SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission File Number 1-05380
AMES DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2269444
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2418 Main Street, Rocky Hill, Connecticut 06067
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (860) 257-2000
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
29,170,909 shares of Common Stock were outstanding on August 17, 1999.
Exhibit Index on page 16
Page 1 of 31 (including exhibits)
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<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 1999
I N D E X
Page
Part I: Financial Information
Consolidated Condensed Statements of Operations 3
for the Thirteen and Twenty-Six Weeks ended July 31,
1999 and August 1, 1998
Consolidated Condensed Balance Sheets as of 4
July 31, 1999, January 30, 1999, and August 1,
1998
Consolidated Condensed Statements of Cash Flows 5
for the Twenty-Six Weeks ended July 31, 1999
and August 1, 1998
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Part II: Other Information
Submission of Matters to a Vote of Security Holders 16
Exhibits and Reports on Form 8-K 16
-2-
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited) (Unaudited)
For the Thirteen For the Twenty-Six
Weeks Ended Weeks Ended
------------------------------ ------------------------------
<CAPTION>
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Ames net sales $728,023 $535,047 $1,309,625 $1,032,092
Hills net sales 128,175 - 375,642 -
------------ ------------ ------------- --------------
Total net sales 856,198 535,047 1,685,267 1,032,092
Costs, expenses and (income):
Ames cost of merchandise sold 514,584 378,211 934,089 736,822
Hills cost of merchandise sold 83,762 - 251,212 -
Ames selling, general and administrative expenses 221,371 145,490 397,575 290,762
Hills operating expenses and agency fees 52,790 - 142,047 -
Leased department and other income (11,590) (7,489) (20,012) (13,675)
Depreciation and amortization expense, net 16,304 2,257 30,687 4,178
Interest and debt expense, net 13,621 3,192 25,543 5,246
------------ ------------ ------------- --------------
Income (loss) before income taxes (34,644) 13,386 (75,874) 8,759
Income tax benefit (provision) 12,471 (5,000) 27,313 (3,316)
------------ ------------ ------------- --------------
Net income (loss) ($22,173) $8,386 ($48,561) $5,443
============ ============= ============= ==============
Basic net income (loss) per common share $ (0.80) $ 0.37 $ (1.87) $ 0.24
============ ============= ============= ==============
Weighted average number of common shares outstanding 27,706 22,950 25,914 22,800
============ ============= ============= ==============
Diluted net income (loss) per common share $ (0.80) $ 0.35 $ (1.87) $ 0.23
============ ============= ============= ==============
Weighted average number of common and common
equivalent shares outstanding 27,706 24,272 25,914 24,171
============ ============= ============= ==============
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<CAPTION>
(Unaudited) (Unaudited)
July 31, January 30, August 1,
1999 1999 1998
--------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $36,404 $35,744 $20,859
Receivables 47,038 30,244 22,662
Merchandise inventories 795,440 621,509 502,157
Prepaid expenses and other current assets 57,173 16,075 11,776
--------------- -------------- -------------
Total current assets 936,055 703,572 557,454
Fixed Assets 527,345 437,834 165,692
Less - Accumulated depreciation and amortization (95,737) (66,205) (53,283)
--------------- -------------- -------------
Net fixed assets 431,608 371,629 112,409
Other assets and deferred charges 63,232 16,447 5,900
Deferred taxes, net 102,406 102,406 7,406
Beneficial lease rights, net 57,507 58,885 -
Goodwill, net 197,471 230,454 -
--------------- -------------- -------------
$1,788,279 $1,483,393 $683,169
=============== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $343,981 $313,280 $176,147
Other 67,557 83,485 43,060
--------------- -------------- -------------
Total accounts payable 411,538 396,765 219,207
Short-term debt - - 70,525
Current portion of long-term debt, capital lease and financing obligations 19,801 17,799 4,638
Self-insurance reserves 29,085 29,115 14,584
Accrued expenses and other current liabilities 215,638 211,827 74,581
Store closing reserves 56,130 59,768 10,301
--------------- -------------- -------------
Total current liabilities 732,192 715,274 393,836
Long-term debt 257,085 95,810 -
Capital lease and financing obligations 183,559 191,904 37,378
Other long-term liabilities 130,766 132,376 38,995
Excess of revalued net assets over equity under fresh-start reporting 20,944 24,021 27,097
Commitments and contingencies
Stockholders' Equity:
Preferred stock (3,000,000 shares authorized; no shares issued or
outstanding at July 31, 1999, January 30, 1999 and August 1, 1998,
par value per share $.01) - - -
Common stock (40,000,000 shares authorized; 29,166,639, 23,921,545
and 23,096,554 shares outstanding at July 31, 1999, January 30, 1999
and August 1, 1998, respectively; par value per share $.01) 292 239 233
Additional paid-in capital 424,900 236,667 126,001
Retained earnings 39,455 88,016 59,629
Treasury stock (79,495 shares, at cost) (914) (914) -
--------------- -------------- -------------
Total stockholders' equity 463,733 324,008 185,863
--------------- -------------- -------------
$1,788,279 $1,483,393 $683,169
=============== ============== =============
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the Twenty-Six
Weeks Ended
-------------------------------------
July 31, August 1,
1999 1998
-------------- ---------------
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($48,561) $5,443
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Income tax (benefit) provision (27,313) 3,316
Depreciation and amortization of fixed and other assets 34,618 5,291
Increase in accounts receivable (16,794) (3,740)
Increase in merchandise inventories (173,931) (78,321)
Increase (decrease) in accounts payable 14,773 (3,949)
Increase (decrease) in accrued expenses and other current liabilities 3,781 (326)
Increase (decrease) in other working capital and other, net 13,927 (1,957)
-------------- ---------------
Cash used for operations before store closing items (199,500) (74,243)
Payments of store closing costs (3,386) (1,355)
-------------- ---------------
Net cash used for operating activities (202,886) (75,598)
-------------- ---------------
Cash flows from investing activities:
Purchases of fixed assets (83,614) (22,615)
Purchase of leases (42,835) -
-------------- ---------------
Net cash used for investing activities (126,449) (22,615)
-------------- ---------------
Cash flows from financing activities:
Payments of debt, capital lease and financing obligations (12,854) (13,003)
Borrowings (payments) under the revolver, net (38,725) 70,525
Proceeds from the issuance of senior notes 200,000 -
Proceeds from the issuance of common stock, net 187,484 -
Payments of deferred financing costs (6,712) -
Proceeds from the exercise of options and warrants 802 3,722
-------------- ---------------
Net cash provided by financing activities 329,995 61,244
-------------- ---------------
Increase (decrease) in cash and short-term investments 660 (36,969)
Cash and short-term investments, beginning of period 35,744 57,828
-------------- ---------------
Cash and short-term investments, end of period $36,404 $20,859
============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest and debt fees not capitalized $9,234 $4,043
Income taxes 1,735 5
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
</FN>
</TABLE>
-5-
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
-----------------------
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements of Ames Department Stores,
Inc. (a Delaware corporation) and subsidiaries (collectively "Ames" or
the "Company") contain all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such financial
statements for the interim periods. Due to the seasonality of the
Company's operations, the results of its operations for the interim
period ended July 31, 1999 may not be indicative of total results for the
full year. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations promulgated by the Securities and Exchange
Commission (the "SEC"). Certain prior year amounts have been reclassified
to conform to the presentation used for the current year. Pursuant to the
indenture governing the Ames Senior Notes (as defined in Note 5), all
of Ames' subsidiaries have jointly and severally guaranteed the Ames
Senior Notes on a full and unconditional basis. Separate financial
statements of those subsidiaries have not been included herein because
management has determined that they are not material to investors.
