receivable per share by a plurality of the non-electing
shares).
(C) In the event the Corporation shall enter into any agreement providing
for any consolidation or merger or similar business combination described in
paragraph (B) of this Section 8, then the Corporation shall as soon as
practicable thereafter (and in any event at least ten (10) business days before
consummation of such transaction) give notice of such agreement
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and the material terms thereof to each holder of Series B-1 Preferred Stock
and each such holder shall have the right to elect, by written notice to the
Corporation, to receive, upon consummation of such transaction (if and when
such transaction is consummated), from the Corporation or the successor of
the Corporation, in redemption and retirement of such Series B-1 Preferred
Stock, a cash payment equal to the higher of (x) $864.60 per share plus
accrued and unpaid dividends thereon to the date of consummation of such
transaction or (y) the fair market value per share of Series B-1 Preferred
Stock as determined by an independent appraiser, appointed by the Corporation
in accordance with the provisions of the Plan, as of the last business day of
the month immediately preceding the month in which such fair market value is
being determined. No such notice of redemption shall be effective unless
given to the Corporation prior to the close of business on the second
business day prior to consummation of such transaction, unless the
Corporation or the successor of the Corporation shall waive such prior
notice, but any notice of redemption so given prior to such time may be
withdrawn by notice of withdrawal given to the Corporation prior to the close
of business on the second business day prior to consummation of such
transaction.
9. ANTI-DILUTION ADJUSTMENTS.
(A) In the event the Corporation shall, at any time or from time to
time while any of the shares of the Series B-1 Preferred Stock are
outstanding, (i) pay a dividend or make a distribution in respect of the
Common Stock in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, or (iii) combine the outstanding shares of Common Stock into
a smaller number of shares, in each case whether by reclassification of
shares, recapitalization of the Corporation (including a recapitalization
effected by a merger or consolidation to which Section 8 hereof does not
apply) or otherwise, subject to the provisions of paragraphs (E) and (F) of
this Section 9, the Conversion Price in effect immediately prior to such
action shall be adjusted by multiplying such Conversion Price by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately before such event, and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event. An
adjustment made pursuant to this paragraph 9(A) shall be given effect, upon
payment of such a dividend or distribution, as of the record date for the
determination of stockholders entitled to receive such dividend or
distribution (on a retroactive basis) and in the case of a subdivision or
combination shall become effective immediately as of the effective date
thereof.
(B) In the event that the Corporation shall, at any time or from time to
time while any of the shares of Series B-1 Preferred Stock are outstanding,
issue to holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (but not
including as such a right or warrant (i) any security convertible into or
exchangeable for shares of Common Stock or (ii) any Rights issued pursuant to or
governed by the Rights Agreement or any successor agreement thereto) at a
purchase price per share less than the Fair Market Value (as hereinafter
defined) of a share of Common Stock on the date of issuance of such right or
warrant, then, subject to the provisions of paragraphs (E) and (F) of this
Section 9, the Conversion Price shall be adjusted by multiplying such Conversion
Price by a fraction, the
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numerator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the number of
shares of Common Stock which could be purchased at the Fair Market Value of a
share of Common Stock at the time of such issuance for the maximum aggregate
consideration payable upon exercise in full of all such rights or warrants,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately before such issuance of rights or warrants plus the
maximum number of shares of Common Stock that could be acquired upon exercise
in full of all such rights and warrants.
(C) In the event the Corporation shall, at any time or from time to time
while any of the shares of Series B-1 Preferred Stock are outstanding, issue,
sell or exchange shares of Common Stock (other than pursuant to (i) any right or
warrant to purchase or acquire shares of Common Stock (including as such a right
or warrant any security convertible into or exchangeable for shares of Common
Stock), (ii) any Rights issued pursuant to or governed by the Rights Agreement
or any successor agreement thereto and (iii) any employee or director incentive
or benefit plan or arrangement (including any employment, severance or
consulting agreement) of the Corporation or any subsidiary of the Corporation
heretofore or hereafter adopted) for a consideration having a Fair Market Value,
on the date of such issuance, sale or exchange, less than the Fair Market Value
of such shares on the date of issuance, sale or exchange, then, subject to the
provisions of paragraphs (E) and (F) of this Section 9, the Conversion Price
shall be adjusted by multiplying such Conversion Price by the fraction the
numerator of which shall be the sum of (i) the Fair Market Value of all the
shares of Common Stock outstanding on the day immediately preceding the first
public announcement of such issuance, sale or exchange plus (ii) the Fair Market
Value of the consideration received by the Corporation in respect of such
issuance, sale or exchange of shares of Common Stock, and the denominator of
which shall be the product of (a) the Fair Market Value of a share of Common
Stock on the day immediately preceding the first public announcement of such
issuance, sale or exchange multiplied by (b) the sum of the number of shares of
Common Stock outstanding on such day plus the number of shares of Common Stock
so issued, sold or exchanged by the Corporation. In the event the Corporation
shall, at any time or from time to time while any shares of Series B-1 Preferred
Stock are outstanding, issue, sell or exchange any right or warrant to purchase
or acquire shares of Common Stock (including as such a right or warrant any
security convertible into or exchangeable for shares of Common Stock), other
than any such issuance (i) to holders of shares of Common Stock as a dividend or
distribution (including by way of a reclassification of shares or a
recapitalization of the Corporation), (ii) pursuant to any employee or director
incentive or benefit plan or arrangement (including any employment, severance or
consulting agreement) of the Corporation or any subsidiary of the Corporation
heretofore or hereafter adopted and (iii) of Rights issued pursuant to or
governed by the Rights Agreement or any successor agreement thereto, for a
consideration having a Fair Market Value, on the date of such issuance, sale or
exchange, less than the Non-Dilutive Amount (as hereinafter defined), then,
subject to the provisions of paragraphs (E) and (F) of this Section 9, the
Conversion Price shall be adjusted by multiplying such Conversion Price by a
fraction the numerator of which shall be the sum of (I) the Fair Market Value of
all the shares of Common Stock outstanding on the day immediately preceding the
first public announcement of such issuance, sale or exchange plus (II) the Fair
Market Value of the consideration received by the Corporation in respect of such
issuance, sale
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or exchange of such right or warrant plus (III) the Fair Market Value at the
time of such issuance of the consideration which the Corporation would
receive upon exercise in full of all such rights or warrants, and the
denominator of which shall be the product of (i) the Fair Market Value of a
share of Common Stock on the day immediately preceding the first public
announcement of such issuance, sale or exchange multiplied by (ii) the sum of
the number of shares of Common stock outstanding on such day plus the maximum
number of shares of Common Stock which could be acquired pursuant to such
right or warrant at the time of the issuance, sale or exchange of such right
or warrant (assuming shares of Common Stock could be acquired pursuant to
such right or warrant at such time).
