UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File Number 000-50421
ended April 30, 2008
CONN'S, INC.
(Exact name of registrant as specified in its charter)
A Delaware Corporation 06-1672840
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3295 College Street
Beaumont, Texas 77701
(409) 832-1696
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (l) 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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act. (Check One):
Large accelerated filer [ ] Accelerated filer [ x ]
Non-accelerated filer [ ] Smaller reporting Company [ ]
(Do not check if a Smaller reporting Company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [ x ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 2, 2008:
Class Outstanding
- ------------------------------------------------ ----------------------------
Common stock, $.01 par value per share 22,405,836
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
--------------------- --------
Item 1. Financial Statements...........................................................................1
- -------
Consolidated Balance Sheets as of January 31, 2008 and April 30, 2008..........................1
Consolidated Statements of Operations for the three months ended
April 30, 2007 and 2008....................................................................2
Consolidated Statement of Stockholders' Equity for the three months ended
April 30, 2008.............................................................................3
Consolidated Statements of Cash Flows for the three months ended
April 30, 2007 and 2008....................................................................4
Notes to Consolidated Financial Statements.....................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
- ------- and Results of Operations.................................................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................26
- -------
Item 4. Controls and Procedures.......................................................................26
- -------
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings.............................................................................26
- -------
Item 1A. Risk Factors..................................................................................26
- --------
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...................................26
- -------
Item 4. Submission of Matters to a Vote of Security Holders...........................................26
- -------
Item 5. Other Information.............................................................................27
- -------
Item 6. Exhibits......................................................................................27
- -------
SIGNATURE ..............................................................................................28
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Conn's, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Assets January 31, April 30,
2008 2008
----------------- -----------------
Current assets (unaudited)
Cash and cash equivalents ......................................................... $ 11,015 $ 45,454
Accounts receivable, net .......................................................... 36,100 34,329
Interests in securitized assets ................................................... 178,150 168,900
Inventories ....................................................................... 81,495 89,813
Deferred income taxes ............................................................. 2,619 4,677
Prepaid expenses and other assets ................................................. 4,449 3,973
----------------- -----------------
Total current assets ......................................................... 313,828 347,146
Non-current deferred income tax asset .............................................. - 1,388
Property and equipment
Land .............................................................................. 8,011 8,011
Buildings ......................................................................... 13,626 15,433
Equipment and fixtures ............................................................ 17,950 18,614
Transportation equipment .......................................................... 2,741 2,720
Leasehold improvements ............................................................ 74,120 76,966
----------------- -----------------
Subtotal ..................................................................... 116,448 121,744
Less accumulated depreciation ..................................................... (57,195) (60,291)
----------------- -----------------
Total property and equipment, net ............................................ 59,253 61,453
Goodwill, net ...................................................................... 9,617 9,617
Debt issuance costs and other assets, net .......................................... 154 225
----------------- -----------------
Total assets ................................................................. $ 382,852 $ 419,829
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt ................................................. $ 102 $ 74
Accounts payable .................................................................. 28,179 43,801
Accrued compensation and related expenses ......................................... 9,748 7,529
Accrued expenses .................................................................. 21,487 24,592
Income taxes payable .............................................................. 600 8,496
Deferred revenues and allowances .................................................. 16,949 18,070
----------------- -----------------
Total current liabilities ....................................................... 77,065 102,562
Long-term debt ..................................................................... 17 16
Non-current deferred income tax liability .......................................... 131 -
Deferred gains on sales of property ................................................ 1,221 1,129
Stockholders' equity
Preferred stock ($0.01 par value, 1,000,000 shares authorized;
none issued or outstanding) ..................................................... - -
Common stock ($0.01 par value, 40,000,000 shares authorized;
24,098,171 and 24,125,041 shares issued at
January 31, 2008 and April 30, 2008, respectively)............................. 241 241
Additional paid-in capital ........................................................ 99,514 100,622
Retained earnings ................................................................. 241,734 252,330
Treasury stock, at cost, 1,723,205 and 1,723,205 shares, respectively.............. (37,071) (37,071)
----------------- -----------------
Total stockholders' equity ...................................................... 304,418 316,122
----------------- -----------------
Total liabilities and stockholders' equity ................................... $ 382,852 $ 419,829
================= =================
See notes to consolidated financial statements.