The consolidated condensed balance sheet at January 30, 1999 was
obtained from audited financial statements previously filed with the SEC
in the Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1999 (the "1998 Form 10-K"). The accompanying unaudited
consolidated condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the 1998 Form
10-K.
In the fourth quarter of the year ended January 30, 1999 ("Fiscal
1998"), the Company adopted SOP 98-5 "Reporting on the Costs of Start-Up
Activities" retroactively effective to the first quarter of Fiscal 1998.
Therefore, the consolidated condensed financial statements for the
thirteen and twenty-six weeks ended August 1, 1998 have been adjusted
accordingly. Reference can be made to the 1998 Form 10-K for additional
discussion of the adoption of SOP 98-5 by the Company.
2. Acquisition and Agency Agreement:
----------------------------------
Acquisition of Hills Stores Company
On December 31, 1998, HSC Acquisition Corp. ("HSC"), a wholly
owned subsidiary of the Company, acquired in excess of 80% of the
outstanding voting stock of Hills Stores Company ("Hills") and
approximately 74% of the outstanding Hills 12 1/2% senior notes.
Subsequently, Hills was merged with HSC and became a wholly-owned
subsidiary of Ames Department Stores, Inc. In April 1999, Hills was
merged with and into Ames Department Stores, Inc.
Total cash consideration for the acquisition of Hills was $130
million. Reference can be made to the 1998 Form 10-K for further
discussion of the Hills acquisition.
The acquisition has been recorded under the purchase method of
accounting and, accordingly, the results of operations of Hills for the
quarter ended July 31, 1999 are included in the accompanying consolidated
condensed financial statements. The aggregate purchase price of $130
million has been allocated to assets acquired and liabilities assumed
based on a preliminary determination of respective fair market values at
the date of acquisition and is subject to adjustment. The fair value of
tangible assets acquired and liabilities assumed was $477 million and
$637 million, respectively. The balance of the purchase price, $290
million, was recorded as two components: an excess of cost over net
assets acquired (goodwill) of $231 million, which is being amortized over
25 years on a straight-line basis, and beneficial lease rights of $59
million, which is being amortized over the life of the respective leases
(which average approximately 25 years). As of July 31, 1999, goodwill was
reduced by $28 million due to the completion of inventory liquidation
sales at the Hills store locations.
At the time of the acquisition, Hills operated 155 discount
department stores. In 1999, the Company will remodel and convert 151 of
the Hills stores to Ames stores. The four remaining Hills stores along
with seven other Ames stores will be closed because they are in locations
that are either competitive with, or are underperforming, other Hills or
Ames stores. The remodeling and conversion process is being conducted in
three stages, each stage involving approximately one third of the Hills
stores. The first stage was completed in late April 1999; the second
stage was completed in late July 1999; and the third stage is scheduled
to be completed in September 1999.
Agency Agreement Overview
Concurrent with the Hills acquisition, the Company entered into a
transition and agency agreement (the "Agency Agreement") with Gordon
Brothers Retail Partners, LLC and The Nassi Group, LLC (collectively the
"Agent"), which provided that the Agent serve for a period of time to
operate all of the acquired Hills stores and to conduct inventory
liquidation sales at each of those stores prior to its scheduled
remodeling or final closure. Accordingly, the Agent managed the sale of
the inventory acquired in the Hills acquisition as well as certain other
inventory identified in the Agency Agreement.
The Agency Agreement entitled the Company to receive out of the
sale proceeds a minimum amount equal to 40% of the initial retail value
or initial ticketed selling price of the merchandise (the "Guaranteed
Return"). Accordingly, the Company valued the acquired Hills inventory at
an amount equal to the Guaranteed Return. An additional payment may be
made to the Company if proceeds of sale exceed a target percentage of the
initial retail value. The Agency Agreement further entitled the Company
to reimbursement of certain store operating expenses (e.g., payroll,
rent, advertising, etc.) out of the sale proceeds during the agency
period.
The Agent will be paid a fee (the "Agency Fee") for its services
pursuant to the Agency Agreement. The Agency Fee will be an amount equal
to the proceeds from the sales of Hills merchandise less a deduction for
the reimbursement of store operating expenses and the Guaranteed Return.
Agency Agreement Accounting
As discussed earlier, the results of operations of Hills for the
thirteen and twenty-six weeks ended July 31, 1999 have been included in
the accompanying consolidated condensed financial statements. During the
thirteen and twenty-six weeks ended July 31, 1999, the following
accounting treatment has been applied to recognize the results of the
Hills stores prior to their conversion to Ames stores during fiscal 1999.
Hills net sales have been recorded as "Hills Net Sales" and represent net
sales achieved by the Hills stores prior to their conversion to Ames
stores. "Hills Cost of Merchandise Sold" represents the cost of
merchandise sold in connection with the above referenced sales as
adjusted for the Guaranteed Return amount mentioned above. "Hills
Operating Expenses and Agency Fees" include the following: the associated
store expenses incurred while operating the Hills stores prior to their
conversion to Ames stores, which are reimbursable to the Company out of
the proceeds of Hills merchandise sales per the Agency Agreement; the
Agency Fee due to the Agent for the period presented; and other expenses
(e.g., non-store payroll, non-store rent, etc.) associated with
supporting the Hills stores prior to their conversion to Ames stores,
which are not reimbursable under the Agency Agreement.