(D) In the event the Corporation shall, at any time or from time to time
while any of the shares of Series B-1 Preferred Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which Section 8 hereof
does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of
Common Stock, the Conversion Price in effect immediately prior to such
Extraordinary Distribution or Pro Rata Repurchase shall, subject to paragraphs
(E) and (F) of this Section 9, be adjusted by multiplying such Conversion Price
by the fraction the numerator of which is the difference between (i) the product
of (x) the number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Fair
Market Value of a share of Common Stock on the day before the ex-dividend date
with respect to an Extraordinary Distribution which is paid in cash and on the
distribution date with respect to an Extraordinary Distribution which is paid
other than in cash, or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on
the date of purchase with respect to any Pro Rata Repurchase which is not a
tender offer, as the case may be, and (ii) the Fair Market Value of the
Extraordinary Distribution or the aggregate purchase price of the Pro Rata
Repurchase, as the case may be, and the denominator of which shall be the
product of (a) the number of shares of Common Stock outstanding immediately
before such Extraordinary Dividend or Pro Rata Repurchase minus, in the case of
a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the
Corporation multiplied by (b) the Fair Market Value of a share of Common Stock
on the day before the ex-dividend date with respect to an Extraordinary
Distribution which is paid in cash and on the distribution date with respect to
an Extraordinary Distribution which is paid other than in cash, or on the
applicable expiration date (including all extensions thereof) of any tender
offer which is a Pro Rata Repurchase or on the date of purchase with respect to
any Pro Rata Repurchase which is not a tender offer, as the case may be. The
Corporation shall send each holder of Series B-1 Preferred Stock (i) notice of
its intent to make any dividend or distribution and (ii) notice of any offer by
the Corporation to make a Pro Rata Repurchase, in each case at the same time as,
or as soon as practicable after, such offer is first communicated (including by
announcement of a record date in accordance with the rules of any stock exchange
on which the Common Stock is listed or admitted to trading) to holders of Common
Stock. Such notice shall indicate the intended record date and the amount and
nature of such dividend or distribution, or the number of shares subject to such
offer for a Pro Rata Repurchase and the purchase price payable by the
Corporation pursuant to such offer,
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as well as the Conversion Price and the number of shares of Common Stock
into which a share of Series B-1 Preferred Stock may be converted at such
time.
(E) Notwithstanding any other provisions of this Section 9, the
Corporation shall not be required to make any adjustment to the Conversion Price
unless such adjustment would require an increase or decrease of at least one
percent (1%) in the Conversion Price. Any lesser adjustment shall be carried
forward and shall be made no later than the time of, and together with, the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least one percent
(1%) in the Conversion Price.
(F) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the Conversion
Price pursuant to the foregoing provisions of this Section 9, the Board of
Directors of the Corporation shall consider whether such action is of such a
nature that an adjustment to the Conversion Price should equitably be made in
respect of such transaction. If in such case the Board of Directors of the
Corporation determines that an adjustment to the Conversion Price should be
made, an adjustment shall be made effective as of such date, as determined by
the Board of Directors of the Corporation (which adjustment shall in no event
adversely affect the powers, preferences or special rights of the Series B-1
Preferred Stock as set forth herein). The determination of the Board of
Directors of the Corporation as to whether an adjustment to the Conversion Price
should be made pursuant to the foregoing provisions of this paragraph 9(F), and,
if so, as to what adjustment should be made and when, shall be final and binding
on the Corporation and all stockholders of the Corporation. The Corporation
shall be entitled to make such additional adjustments in the Conversion Price,
in addition to those required by the foregoing provisions of this Section 9, as
shall be necessary in order that any dividend or distribution in shares of
capital stock of the Corporation, subdivision, reclassification or combination
of shares of stock of the Corporation or any recapitalization of the Corporation
shall not be taxable to the holders of the Common Stock.
(G) For purposes of this Resolution, the following definitions shall
apply:
"Adjustment Period" shall mean the period of five (5) consecutive trading
days preceding the date as of which the Fair Market Value of a security is to be
determined.
"Business Day" shall mean each day that is not a Saturday, Sunday or a day
on which state or federally chartered banking institutions in New York, New York
are not required to be open.