The Agency Fee recorded for the second quarter and first half of
1999 was $13.1 million and $39.3 million respectively, and was determined
based upon the Hills sales results for the period, less the Guaranteed
Return, reimbursable Hills store expenses and an allocation to Ames based
on sale proceeds in excess of specified levels. The Agency Fee will only
be determined after a final accounting for all revenues and expenses
earned/incurred during the entire agency period. The final accounting
will be completed during the third quarter of fiscal 1999.
During the quarter ended July 31, 1999, the inventory liquidation
sales at the Hills stores were completed. Proceeds from the sales during
the entire agency period exceeded the targeted percentage referenced
above. The Company will share in the excess and thereby will realize in
excess of the Guaranteed Return for the acquired Hills inventory. The
$28.3 million adjustment, recorded as of July 31, 1999, to recognize the
increase in inventory valuation concurrently reduced the original
estimate of the excess of cost over net assets acquired (goodwill).
Acquisition of Caldor Sites
During March 1999, the Company entered into two agreements with
Caldor Corporation to purchase seven of its stores in Connecticut, two
stores in Massachusetts and a 649,000 square foot distribution center in
Westfield, MA, for a total cash purchase price of $42.8 million. Under
the terms of the agreements, the Company assumed Caldor's leases for the
nine stores and the distribution center and acquired all of the store
fixtures in eight of the stores and all racking, sorting systems and
materials handling equipment in the distribution center. During March and
April 1999, the United States Bankruptcy Court for the Southern District
of New York approved the Company's right to purchase the leases for the
stores and the distribution center. All of the transactions subsequently
closed.
3. Net Income (Loss) Per Common Share:
---------------------------------
Net income (loss) per share was determined using the weighted
average number of common shares outstanding. Diluted net loss per share
was equal to basic net loss per share because inclusion of common stock
equivalents would have been anti-dilutive. During the quarter ended July
31, 1999, 28,690 options were exercised. During the quarter ended August
1, 1998, 74,210 options were exercised and 190,723 warrants were
converted.
4. Inventories:
-------------
Inventories are valued at the lower of cost, using the first-in,
first-out (FIFO) method, or market and include the capitalization of
transportation and distribution center costs.
5. Debt:
------
Credit Agreement
On December 31, 1998, in connection with the Hills Acquisition,
certain of the Company's subsidiaries entered into an agreement (the
"Credit Agreement") with a syndicate of other banks and financial
institutions for whom Bank of America NT&SA is serving as agent. The
Credit Agreement provides for a secured revolving credit facility of up
to $650 million, with a sublimit of $150 million for letters of credit.
The Credit Agreement replaced a $320 million secured revolving credit
facility.
The Credit Agreement is in effect until June 30, 2002 and is
secured by substantially all of the assets of the Company. Reference can
be made to the 1998 Form 10-K for additional discussion of the Credit
Agreement and for descriptions of the Company's other obligations not
discussed herein.
As of July 31, 1999, borrowings of $6.2 million were outstanding
under the Credit Agreement. These borrowings are included in long-term
debt in the accompanying consolidated condensed balance sheet as of July
31, 1999. In addition, $28.1 and $13.4 million of standby and trade
letters of credit, respectively, were outstanding under the Credit
Agreement. The weighted average interest rate on the borrowings for the
thirteen and twenty-six weeks ended July 31, 1999 were 7.9% and 7.7%,
respectively. The peak borrowing level through July 31, 1999 was $281.8
million and occurred in April 1999, prior to the sale of the Ames Senior
Notes.
Ames Senior Notes
On April 27, 1999, the Company completed the sale of $200
million of its 10% seven-year senior notes (the "Ames Senior Notes"). The
net proceeds from the sale of the Ames Senior Notes, approximately $193.4
million, were used to reduce outstanding borrowings under the Credit
Agreement.
The Ames Senior Notes pay interest semi-annually in April and
October and mature April 2006. Prior to April 15, 2002, the Company may
redeem up to 35% of the Ames Senior Notes with the proceeds of one or
more public equity offerings at a redemption price of 110% of the
principal amount thereof. On or after April 15, 2003, the Company may
redeem some or all of the Ames Senior Notes outstanding at a redemption
price equal, initially, to 105% of the principal amount thereof. In both
cases, the accrued and unpaid interest will be added to the redemption
price on the applicable redemption date.
The Ames Senior Notes were issued under an indenture among Ames, its
existing subsidiaries and The Chase Manhattan Bank. The financial
covenants in the indenture restrict Ames' ability to: borrow money; pay
dividends on or purchase Ames' stock; make investments; use assets as
security in other transactions; sell certain assets or merge with other
companies; and enter into transactions with affiliates. If a Change of
Control occurs, each holder of the Ames Senior Notes has the right to
require the Company to purchase all or any part of that holder's Ames
Senior Notes for a payment in cash equal to 101% of the aggregate
principal amount of Ames Senior Notes purchased plus accrued and unpaid
interest.
6. Stock Options:
---------------
The Company has three stock option plans (the "Option Plans"): the
1994 Management Stock Option Plan, the 1998 Stock Incentive Plan and the
1994 Non-Employee Directors Stock Option Plan.
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123 "Accounting for Stock-Based Compensation." SFAS No. 123
established a fair-value based method of accounting for stock-based
compensation; however, it allowed entities to continue accounting for
employee stock-based compensation under the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company elected to account for the Option
Plans under APB Opinion No. 25, under which no compensation cost has been
recognized, and adopt SFAS No. 123 through disclosure.
If the Company had elected to recognize compensation cost for the
Option Plans based on the fair value at the grant dates for awards under
those plans, consistent with the method prescribed by SFAS No. 123, net
income (loss) and net income (loss) per diluted common share would have
approximated the pro forma amounts indicated below:
<TABLE>
For the Thirteen For the Twenty-Six
Weeks Ended Weeks Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- ---------- -------- ----------
<CAPTION>
<S> <C> <C> <C> <C>
Net Income (Loss) (in thousands)
As reported ($22,173) $8,386 ($48,561) $5,443
Pro forma ($24,507) $7,672 ($52,278) $4,597
Diluted Net Income (Loss)
Per Common Share
As reported ($0.80)(a) $0.35 ($1.87)(a) $0.23
Pro forma ($0.88)(a) $0.32 ($2.02)(a) $0.19
<FN>
(a) Common stock equivalent shares have not been included because the effect would be anti-dilutive.
</FN>
</TABLE>
The fair value of stock options used to compute pro forma net
income and net income per diluted common share is the estimated present
value at grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions: no dividend yield, expected
option volatilities, a risk-free interest rate equal to U.S. Treasury
securities with a maturity equal to the expected life of the option and
an expected life from date of grant until option expiration date.