"Current Market Price" of publicly traded shares of Common Stock or any
other class of capital stock or other security of the Corporation or any other
issuer for any day shall mean the last reported sales price, regular way, or, in
the event that no sale takes place on such day, the average of the reported
closing bid and asked prices, regular way, in either case as reported on the New
York Stock Exchange Composite Tape or, if such security is not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which
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such security is listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, on the National Market System
of the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") or, if such security is not quoted on such National Market
System, the average of the closing bid and asked prices on each such day in
the over-the counter market as reported by NASDAQ or, if bid and asked prices
for such security on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for such day as furnished by
any New York Stock Exchange member firm regularly making a market in such
security selected for such purpose by the Board of Directors of the
Corporation or a committee thereof.
"Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the shares of
Series B-1 Preferred Stock are outstanding) (i) of cash (other than a
regularly scheduled quarterly dividend not exceeding 135% of the average
quarterly dividend for the four quarters immediately preceding such
dividend), where the aggregate amount of such cash dividend or distribution
together with the amount of all cash dividends and distributions made during
the preceding period of 12 months, when combined with the aggregate amount of
all Pro Rata Repurchases (for this purpose, including only that portion of
the aggregate purchase price of such Pro Rata Repurchase which is in excess
of the Fair Market Value of the Common Stock repurchased as determined on the
applicable expiration date (including all extensions thereof) of any tender
offer or exchange offer which is a Pro Rata Repurchase, or the date of
purchase with respect to any other Pro Rata Repurchase which is not a tender
offer or exchange offer made during such period), exceeds ten percent (10%)
of the aggregate Fair Market Value of all shares of Common Stock outstanding
on the day before the ex-dividend date with respect to such Extraordinary
Distribution which is paid in cash and on the distribution date with respect
to an Extraordinary Distribution which is paid other than in cash, and/or
(ii) of any shares of capital stock of the Corporation (other than shares of
Common Stock), other securities of the Corporation (other than securities of
the type referred to in paragraph (B) or (C) of this Section 9), evidences of
indebtedness of the Corporation or any other person or any other property
(including shares of any subsidiary of the Corporation) or any combination
thereof. The Fair Market Value of an Extraordinary Distribution for purposes
of paragraph (D) of this Section 9 shall be equal to the sum of the Fair
Market Value of such Extraordinary Distribution plus the amount of any cash
dividends (other than regularly scheduled dividends not exceeding 135% of the
aggregate quarterly dividends for the preceding period of 12 months) which
are not Extraordinary Distributions made during such 12-month period and not
previously included in the calculation of an adjustment pursuant to paragraph
(D) of this Section 9.
"Fair Market Value" shall mean, as to shares of Common Stock or any other
class of capital stock or securities of the Corporation or any other issue which
are publicly traded, the average of the Current Market Prices of such shares or
securities for each day of the Adjustment Period. The "Fair Market Value" of
any security which is not publicly traded or of any other property shall mean
the fair value thereof as determined by an independent investment banking or
appraisal firm experienced in the valuation of such securities or property
selected in good faith by the Board of Directors of the Corporation or a
committee thereof, or, if no such investment banking or appraisal firm is in the
good faith judgment of the Board of Directors or such
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committee available to make such determination, as determined in good faith
by the Board of Directors of the Corporation or such committee. The fair
market value of the Series B-1 Preferred Stock for purposes of paragraphs (C)
and (D) of Section 6, for purposes of Section 7 and for purposes of paragraph
(C) of Section 8 shall be as determined by an independent appraiser,
appointed by the Corporation in accordance with the provisions of the Plan,
as of the most recent Valuation Date, as defined in the Plan.
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by the
Corporation of any right or warrant to purchase or acquire shares of Common
Stock (including any security convertible into or exchangeable for shares of
Common Stock) shall mean the difference between (i) the product of the Fair
Market Value of a share of Common Stock on the day preceding the first public
announcement of such issuance, sale or exchange multiplied by the maximum
number of shares of Common Stock which could be acquired on such date upon
the exercise in full of such rights and warrants (including upon the
conversion or exchange of all such convertible or exchangeable securities),
whether or not exercisable (or convertible or exchangeable) at such date, and
(ii) the aggregate amount payable pursuant to such right or warrant to
purchase or acquire such maximum number of shares of Common Stock; PROVIDED,
HOWEVER, that in no event shall the Non-Dilutive Amount be less than zero.
For purposes of the foregoing sentence, in the case of a security convertible
into or exchangeable for shares of Common Stock, the amount payable pursuant
to a right or warrant to purchase or acquire shares of Common Stock shall be
the Fair Market Value of such security on the date of the issuance, sale or
exchange of such security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of Common Stock
by the Corporation or any subsidiary thereof, whether for cash, shares of
capital stock of the Corporation, other securities of the Corporation,
evidences of indebtedness of the Corporation or any other person or any other
property (including shares of a subsidiary of the Corporation), or any
combination thereof, effected while any of the shares of Series B-1 Preferred
Stock are outstanding, pursuant to any tender offer or exchange offer subject
to Section 13(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor provision of law, or pursuant to any other
offer available to substantially all holders of Common Stock; PROVIDED,
HOWEVER, that no purchase of shares by the Corporation or any subsidiary
thereof made in open market transactions shall be deemed a Pro Rata
Repurchase. For purposes of this paragraph (G) of this Section 9, shares
shall be deemed to have been purchased by the Corporation or any subsidiary
thereof "in open market transactions" if they have been purchased
substantially in accordance with the requirements of Rule 10b-18, as in
effect under the Exchange Act, on the date shares of Series B-1 Preferred
Stock are initially issued by the Corporation or on such other terms and
conditions as the Board of Directors of the Corporation or a committee
thereof shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for the Common
Stock.
(H) Whenever an adjustment to the Conversion Price and the related voting
rights of the Series B-1 Preferred Stock is required pursuant to this
Resolution, the Corporation shall forthwith place on file with the transfer
agent for the Common Stock and the Series B-1 Preferred Stock, and with the
Secretary of the Corporation, a statement signed by two officers of
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the Corporation stating the adjusted Conversion Price determined as provided
herein and the resulting conversion ratio, and the voting rights (as
appropriately adjusted), of the Series B-1 Preferred Stock. Such statement
shall set forth in reasonable detail such facts as shall be necessary to show
the reason and the manner of computing such adjustment, including any
determination of Fair Market Value involved in such computation. Promptly
after each adjustment to the Conversion Price and the related voting rights
of the Series B-1 Preferred Stock, the Corporation shall mail a notice
thereof and of the then prevailing conversion ratio to each holder of shares
of the Series B-1 Preferred Stock.
10. RANKING; ATTRIBUTABLE CAPITAL AND ADEQUACY OF SURPLUS; RETIREMENT OF
SHARES.
(A) The Series B-1 Preferred Stock shall rank on parity with the Series
B ESOP Convertible Preferred Stock and senior to the Common Stock and the
Series A Junior Participating Preferred Stock of the Corporation (the "Series
A Preferred Stock") as to the payment of dividends and the distribution of
assets on liquidation, dissolution and winding-up of the Corporation, and,
unless otherwise provided in the Restated Articles of Incorporation of the
Corporation, as the same may be amended, or a Certificate of Designation
relating to a subsequent series of Preferred Stock of the Corporation, the
Series B-1 Preferred Stock shall rank junior to all series of the
Corporation's Preferred Stock, other than the Series B ESOP Convertible
Preferred Stock and the Series A Preferred Stock, as to the payment of
dividends and the distribution of assets on liquidation, dissolution or
winding-up.
(B) In addition to any vote of stockholders required by law or by
paragraph (B) of Section 3 hereof, the vote of the holders of a majority of
the outstanding shares of Series B-1 Preferred Stock shall be required to
increase the capital of the Corporation allocable to the Common Stock for the
purpose of the Business Corporation Act of the State of Minnesota (the
"MBCA"), if, as a result thereof, the surplus of the Corporation for purposes
of the MBCA would be less than the amount of Preferred Dividends that would
accrue on the then outstanding shares of Series B-1 Preferred Stock during
the following three years.
(C) Any shares of Series B-1 Preferred Stock acquired by the
Corporation by reason of the conversion or redemption of such shares as
provided by this Resolution, or otherwise so acquired, shall be retired as
shares of Series B-1 Preferred Stock and restored to the status of authorized
but unissued shares of Preferred Stock of the Corporation, undesignated as to
series, and may thereafter be reissued as part of a new series of such
Preferred Stock as permitted by law.
11. MISCELLANEOUS.
(A) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of delivery
thereof if by hand delivery, by courier or by standard form of telecommunication
or three (3) Business Days after the mailing thereof if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Resolution) with postage prepaid, addressed: (i) if to the
Corporation, to its office at 777 Nicollet Mall, Minneapolis, Minnesota 55402
(Attention: Secretary) or to the transfer agent for the Series B-1 Preferred
Stock, or other agent of the Corporation designated as
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permitted by this Resolution or (ii) if to any holder of the Series B-1
Preferred Stock or Common Stock, as the case may be, to such holder at the
address of such holder as listed in the stock record books of the Corporation
(which may include the records of any transfer agent for the Series B-1
Preferred Stock or Common Stock, as the case may be) or (iii) to such other
address as the Corporation or any such holder, as the case may be, shall have
designated by notice similarly given.
(B) The term "Common Stock" as used in this Resolution means the
Corporation's Common Stock as the same exists at the date of filing of a
Certificate of Designation relating to Series B-1 Preferred Stock or any
other class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event that,
at any time as a result of an adjustment made pursuant to Section 9 of this
Resolution, the holder of any share of the Series B-1 Preferred Stock upon
thereafter surrendering such shares for conversion, shall become entitled to
receive any shares or other securities of the Corporation other than shares
of Common Stock, the Conversion Price in respect of such other shares or
securities so receivable upon conversion of shares of Series B-1 Preferred
Stock shall thereafter be adjusted, and shall be subject to further
adjustment from time to time, in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to Common Stock contained in
Section 9 hereof, and the provisions of Sections 1 through 8, 10 and 11 of
this Resolution with respect to the Common Stock shall apply on like or
similar terms to any such other shares or securities.
(C) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series B-1 Preferred Stock or shares of Common Stock or
other securities issued on account of Series B-1 Preferred Stock pursuant
hereto or certificates representing such shares or securities. The
Corporation shall not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the issuance or delivery of
shares of Series B-1 Preferred Stock or Common Stock or other securities in a
name other than that in which the shares of Series B-1 Preferred Stock with
respect to which such shares or other securities are issued or delivered were
registered, or in respect of any payment to any person with respect to any
such shares or securities other than a payment to the registered holder
thereof, and shall not be required to make any such issuance, delivery or
payment unless and until the person otherwise entitled to such issuance,
delivery or payment has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has
been paid or is not payable.