7. Income Taxes:
--------------
The Company's estimated annual effective income tax rate for each
year was applied to the loss before income taxes for the thirteen and
twenty-six weeks ended July 31, 1999 and to the income before income
taxes for the thirteen and twenty-six weeks ended August 1, 1998 to
compute a non-cash income tax benefit in 1999 and provision in 1998. The
income tax benefit is included in other current assets in the
accompanying consolidated condensed balance sheet as of July 31, 1999.
The income tax provision is included as an addition to paid-in capital in
the accompanying consolidated condensed balance sheet as of August 1,
1998.
8. Commitments and Contingencies:
-------------------------------
Reference can be made to the 1998 Form 10-K (Item 3 - Legal
Proceedings) for various litigation involving the Company, for which
there were no material changes since the filing date of the 1998 Form
10-K except as follows:
With regard to the Gould matter, the Court has entered a
Preliminary Order of Approval and set September 15, 1999 as the date for
a Final Settlement Hearing.
9. Equity Offering:
-----------------
On May 24, 1999, the Company completed the public offering of 5.1
million shares of Common Stock at a price of $38.75 per share. The
proceeds, net of underwriting discounts, of approximately $187.9 million,
were used to reduce borrowings under the Credit Agreement and for general
corporate purposes.
10. Subsequent Events:
-------------------
On August 2, 1999, the Company opened a new 649,000 square foot
distribution center in Westfield, MA. The distribution center was
purchased from Caldor during the first quarter of 1999.
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FISCAL QUARTER ENDED JULY 31, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
-----------------------
On December 31, 1998, we acquired in excess of 80% of the
outstanding voting stock of Hills Stores Company. Accordingly, the
operations of Hills and its subsidiaries during the quarter are included
in our consolidated results of operations for the thirteen and twenty-six
weeks ended July 31, 1999. Immediately following our acquisition of
Hills, we began implementing a series of initiatives to prepare for the
conversion of 151 of the Hills stores into Ames stores and the permanent
closure of the four remaining Hills stores. These initiatives included
the termination of most of Hills' corporate and administrative operations
and personnel, the announced closure of seven Ames stores that we
considered to be directly competitive with acquired Hills stores and the
engagement of two experienced liquidation firms, Gordon Brothers Retail
Partners and The Nassi Group, to operate the Hills stores until their
closure and to liquidate Hills' merchandise inventories.
In May 1999, Gordon Brothers and The Nassi Group completed the
merchandise liquidation sales in 56 of the Hills stores. Of these stores,
2 were closed permanently and 54 were remodeled during an eight week
period and were re-opened in July 1999, as Ames stores. In July 1999,
Gordon Brothers and The Nassi Group completed the merchandise liquidation
sales in the final 47 Hills stores, all of which are expected to be
re-opened as Ames stores in late September.
Under our agreement with Gordon Brothers and The Nassi Group, we
are entitled to retain from the proceeds of the merchandise inventory
sales, as a minimum guaranteed amount, 40% of the initial ticketed retail
price of the inventory being sold, irrespective of the actual price at
which it is sold. The remaining sale proceeds, net of the expenses of
operating the stores, are payable to the liquidators as compensation for
their services, subject to additional allocations to Ames to the
extent the proceeds exceed specified levels. For financial reporting
purposes, Hills' net sales represent the actual sale proceeds from
merchandise liquidation sales, its cost of merchandise sold represents
the minimum guaranteed amount adjusted for proceeds in excess of
specified targets, and its selling, general and administrative expenses
include the portion of those proceeds that are to be paid over to the
liquidators.
<PAGE>
<TABLE>
The following table illustrates the separate contribution of Ames' and Hills' operations to various components of the
consolidated results of operations, as described below, for the thirteen and twenty-six weeks ended July 31, 1999, as
well as the impact on these consolidated results of the other costs described below:
<CAPTION>
For the Thirteen
Weeks Ended For the Thirteen Weeks Ended July 31, 1999
August 1, 1998 ------------------------------------------------------
------------------- Ames Hills Other Total
-------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
TOTAL NET SALES $535,047 $728,023 $128,175 $ - $856,198
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 378,211 514,584 83,762 - 598,346
Selling, general and administrative expenses 145,490 191,271 52,790 30,100 274,161
Leased department and other income (7,489) (10,248) (1,342) - (11,590)
Depreciation and amortization expense, net 2,257 10,606 3,813 1,885 16,304
Interest and debt expense, net 3,192 11,439 1,388 794 13,621
--------------- -------------- ------------- ----------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 13,386 10,371 (12,236) (32,779) (34,644)
Income tax benefit (provision) (5,000) (3,733) 4,404 11,800 12,471
--------------- -------------- ------------- ----------- ---------------
NET INCOME (LOSS) $8,386 $6,638 ($7,832) ($20,979) ($22,173)
=============== ============== ============= =========== ===============
Weighted average number of common shares 22,950 27,706 27,706 27,706 27,706
outstanding =============== ============== ============= =========== ===============
Net income (loss) per share $ 0.37 $ 0.24 ($0.28) ($0.76) ($0.80)
=============== ============== ============= =========== ===============
Weighted average number of common and
common equivalent shares outstanding 24,272
===============
Diluted net income per share $ 0.35
===============
<CAPTION>
For the Twenty-Six
Weeks Ended For the Twenty-Six Weeks Ended July 31, 1999
August 1, 1998 -----------------------------------------------------------
------------------ Ames Hills Other Total
-------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
TOTAL NET SALES $1,032,092 $1,309,625 $375,642 $ - $1,685,267
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 736,822 934,089 251,212 - 1,185,301
Selling, general and administrative expenses 290,762 350,903 142,047 46,672 539,622
Leased department and other income (13,675) (16,644) (3,368) - (20,012)
Depreciation and amortization expense, net 4,178 16,523 10,393 3,771 30,687
Interest and debt expense, net 5,246 19,417 4,162 1,964 25,543
--------------- -------------- ------------- ----------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 8,759 5,337 (28,804) (52,407) (75,874)
Income tax benefit (provision) (3,316) (1,921) 10,368 18,866 27,313
--------------- -------------- ------------- ----------- ---------------
NET INCOME (LOSS) $5,443 $3,416 ($18,436) ($33,541) ($48,561)
=============== ============== ============= =========== ===============
Weighted average number of common shares 22,800 25,914 25,914 25,914 25,914
outstanding =============== ============== ============= =========== ===============
Net income (loss) per share $ 0.24 $ 0.13 ($0.71) ($1.29) ($1.87)
=============== ============== ============= =========== ===============
Weighted average number of common and
common equivalent shares outstanding 24,171
===============
Diluted net income per share $ 0.23
===============
</TABLE>
<PAGE>
For the thirteen and twenty-six weeks ended July 31, 1999, the
Ames results reflect (a) the results of the pre-Hills acquisition Ames
base, (b) the post re-opening results of the 104 converted Hills stores
and (c) certain expenses associated with the acquisition of Hills,
including the interest expense on the acquired Hills senior notes and a
pro rata share of the amortization of the goodwill recorded in connection
with the acquisition. The Hills results represent (a) the results of
operations for the Hills stores during the period that these stores were
operated pursuant to the agreement with Gordon Brothers and The Nassi
Group, including the fee due Gordon and Nassi and the depreciation and
interest expense directly associated with such stores and (b) Hills
corporate overhead expenses, principally the Canton, MA corporate
facility. The other costs represent the expenses incurred during the
period of remodeling the 54 Hills stores that re-opened as Ames stores on
July 19, 1999.
The unique circumstances under which Hills' operations have been
conducted through the second quarter ended July 31, 1999 and the
accounting treatment accorded those operations as a consequence of our
agreement with Gordon Brothers and The Nassi Group distort any direct
comparison of the principal components of Ames' consolidated results for
the thirteen and twenty-six weeks ended July 31, 1999 and August 1, 1998.
In the discussion that follows, Ames' net sales, gross margin, and
selling, general and administrative expenses for the thirteen and
twenty-six weeks ended July 31, 1999 are presented and compared exclusive
of the Hills results. The impact of the Hills acquisition is included in
the comparison of depreciation and amortization expense and interest and
debt expense.
Ames' net sales for the thirteen weeks ended July 31, 1999
increased $193.0 million or 36.1% from the prior-year's second quarter
and comparable-store sales increased 9.5%. These sales increases were
attributable, in part, to the Grand Openings of 54 converted Hills stores
on July 22, 1999 along with the openings of 50 converted Hills stores and
1 other new Ames store in April 1999. Ames' net sales for the twenty-six
weeks ended July 31, 1999 increased $277.5 million or 26.9% from the same
prior-year period and comparable-store sales increased 9.3%. These sales
increases were attributable, in part, to the openings of 104 converted
Hills stores and 1 other new Ames store during the first half of 1999.
Net sales for last year have been restated to reflect the effect of
recording promotional coupons issued by Ames as markdowns, which conforms
to the current year treatment.
Ames' gross margin increased $56.6 million in the second quarter
of 1999 compared to the second quarter of 1998, but remained unchanged
as a percentage of net sales at 29.3%. Ames' gross margin for the
twenty-six weeks ended July 31, 1999 increased $80.3 million or .07% as a
percentage of net sales compared to the same prior-year period. The year-
to-date gross margin rate benefited from a favorable purchase mark-up.
Ames' selling, general and administrative expenses increased $45.8
million for the thirteen weeks ended July 31, 1999 compared to the same
prior-year period, but decreased as a percentage of net sales from 27.2%
in 1998 to 26.3% in 1999. The percentage decrease was primarily
attributable to a reduction in store related and advertising expenses as
a percentage of sales. Ames' selling, general and administrative expenses
increased $60.1 million for the twenty-six weeks ended July 31, 1999
compared to the same prior-year period, but decreased as a percentage of
net sales from 28.2% in 1998 to 26.8% in 1999. The percentage decrease
was primarily attributable to a reduction in store related and
advertising expenses as a percentage of sales.
Depreciation and amortization expense increased by $14.0 million
for the thirteen weeks ended July 31, 1999 compared to the same prior-
year period. For the twenty-six weeks ended July 31, 1999, depreciation
and amortization expense increased by $26.5 million compared to the same
prior-year period. The Hills acquisition added $3.8 million and $10.4
million of depreciation and amortization expense for the thirteen and
twenty-six weeks ended July 31, 1999, respectively. The increase was due
to the additional depreciation and amortization of the Hills fixed assets
and beneficial lease rights and the amortization of goodwill relating to
the excess of the Hills acquisition cost over the value of the acquired
assets.
Interest expense increased by $10.4 million and $20.3 million for
the thirteen and twenty-six weeks ended July 31, 1999, respectively,
compared to the same prior-year periods. The increase was primarily
attributable to the interest expense incurred for the Ames senior notes,
the Hills senior notes, the Hills capital lease and financing obligations
and, for the year-to-date period, to the increased interest on bank
borrowings.
Our estimated annual effective income tax rate for each year was
applied to the loss before income taxes for each period to compute a
non-cash income tax benefit or provision. The income tax benefits are
included in other current assets in the balance sheet as of July 31,
1999 and the income tax provision is included as an addition to paid-in
capital in the balance sheet as of August 1, 1998.
Liquidity and Capital Resources
---------------------------------
Our principal sources of liquidity are our bank credit facility,
cash from operations and cash on hand. Our current bank credit facility
consists of a revolving credit facility of up to $650.0 million, with a
sublimit of $150.0 million for letters of credit, which expires June 30,
2002. Borrowings under the bank credit facility are secured by
substantially all of our assets and after February 2000, we are required
to meet certain financial covenants. In addition, we are required to
maintain a minimum availability of at least $100.0 million. Our peak
borrowing level during the quarter ended July 31, 1999 under this bank
credit facility was $88.1 million. We believe we will have sufficient
liquidity to meet our financial obligations for the foreseeable future.
On April 27, 1999, we completed the sale of $200 million of Ames
senior notes. The net proceeds from the sale of the Ames senior notes,
approximately $193.4 million, were used to reduce outstanding borrowings
under our bank credit facility. The Ames senior notes pay interest
semi-annually in April and October and mature April 2006.
On May 24, 1999, we completed the public offering of 5.1 million
shares of Common Stock at a price of $38.75 per share. The proceeds,
net of underwriting discounts, of approximately $187.9 million were used
to reduce our borrowings under the bank credit facility and for general
corporate purposes.
Merchandise inventories increased $293.3 million from August 1,
1998 to July 31, 1999 due to planned increases for the opening of the
converted Hills stores. Our merchandise inventories increased $173.9
million from January 30, 1999 to July 31, 1999 due primarily to the
planned increases for the opening of the converted Hills and Caldor
stores along with the normal seasonal build-up of inventories.
Trade accounts payable increased $167.8 million from August 1,
1998 to July 31, 1999 primarily due to the merchandise inventory
increases referenced above. The increase of $30.7 million from January
30, 1999 to July 31, 1999 was principally the result of the merchandise
inventory increases referenced above, partially offset by the seasonal
dating of inventories in effect as of January 30, 1999.