(D) In the event that a holder of shares of Series B-1 Preferred Stock
shall not by written notice designate the name in which shares of Common
Stock to be issued upon conversion of such shares should be registered or to
whom payment upon redemption of shares of Series B-1 Preferred Stock should
be made or the address to which the certificate or certificates representing
such shares, or such payment, should be sent, the Corporation shall be
entitled to register such shares, and make such payment, in the name of the
holder of such Series B-1 Preferred Stock as shown on the records of the
Corporation and to send the certificate or certificates representing such
shares, or such payment, to the address of such holder shown on the records
of the Corporation.
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(E) Unless otherwise provided in the Restated Articles of
Incorporation, as the same may be amended, of the Corporation, all payments
in the form of dividends, distributions on voluntary or involuntary
dissolution, liquidation or winding-up or otherwise made upon the shares of
Series B-1 Preferred Stock and any other stock ranking on a parity with the
Series B-1 Preferred Stock with respect to such dividend or distribution
shall be pro rata, so that amounts paid per share on the Series B-1 Preferred
Stock and such other stock shall in all cases bear to each other the same
ratio that the required dividends, distributions or payments, as the case may
be, then payable per share on the shares of the Series B-1 Preferred Stock
and such other stock bear to each other.
(F) Any determination required or permitted to be made by the
Corporation's Board of Directors hereunder may be made by a committee
appointed by the Corporation's Board of Directors which need not include
members of the Corporation's Board of Directors.
(G) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series B-1 Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send
notice thereof by hand delivery, by courier, by standard form of
telecommunication or by first-class mail (postage prepaid) to each holder of
record of Series B-1 Preferred Stock.
The foregoing resolution establishing, designating and fixing the rights
and preferences of Series B-1 ESOP Convertible Preferred Stock of Dayton
Hudson Corporation was authorized by the Board of Directors of the
Corporation, pursuant to the authority vested in it by the Restated Articles
of Incorporation of the Corporation, as amended, and Section 302A.401 of the
Minnesota Business Corporation Act, at a meeting of the Board duly held on
the 9th day of September, 1998.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
this 9th day of September, 1998.
-------------------------------
Robert J. Ulrich
Chairman and Chief Executive
Officer
- --------------------------------
James T. Hale
Secretary
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STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 9th day of
September, 1998 by Robert J. Ulrich, as Chairman and Chief Executive Officer of
Dayton Hudson Corporation.
------------------------------
Notary Public
(NOTARIAL SEAL)
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 9th day of
September, 1998 by James T. Hale, as Secretary of Dayton Hudson Corporation.
------------------------------
Notary Public
(NOTARIAL SEAL)
20
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BY-LAWS
OF
DAYTON HUDSON CORPORATION
As Amended Through November 11, 1998
SHAREHOLDERS
SECTION 1.01. PLACE OF MEETINGS AND ANNUAL MEETING
Meetings of the shareholders shall be held at the principal executive
office of the corporation or at such other place or places as the Board may from
time to time designate. The regular annual meeting of the shareholders shall be
held on such day in May in each year as shall be designated by the Board, and at
such time as the Board may from time to time designate, for the election of
Directors and for the transaction of such other business as may lawfully come
before such meeting.
SECTION 1.02. SHAREHOLDERS' SPECIAL MEETINGS
Special meetings of the shareholders may be called for any purpose or
purposes, at any time, by the Chief Executive Officer; by the President; by the
Chief Financial Officer; by the Board or any two or more members thereof; or by
one or more shareholders holding not less than ten percent (10%) of the voting
power of all shares of the corporation entitled to vote (except that a special
meeting for the purpose of considering any action to directly or indirectly
facilitate or effect a business combination, including any action to change or
otherwise affect the composition of the Board for that purpose, must be called
by 25% or more of the voting power of all shares of the corporation entitled to
vote), who shall demand such special meeting by written notice given to the
Chief Executive Officer or the Chief Financial Officer specifying the purpose or
purposes of such meeting.
SECTION 1.03. MEETINGS HELD UPON SHAREHOLDER DEMAND
Within 30 days of receipt of a demand by the Chief Executive Officer or
the Chief Financial Officer from any shareholder or shareholders entitled to
call a meeting of the shareholders, it shall be the duty of the Board to
cause a special or regular meeting of shareholders, as the case may be, to be
duly called and held on notice no later than ninety days after receipt of
such shareholder or shareholder's demand. If the Board fails to cause such a
meeting to be called and held as required by this Section, the shareholder or
shareholders making the demand may call the meeting by giving notice as
provided in Section 1.04 at the expense of the corporation.
<PAGE>
SECTION 1.04. NOTICES OF MEETINGS
Except as otherwise specified in Section 1.03 or required by law, written
notice of the time and place of every meeting of shareholders and in the case of
a special meeting, the purpose or purposes of the meeting shall be given at
least ten (10) days previous thereto, to each shareholder of record entitled to
vote at the meeting. The business transacted at a special meeting of
shareholders is limited to the purpose or purposes stated in the notice of the
meeting.
SECTION 1.05. QUORUM
A quorum at any meeting of shareholders shall consist of shareholders
representing, either in person or by proxy, a majority of the outstanding
shares of the corporation entitled to vote at such meeting, except as
otherwise specially provided by law. If a quorum is not present at any such
meeting, it may be adjourned from time to time until a quorum is present.
SECTION 1.06. ADJOURNMENTS
Any meeting of the shareholders may be adjourned from time to time to
another date, time and place. If any meeting of the shareholders is so
adjourned, no notice as to such adjourned meeting need be given if the date,
time and place at which the meeting will be reconvened are announced at the
time of adjournment.