Capital expenditures for the twenty-six weeks ended July 31, 1999
totaled $83.6 million and for the balance of the year are estimated to be
approximately $135.0 million. We adjust our plans for making such
expenditures depending on the amount of internally generated funds.
Net fixed assets increased by $319.2 million from August 1, 1998
to July 31, 1999 due primarily to the inclusion of $226.4 million in net
fixed assets of Hills. Our net fixed assets increased $60.0 million from
January 30, 1999 to July 31, 1999 due primarily to the capital
expenditures associated with the newly converted Hills stores.
Beneficial lease rights represent the excess of the fair market
value of the acquired Hills leases over contract value of those leases.
We are amortizing this amount over the terms of the related leases
(which average approximately 25 years) using the straight-line method.
Goodwill is being amortized over 25 years using the straight-line method.
Long-term debt as of July 31, 1999 consisted of borrowings under
our bank credit facility of $6.2 million, $200.0 million of the Ames
senior notes issued in April 1999, and $50.9 million of the Hills senior
notes that remained outstanding after the acquisition. The Hills senior
notes became direct obligations of Ames as a result of the merger of
Hills into Ames.
Capital lease and financing obligations increased $146.2 million
from August 1, 1998 to July 31, 1999 due primarily to the inclusion of
$144.5 million of capital lease and financing obligations of Hills.
Capital lease and financing obligations decreased by $8.4 million from
January 30, 1999 to July 31, 1999 due to payments made on capital
lease obligations.
The net operating loss carryovers remaining after fiscal year
1998, subject to any limitations pursuant to Internal Revenue Code Sec.
382, should offset income on which taxes would otherwise be payable in
the next several years.
Year 2000 Readiness
---------------------
In operating our business, we are dependent on information
technology and process control systems that employ computers as well as
embedded microprocessors. We also depend on the proper functioning of the
business systems of third parties, particularly the more than 3,200
vendors from whom we purchase the merchandise sold in our stores. Many
computer systems and microprocessors can only process dates in which the
year is represented by two digits. As a result, some of these systems and
processors may interpret "00" incorrectly as the year 1900 instead of the
year 2000, in which event they could malfunction or become inoperable
after December 31, 1999. Systems and processors that can properly
recognize the year 2000 are referred to as "year 2000 compliant."
As previously reported, we initiated a comprehensive program to
prepare our computer systems and applications for the year 2000. We have
spent approximately $5.1 million on this program through the end of the
second quarter of fiscal 1999 and expect that full implementation of the
program will involve an additional $1.0 million to $1.5 million,
including expenditures for software and consulting services.
Additionally, we estimate the allocated costs of our internal system
development staff who are implementing our year 2000 initiatives to be
$3.5 million to $4.0 million over the life of the project.
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
-------------------
Reference can be made to Item 3 - Legal Proceedings
included in the 1998 Form 10-K for various litigation involving
the Company, for which there were no material changes since the
filing date of the 1998 Form 10-K except as set forth in Note 8.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------
The Annual Meeting of Shareholders was held Wednesday,
June 16, 1999, to consider and act upon the following matters:
(a) The shareholders elected for one-year terms all persons
nominated for directors as set forth in the Company's
proxy statement filed May 12, 1999. Each nominee for
director was elected as follows:
<TABLE>
<CAPTION>
For Withheld
---------- ---------
<S> <C> <C>
Election of Directors as a Slate 20,614,789 55,351
Francis X. Basile 20,614,139 56,001
Paul Buxbaum 20,613,508 56,632
Alan Cohen 20,613,575 56,565
Joseph R. Ettore 20,611,614 58,526
Richard M. Felner 20,614,358 55,782
Sidney S. Pearlman 20,613,158 56,982
</TABLE>
(b) The shareholders ratified and approved the appointment of
Arthur Andersen LLP as independent certified public
accountants and auditors for the Company for the fiscal
year ending January 29, 2000.
For Withheld Abstentions
---------- -------- -------------
20,631,638 29,393 9,109
Item 5. Other Information
-------------------
On August 31, 1999, the Board of Directors of the Company
adopted Amended and Restated By-Laws, a copy of which is filed as
Exhibit 3.3 hereto.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------
(a) Index to Exhibits
-------------------
Exhibit No. Exhibit Page No.
------------ ----------------------------------- ---------
3.3 Form of By-laws of Ames Department 19
Stores, Inc. as amended and restated
August 31, 1999
11 Schedule of computation of basic 31
and diluted net income (loss) per
share
(b) Reports on Form 8-K:
---------------------
There were no reports on Form 8-K filed with the Securities and
Exchange Commission during the second quarter:
<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.
AMES DEPARTMENT STORES, INC.
(Registrant)
Dated: September 10, 1999 /s/ Joseph R. Ettore
--------------------------------------
Joseph R. Ettore, President, Director,
and Chief Executive Officer
Dated: September 10, 1999 /s/ Rolando de Aguiar
--------------------------------------
Rolando de Aguiar, Executive Vice
President and Chief Financial and
Administrative Officer
<PAGE>
Exhibit 3.3
Amended and Restated
as of August 31, 1999
AMENDED AND RESTATED
BY-LAWS
OF
AMES DEPARTMENT STORES, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation shall be
in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
of the Corporation (the "Board of Directors") may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the election of
directors or for any other purpose shall be held at such time and place, either
within or without the State of Delaware as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders shall be held on
such date and at such time as shall be designated from time to time by the Board
of Directors. At the Annual Meeting the stockholders shall elect by a plurality
vote the Board of Directors, and transact such other business as may properly be
brought before the meeting. Written notice of the Annual Meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than 10 nor more than 60 days before the date
of the meeting.
Section 3. Special Meetings. Except as otherwise required by law or the
Certificate of Incorporation, special meetings of stockholders for any purpose
or purposes may be called by the Chairman of the Board of Directors or a
majority of the entire Board of Directors. Only such business as is specified in
the notice of any special meeting of stockholders shall come before such
meeting. Written notice of a special meeting stating the place, date and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the Certificate of
Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
Section 5. Order of Business. (a) At each meeting of stockholders, the Chairman
of the Board of Directors or, in the absence of the Chairman of the Board of
Directors, such person as shall be selected by the Board of Directors shall act
as chairman of the meeting. The order of business at each such meeting shall be
as determined by the chairman of the meeting. The chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts and things as are necessary or desirable for the proper
conduct of the meeting, including, without limitation, the establishment of
procedures for the maintenance of order and safety, limitations on the time
allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof, and the opening and closing of the voting polls.