SECTION 1.07. PROPOSALS REGARDING BUSINESS OTHER THAN DIRECTOR NOMINATIONS
The proposal of business (other than business relating to the nomination
and election of directors) to be considered by the shareholders may be made
at an annual or special meeting of shareholders (a) pursuant to the
corporation's Notice of Meeting, (b) by or at the direction of the Board, or
(c) by any shareholder of the corporation who (i) makes a proposal to be
considered at an annual meeting, (ii) was a shareholder of record at the time
of giving of notice provided for in these By-laws, (iii) is entitled to vote
at the meeting, and (iv) gives notice of the matter, which must otherwise be
a proper matter for shareholder action, in a writing which is received by the
Secretary of the corporation not less than 90 days prior to the first
anniversary of the preceding year's annual meeting. In no event shall a
proposal be made at a special meeting if it was not included in the notice of
the meeting. Such shareholder's notice shall set forth (a) a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such shareholder and the beneficial owner, if any, on
whose behalf the proposal is made, and (b) the name and address of such
shareholder, as they appear on the corporation's books, and of the beneficial
owner, if any, on whose behalf the proposal is made; and the class and number
of shares of the corporation which are owned beneficially and of record by
such shareholder and such beneficial owner.
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BOARD OF DIRECTORS
SECTION 2.01. REGULAR MEETINGS
Regular meetings of the Board may be established by the Board. They may
be held without notice at the principal executive office of the corporation,
or at such other place or places as the Board may from time to time designate.
SECTION 2.02. SPECIAL MEETINGS
Special meetings of the Board may be called at any time by the Chairman
of the Board, or the President, or in their absence by the Chairman of the
Executive Committee or any Executive Vice President, or by a majority of the
members of the Board then elected and serving, to be held at the principal
executive office of the corporation or at such other place or places as the
Directors may from time to time designate. Notices of all special meetings
of the Board shall be given to each Director by twenty-four hours' service of
the same by telegram, by letter, by telephone or personally, provided that
when notice is mailed, at least three days notice shall be given.
SECTION 2.03. QUORUM
A majority of the Board shall be necessary at all meetings to constitute
a quorum for the transaction of business, except as otherwise provided
herein, but less than a quorum may adjourn any meeting, which may be held on
a subsequent date without further notice, provided that a quorum be present
at such deferred meeting.
SECTION 2.04. WAIVER OF NOTICE; PREVIOUSLY SCHEDULED MEETINGS
A Director may waive notice of the date, time and place of a meeting of
the Board. A waiver of notice by a Director entitled to notice is effective
whether given before, at or after the meeting, and whether given in writing,
orally or by attendance. Attendance by a Director at a meeting is a waiver
of notice of that meeting, unless the Director objects at the beginning of
the meeting to the transaction of business because the meeting is not
lawfully called or convened and thereafter does not participate in the
meeting.
If the day or date, time and place of a Board meeting have been provided
herein or announced at a previous meeting of the Board, no notice is
required. Notice of an adjourned meeting need not be given other than by
announcement at the meeting at which adjournment is taken of the date, time
and place at which the meeting will be reconvened.
SECTION 2.05. ACTION IN WRITING
Any action which may be taken at a meeting of the Board or of the
Executive Committee or any other committee may be taken without a meeting if
authorized by a writing or writings signed by all of the Directors or all of
the members of the Executive Committee or any other committee, as
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the case may be, and such action shall be effective on the date on which
the last signature is placed on such writing or writings or such earlier date
as is set forth therein.
SECTION 2.06. ELECTRONIC COMMUNICATIONS
Any action which may be taken at a meeting of the Board or of the
Executive Committee or any other committee may be taken by means of
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, with the same
effect as though all such persons were present in person at such meeting.
SECTION 2.07. EXECUTIVE COMMITTEE
(a) DESIGNATION, NUMBER AND QUALIFICATIONS. The Board may designate
not less than five (5) of their number to constitute an Executive Committee.
The Chairman of the Board shall be a member of the Executive Committee. The
Board may also designate a Chairman and a Vice Chairman of the Executive
Committee. The Executive Committee shall be subject at all times to the
control and direction of the Board.
(b) POWERS. Except as may be otherwise prospectively and specifically
provided in a resolution duly adopted by a majority of the members of the
entire Board at any meeting of the Board reducing or limiting the authority
of the Executive Committee, said Committee shall have and may exercise,
during the intervals between meetings of the Board, all of the powers of the
Board except that the Executive Committee shall not have power to act upon or
submit to the shareholders any proposal for amendment to the Articles of
Incorporation, any plan of merger or consolidation, any sale or other
disposition of all or substantially all of the property and assets of the
corporation, or any proposal for the dissolution of the corporation; to amend
or repeal these By-Laws or adopt new By-Laws; to fill vacancies in the Board,
or to dissolve, remove members or change the number of, or fill vacancies in,
the Executive Committee; to fix the compensation for any Director for serving
on the Board or any committee of the Board; or to amend or repeal any
resolution of the Board which by its terms shall not be so amendable or
repealable.
(c) RULES OF PROCEDURE.
(1) A majority of the members of the Executive Committee shall
constitute a quorum for the purpose of taking action upon any matter that may
come before it, and the affirmative vote of a majority of a quorum present at
the meeting shall be necessary to pass any resolution presented thereat. All
action by said Executive Committee shall be reported to the Board at its meeting
next succeeding the taking of such action.
(2) The Executive Committee may adopt such rules and regulations for
the conduct of its meetings as it may deem proper and as are not inconsistent
with law, the Articles of Incorporation, these By-Laws or any resolution duly
adopted by the Board.