(b) At any annual meeting of stockholders, only such business shall be conducted
as shall have been brought before the annual meeting (i) by or at the direction
of the chairman of the meeting, (ii) pursuant to the notice provided for in
Section 2 of this Article II or (iii) by any stockholder who is a holder of
record at the time of the giving of such notice provided for in this Section 5,
who is entitled to vote at the meeting and who complies with the procedures set
forth in this Section 5.
(c) For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation (the "Secretary") and such
business must be a proper matter for stockholder action under the General
Corporation Law of the State of Delaware. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting of stockholders;
provided, however, that if the date of the annual meeting is advanced more than
30 days prior to or delayed by more than 60 days after such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting is
first made. To be in proper written form, a stockholder's notice to the
Secretary shall set forth in writing as to each matter the stockholder proposes
to bring before the annual meeting: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting; (ii) the name and address of the
stockholder proposing such business and all persons or entities acting in
concert with the stockholder; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder and all persons or
entities acting in concert with such stockholder; and (iv) any material interest
of the stockholder in such business. The foregoing notice requirements shall be
deemed satisfied by a stockholder if the stockholder has notified the
Corporation of his or her intention to present a proposal at an annual meeting
and such stockholder's proposal has been included in a proxy statement that has
been prepared by management of the Corporation to solicit proxies for such
annual meeting; provided, however, that if such stockholder does not appear or
send a qualified representative to present such proposal at such annual meeting,
the Corporation need not present such proposal for a vote at such meeting,
notwithstanding that proxies in respect of such vote may have been received by
the Corporation. Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this Section 5. The chairman of an annual meeting shall,
if the facts warrant, determine that business was not properly brought before
the annual meeting in accordance with the provisions of this Section 5 and, if
the chairman should so determine, the chairman shall so declare to the annual
meeting and any such business not properly brought before the annual meeting
shall not be transacted.
Section 6. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy, but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 7. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided
in the Certificate of Incorporation, any action required or permitted to be
taken at any annual or special meeting of stockholders of the Corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing setting forth the action so taken shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 8. List of Stockholders Entitled to Vote. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare and make, at
least 10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 9. Stock Ledger. The stock ledger of the Corporation shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by Section 8 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors shall
consist of seven members. Except as provided in Section 2 of this Article,
directors shall be elected by a plurality of the votes cast at annual meetings
of stockholders, and each director so elected shall hold office until his
successor is elected and qualified or until his earlier death or resignation.
Any director may resign at any time upon written notice to the Corporation.
Directors need not be stockholders.
Section 2. Vacancies. Vacancies occurring on the Board of Directors for any
reason may be filled by a majority of the directors then in office, though less
than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and qualified, or until their earlier resignation or removal.
Section 3. Notification of Nomination. Subject to the rights of the holders of
any class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or by any stockholder of record at the time of
giving of the notice of nomination provided for in this Section 3 of this
Article III and who is entitled to vote for the election of directors. Any
stockholder of record entitled to vote for the election of directors at a
meeting may nominate persons for election as directors only if timely written
notice of such stockholder's intent to make such nomination is given, by either
personal delivery or United States mail, postage prepaid, to the Secretary. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation (i) with respect to an
election to be held at an annual meeting of stockholders, not less than 60 days
nor more than 90 days prior to the first anniversary of the preceding year's
annual meeting of stockholders; provided, however, that if the date of the
annual meeting is advanced more than 30 days prior to or delayed by more than 60
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made and (ii) with respect to an election to
be held at a special meeting of stockholders for the election of directors, not
earlier than the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board to be
selected at such meeting. Each such notice shall set forth: (i) the name and
address of the stockholder who intends to make the nomination, of all persons or
entities acting in concert with the stockholder, and of the person or persons to
be nominated; (ii) a representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
entity acting in concert with the stockholder (naming such person or entity)
pursuant to which the nomination or nominations are to be made by the
stockholder; (iv) such other information regarding each nominee proposed by the
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; (v) the class and number of shares of the Corporation that are
beneficially owned by the stockholder and all persons or entities acting in
concert with the stockholder; and (vi) the consent of each nominee to being
named in a proxy statement as nominee and to serve as a director of the
Corporation if so elected. Only persons nominated in accordance with this
Section shall be qualified to serve as directors. The chairman of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure. Only such persons who are nominated in accordance
with the procedures set forth in this Section 3 of this Article III shall be
eligible to serve as directors of the Corporation.
Notwithstanding anything in the third sentence of this Section
3 of Article III to the contrary, in the event that the number of directors to
be elected to the Board is increased and there is no public announcement naming
all of the nominees for director or specifying the size of the increased Board
made by the Corporation at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by these
By-Laws shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
For purposes of the By-Laws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.
Section 4. Duties and Powers. The business of the Corporation shall be managed
by or under the direction of the Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
Section 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special Meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than 48 hours before the date of the meeting, by
telephone or telegram on 24 hours' notice, or on such shorter notice as the
person or persons calling such meeting may deem necessary or appropriate in the
circumstances. Notice of a meeting of the Board of Directors need not be given
to any director who submits a signed waiver of notice whether before or after
the meeting, or who attends the meeting without protesting, prior thereto or at
its commencement, the lack of notice to him. A notice, or waiver of notice, need
not specify the business to be transacted at or purpose of any meeting of the
Board of Directors.
Section 6. Quorum. Except as may be otherwise specifically provided by law, the
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Actions of Board by Written Consent. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, prior notice, or a vote, if all the members of
the Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 8. Meetings by Means of Conference Telephone. Unless otherwise provided
by the Certificate of Incorporation or these By-Laws, members of the Board of
Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 8 shall constitute
presence in person at such meeting.
Section 9. Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when so requested by the Board of Directors.
Section 10. Compensation. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and for the performance of
their duties as directors and may be paid a fixed sum, determined by the Board
of Directors, for attendance at each meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 11. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or violable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by the Board
of Directors and shall be a President, a Secretary and a Treasurer. The Board of
Directors, in its discretion, may also choose a Chairman of the Board of
Directors (who must be a director) and one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers. Any number of offices may
be held by the same person, unless otherwise prohibited by law, the Certificate
of Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting held after each
annual meeting of stockholders shall elect the officers of the Corporation 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 of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. Unless some other person is so designated by the
Board of Directors, he shall be the Chief Executive Officer of the Corporation,
and except where by law the signature of the President is required, the Chairman
of the Board of Directors shall possess the same power as the President to sign
all contracts, certificates and other instruments of the Corporation which may
be authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
Section 5. President. The President shall, subject to the control of the Board
of Directors and, if there be one, the Chairman of the Board of Directors, have
general supervision of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. He
shall execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when so
authorized by these By-Laws, the Board of Directors or the President. In the
absence or disability of the Chairman of the Board of Directors, or if there be
none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chairman of the Board of Directors, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as from
time to time may be assigned to him by these By-Laws or by the Board of
Directors.
Section 6. Vice Presidents. At the request of the President or in his absence or
in the event of his inability or refusal to act (and if there be no Chairman of
the Board of Directors), the Vice President or the Vice Presidents if there is
more than one (in the order designated by the Board of Directors) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Each Vice President
shall perform such other duties and have such other powers as the Board of
Directors from time to time may prescribe. If there be no Chairman of the Board
of Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions placed upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requests, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise provided in these
By-Laws, Assistant Secretaries, if there be any, shall perform such duties and
have such powers as from time to time may be assigned to them by the Board of
Directors, the President, any Vice President, if there be one, or the Secretary,
and in the absence of the Secretary or in the event of his disability or refusal
to act, shall perform the duties of the Secretary, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall
perform such duties and have such powers as from time to time may be assigned to
them by the Board of Directors, the President, any Vice President, if there be
one, or the Treasurer, and in the absence of the Treasurer or in the event of
his disability or refusal to act, shall perform the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. If required by the Board of Directors, an
Assistant Treasurer shall give the Corporation a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of Directors may
choose shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed, in the name of the Corporation (i) by
the Chairman of the Board of Directors, the President or a Vice President and
(ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i) a transfer
agent other than the Corporation or its employee, or (ii) a registrar other than
the Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Except as otherwise provided in the Certificate of
Incorporation, stock of the Corporation shall be transferable in the manner
prescribed by law and in these By-Laws. Transfers of stock shall be made on the
books of the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than 60 days nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
NOTICES
Section 1. Notices. Except as otherwise specifically provided herein, whenever
written notice is required by law, the Certificate of Incorporation or these
By-Laws, to be given to any director, member of a committee or stockholder, such
notice may be given by mail, addressed to such director, member of a committee
or stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Written notice
may also be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a stockholder
at a meeting in person or by proxy shall constitute a waiver of notice of such
meeting, except when such stockholder attends such meeting for the express
purpose of objecting at the beginning of such meeting, to the transaction of any
business on the grounds that notice of such meeting was inadequate or improperly
given.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors and may be changed from time to time in the
same manner.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under this
Article VIII (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article VIII, as the case may be. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent that a director or officer of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under Section 3
of this Article VIII, a person shall be deemed to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, or, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe his conduct was unlawful, if his action
is based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Section 1
and 2 of this Article VIII. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because he has met the applicable standards of
conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses (including attorneys' fees)
incurred by a director or officer in defending or investigating a threatened or
pending action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by or granted pursuant to
this Article VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any law, By-Law, agreement, contract, vote of stockholders or disinterested
directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, it being the
policy of the Corporation that indemnification of the persons specified in
Sections 1 and 2 of this Article VIII shall be made to the fullest extent
permitted by law. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Section 1 or
2 of this Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power or the obligation to indemnify him against such liability
under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII, references to
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers, so that any
person who is or was a director or officer of such constituent corporation, or
is or was a director or officer of such constituent corporation serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same position under the
provisions of this Article VIII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued. For purposes of this Article VIII, references
to "fines" shall include any excise taxes assessed on a person with respect to
an employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation of Indemnification. Notwithstanding anything contained in
this Article VIII to the contrary, except for proceedings to enforce rights to
indemnification (which shall be governed by Section 5 hereof), the Corporation
shall not be obligated to indemnify any director or officer in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of Directors of the
Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation may, to the
extent authorized from time to time by the Board of Directors, provide rights to
indemnification and to the advancement of expenses to employees and agents of
the Corporation similar to those conferred in this Article VIII to directors and
officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed, in whole or in
part, or new By-Laws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new By-Laws be contained in the notice of such meeting of
stockholders or Board of Directors, as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
Section 2. Entire Board of Directors. As used in this Article IX and in these
By-Laws generally, the term "entire Board of Directors" means the total number
of directors which the Corporation would have if there were no vacancies.
<PAGE>
<TABLE>
Exhibit 11
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(Amounts in thousands except per share amounts)
<CAPTION>
For the Thirteen For the Twenty-Six
Weeks Ended Weeks Ended
--------------------------- --------------------------
<S> <C> <C> <C> <C>
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------ ------------ ----------- ------------
Net income (loss) ($22,173) $8,386 ($48,561) $5,443
============ ============ =========== ============
For Basic Net Income (Loss) Per Common Share
Weighted average number of common shares
outstanding during the period 27,706 22,950 25,914 22,800
============ ============ =========== =============
Basic net income (loss) per common share ($0.80) $0.37 ($1.87) $0.24
============ ============ =========== =============
For Diluted Net Income (Loss) Per Common Share
Weighted average number of common shares
outstanding during the period 27,706 22,950 25,914 22,800
Add: Common stock equivalent shares represented by
- Series B Warrants (a) 116 (a) 127
- Series C Warrants (a) 458 (a) 520
- Options under 1994 Management Stock Option Plan &
1998 Stock Incentive Plan (a) 680 (a) 661
- Options under 1994 Non-Employee Directors
Stock Option Plan (a) 68 (a) 63
------------ ------------ ----------- -------------
Weighted average number of common and common equivalent
shares used in the calculation of diluted net
income (loss) per share 27,706 24,272 25,914 24,171
============ ============ =========== =============
Diluted net income (loss) per common share ($0.80) $0.35 ($1.87) $0.23
============ ============ =========== =============
<FN>
(a) Common stock equivalents have not been included because the effect would be anti-dilutive.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000006071
<NAME> AMES DEPARTMENT STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 36404
<SECURITIES> 0
<RECEIVABLES> 47038
<ALLOWANCES> 0
<INVENTORY> 795440
<CURRENT-ASSETS> 936055
<PP&E> 527345
<DEPRECIATION> 95737
<TOTAL-ASSETS> 1788279
<CURRENT-LIABILITIES> 732192
<BONDS> 250875
0
0
<COMMON> 292
<OTHER-SE> 463441
<TOTAL-LIABILITY-AND-EQUITY> 1788279
<SALES> 856198
<TOTAL-REVENUES> 867788
<CGS> 598346
<TOTAL-COSTS> 598346
<OTHER-EXPENSES> 290465
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13621
<INCOME-PRETAX> (34644)
<INCOME-TAX> 12471
<INCOME-CONTINUING> (22173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22173)
<EPS-BASIC> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