(3) The Executive Committee shall keep written minutes of its
proceedings.
(d) REMOVAL; DISSOLUTION. Any member or members of the Executive
Committee may be removed at any time, with or without cause, by the
affirmative vote of a majority of the members
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of the entire Board. The Board may, by a resolution duly adopted by a
majority of the entire Board at any meeting of the Board, dissolve the
Executive Committee.
(e) VACANCIES. If any vacancy shall occur in the Executive Committee
by reason of death, resignation, removal or otherwise, such vacancy may be
filled at any meeting of the Board.
(f) REGULAR MEETINGS. Regular meetings of the Executive Committee may
be held without notice at such times and at such places, within or without
the State of Minnesota, as may from time to time be determined by the
Executive Committee or the Board.
(g) SPECIAL MEETINGS. Special meetings of the Executive Committee may
be called by the Chairman of the Board, the President or the Chairman of the
Executive Committee and shall be called by the Chairman of the Board, the
Chairman of the Executive Committee or the Secretary on the written request
of a majority of the members of the Committee then elected and serving.
Special meetings shall be held at such times and such places as shall be
determined by the Chairman of the Board, the President or the Chairman of the
Executive Committee, subject to any requirement of notice as in these By-Laws
provided.
(h) NOTICE OF MEETINGS. When required by these By-Laws to be given,
notice of the time and place of a meeting of the Executive Committee shall be
given to each member of the Executive Committee in the same manner as
required to be given for a Directors' meeting.
(i) ADJOURNMENT. At any meeting a majority of the members present,
without notice other than by announcement at the meeting, may adjourn such
meeting to another time and place, whether or not a quorum is present.
SECTION 2.08. NOTICE OF COMMITTEE MEETINGS
Notices of meetings of Committees of the Board shall be given in the same
manner required for a Directors' meeting, unless other provisions are set by the
Directors.
SECTION 2.09. ABSENT DIRECTORS
A Director may give advance written consent or opposition to a proposal
to be acted on at a Board meeting. If the Director is not present at the
meeting, consent or opposition to a proposal does not constitute presence for
purposes of determining the existence of a quorum, but consent or opposition
shall be counted as a vote in favor of or against the proposal and shall be
entered in the minutes or other record of action at the meeting, if the
proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal to which the Director has
consented or objected.
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OFFICERS
SECTION 3.01. NUMBER AND DESIGNATION
The corporation shall have one or more natural persons exercising the
functions of the offices of Chief Executive Officer and Chief Financial
Officer. The Board may elect or appoint such other officers or agents as it
deems necessary for the operation and management of the corporation, with
such powers, rights, duties and responsibilities as may be determined by the
Board, including, without limitation, a Chairman, one or more Vice Chairmen,
a President, one or more Vice Presidents, a Secretary and a Treasurer, each
of whom shall have the powers, rights, duties and responsibilities set forth
in these By-Laws unless otherwise determined by the Board. Any of the
offices or functions of those offices may be held by the same person.
SECTION 3.02. CHAIRMAN OF THE BOARD
The Chairman of the Board shall be a member of the Board and shall preside
at all meetings of shareholders and of the Board, shall make reports to the
Board and shareholders, and shall have such other authority and perform such
other duties as the Board may from time to time determine. During the absence
or disability of the President, the Chairman of the Board shall exercise the
powers and perform the duties of the President.
SECTION 3.03. PRESIDENT
The President shall, in the absence of the Chairman of the Board, preside
at meetings of the Board and of the shareholders, and shall have such other
authority and perform such other duties as the Board may from time to time
determine.
SECTION 3.04. VICE CHAIRMAN
A Vice Chairman may, but need not be a member of the Board. If the Vice
Chairman is a member of the Board, he/she shall in the absence of the Chairman
of the Board and the President preside at meetings of the Board and of the
shareholders, and shall have such authority and perform such duties as the Board
may from time to time determine. If at any time there shall be elected and
serving more than one person in the office of Vice Chairman, then for all
purposes of succession as provided in these By-Laws, seniority of continuous
service in that office shall control.
SECTION 3.05. CHAIRMAN OF THE EXECUTIVE COMMITTEE
The Chairman of the Executive Committee shall be a member of the Board,
shall in the absence of the Chairman of the Board, the President and any Vice
Chairman who is a member of the Board preside at meetings of the shareholders
and shall have such authority and perform such other duties as the Board may
from time to time determine.
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SECTION 3.06. VICE PRESIDENTS
Any one or more of the Vice Presidents may be designated by the Board as an
Executive or Senior Vice President, and each Vice President shall have such
authority and perform such duties as the Board may from time to time determine.
SECTION 3.07. SECRETARY
The Secretary shall issue notices for all meetings, except as otherwise
provided for herein, and the Secretary shall keep minutes of all meetings, have
charge of the seal and the corporate books, and make such reports and perform
the other duties incident to that office, and shall have such other authority
and perform such other duties as the Board may from time to time determine.
SECTION 3.08. TREASURER
The Treasurer shall have the custody of all monies and securities of the
corporation, keep regular books of account, disburse the funds of the
corporation in payment of the just demands against the corporation or as may be
ordered by the Board, taking proper vouchers for such disbursements, shall
render to the Board from time to time as may be required of the Treasurer, an
account of all the transactions of the Treasurer and of the financial condition
of the corporation, and shall perform the other duties incident to that office,
and shall have such other authority and perform such other duties as the Board
may from time to time determine.
SECTION 3.09. CHIEF EXECUTIVE OFFICER
The Board shall at least annually designate an officer of the
corporation also to serve as its Chief Executive Officer who shall by such
designation have and exercise the highest level of executive authority and
responsibility for the management and affairs of the corporation. Except as
otherwise expressly provided in these By-Laws or by the Board, the Chief
Executive Officer may for occasions of temporary absence or disability from
time to time delegate the authority and duties of that office to one or more
other officers of the corporation by written designation delivered to the
Chairman of the Board or if the Chairman of the Board is also the Chief
Executive Officer, then to the Vice Chairman of the Executive Committee and
the Secretary. During any period when such temporary delegation is in effect
the Secretary shall be authorized to attest or certify to any act performed
or document executed pursuant to such delegation as executed by the person
then designated Chief Executive Officer. In the event of the death, or
apparent incapacity or disability of the Chief Executive Officer then
currently designated by the Board, the Vice Chairman of the Executive
Committee or in his absence or unavailability the Chairman of the Finance
Committee, shall determine whether said Chief Executive Officer is or will
for more than a temporary period be unable to perform the duties of that
office, then upon notice to that effect given or promptly confirmed in
writing to each member of the Executive Committee then elected and serving,
the Vice Chairman of the Executive Committee or, as provided, the Chairman of
the Finance Committee shall designate an acting Chief Executive Officer who
shall have and exercise all of the authority and responsibility of the Chief
Executive Officer as though designated by, and until further action of, the
Board.
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SECTION 3.10. OTHER OFFICERS AND DESIGNATIONS
The Board may elect or appoint such other officers and agents as it
shall deem necessary or expedient, who shall hold their offices for such
terms, and shall exercise such powers and perform such duties, as shall be
determined from time to time by the Board. The Board may also from time to
time designate, in addition and by way of further definition to the title and
duties of any duly elected officer of the corporation, a Chief Operating
Officer, Chief Administrative Officer, Chief Accounting Officer, and a
General Counsel, or any of them, and may so adopt any similar or comparable
definition for any officer which is not inconsistent with any express
provision of these By-Laws.
SECTION 3.11. TERM OF OFFICE
The officers of the corporation shall hold office until their respective
successors are elected or appointed or until their earlier resignation, death
or removal. Any officer elected or appointed by the Board may be removed at
any time, with or without cause, by the Board.
SECTION 3.12. VACANCIES
Vacancies in any office or designation arising from any cause may be filled
by the Directors at any regular or special meeting.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 4.01. INDEMNIFICATION COMMITTEE
There is hereby established an Indemnification Committee consisting of
the Chief Executive Officer; the Senior personnel Officer; the Chief
Financial Officer and the General Counsel. In the event of vacancy in the
office of Chief Executive Officer or in the event that officer is not a
member of the Board, the Chairman of the Board shall be an ex officio member
of the committee. In the event of vacancy in any other position, the Chief
Executive Officer shall appoint an interim member of the committee. By
reason of their annual election and designation to these offices, said
officers shall be deemed to have been annually appointed to the committee.
SECTION 4.02. DUTIES OF THE COMMITTEE
The committee shall have the fullest authority and responsibility
available under Minnesota Statutes 302A. 521, including the authority to make
a determination, subject to the power of the Board, whether the person for
whom indemnification is sought is not a director or officer of the
corporation nor a person possessing directly or indirectly the power to
direct or cause the direction of the management or policies of the
corporation.
The committee shall report its actions to the Board at least once in each
fiscal year. At that time, the Board shall have the opportunity to ratify the
existence and constitution of the committee.
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At all meetings of the committee, the presence of a least two members shall
constitute a quorum for the transaction of business.
CERTIFICATES OF SHARES
SECTION 5.01. EXECUTION OF SHARE CERTIFICATES
The certificates of shares of the corporation shall bear the corporate
seal and shall be signed by the Chairman of the Board or the president and by
the Secretary or an Assistant Secretary; but when a certificate is signed by
a transfer agent or a registrar the signature of any such corporate officer
and the corporate seal upon such certificate may be facsimiles engraved or
printed.
SECTION 5.02. LOST, STOLEN OR DESTROYED SHARE CERTIFICATES
In the event of a certificate of shares being lost, stolen, or
destroyed, a new certificate of the same tenor and for the same number of
shares as the one lost, stolen or destroyed may be issued pursuant to the
standards prescribed from time to time by the Board.
MISCELLANEOUS
SECTION 6.01. EXECUTION OF INSTRUMENTS
All contracts, deeds, mortgages, notes, checks, conveyances, releases of
mortgages and other instruments shall be signed on behalf of the corporation:
by the Chief Executive Officer, the Chairman of the Board, the President, any
Vice Chairman, the Chairman of the Executive Committee or any Vice President,
or by such other person or persons as may be designated or authorized from
time to time by the Board or by the Chief Executive Officer.
SECTION 6.02. FISCAL YEAR
The fiscal year of the corporation shall commence on whatever date the
Sunday shall fall which Sunday immediately follows the Saturday which is
nearest to the last day of January in any one year, and such fiscal year
shall end on whatever date the Saturday which is nearest to the last day of
January in the following year shall fall.
SECTION 6.03. AMENDMENTS
These By-Laws may be altered, amended, added to, or repealed by the
affirmative vote of a majority of the members of the Board at any regular
meeting of the Board, or at any special meeting of the Board called for that
purpose, subject to the power of the shareholders to change or repeal such
By-Laws and subject to any other limitations on such authority of the Board
provided by the Minnesota Business Corporation Act.
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