1
Conn's, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except earnings per share)
Three Months Ended
April 30,
------------------------------
2007 2008
-------------- ---------------
Revenues
Product sales ................................................................ $ 166,639 $ 179,911
Service maintenance agreement commissions, net ............................... 9,281 9,970
Service revenues ............................................................. 5,445 5,192
-------------- ---------------
Total net sales ........................................................... 181,365 195,073
-------------- ---------------
Finance charges and other..................................................... 23,880 26,552
Net increase (decrease) in fair value ........................................ 65 (3,067)
-------------- ---------------
Total finance charges and other ........................................... 23,945 23,485
-------------- ---------------
Total revenues ............................................................. 205,310 218,558
Cost and expenses
Cost of goods sold, including warehousing
and occupancy costs ......................................................... 124,393 139,058
Cost of parts sold, including warehousing
and occupancy costs ......................................................... 1,866 2,330
Selling, general and administrative expense .................................. 59,214 60,368
Provision for bad debts ...................................................... 560 259
-------------- ---------------
Total cost and expenses .................................................... 186,033 202,015
-------------- ---------------
Operating income .............................................................. 19,277 16,543
Interest income, net .......................................................... (240) (15)
Other income, net ............................................................. (831) (22)
-------------- ---------------
Income before income taxes..................................................... 20,348 16,580
Provision for income taxes .................................................... 7,402 5,984
-------------- ---------------
Net income .................................................................... $ 12,946 $ 10,596
============== ===============
Earnings per share
Basic ........................................................................ $ 0.55 $ 0.47
Diluted ...................................................................... $ 0.54 $ 0.47
Average common shares outstanding
Basic ........................................................................ 23,567 22,382
Diluted ...................................................................... 24,121 22,560
See notes to consolidated financial statements.
2
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended April 30, 2008
(unaudited)
(in thousands, except descriptive shares)
Common Stock Additional
------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
------ ------ ---------- -------- --------- --------
Balance January 31, 2008................................................ 24,098 $ 241 $ 99,514 $241,734 $(37,071) $304,418
Exercise of options to acquire
shares of common stock,
incl. tax benefit...................................................... 23 211 211
Issuance of shares of common
stock under Employee
Stock Purchase Plan.................................................... 4 60 60
Stock-based compensation................................................ 837 837
Net income.............................................................. 10,596 10,596
------ ------ ---------- -------- --------- --------
Balance April 30, 2008.................................................. 24,125 $ 241 $ 100,622 $252,330 $(37,071) $316,122
====== ====== ========== ======== ========= ========
See notes to consolidated financial statements.
3
Conn's, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
Three Months Ended
April 30,
-------------------------
2007 2008
------------ ------------
Cash flows from operating activities
Net income................................................. $ 12,946 $ 10,596
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation.............................................. 3,217 3,164
Amortization.............................................. (161) (228)
Provision for bad debts................................... 560 259
Stock-based compensation.................................. 518 837
Discounts on promotional credit........................... 1,950 1,674
Gains recognized on sales of receivables.................. (7,152) (6,830)
Decrease in fair value of interests in securitized assets 115 3,212
Provision for deferred income taxes....................... 869 (2,701)
Gains from sales of property and equipment................ (831) (23)
Changes in operating assets and liabilities:
Accounts receivable....................................... (7,319) 12,619
Inventory................................................. 5,843 (8,318)
Prepaid expenses and other assets......................... (2,121) 476
Accounts payable.......................................... (18,462) 15,622
Accrued expenses.......................................... (1,417) 886
Income taxes payable...................................... 4,226 7,020
Deferred revenue and allowances........................... 1,607 1,273
------------ ------------
Net cash provided by (used in) operating activities......... (5,612) 39,538
------------ ------------
Cash flows from investing activities
Purchases of property and equipment........................ (2,748) (5,373)
Proceeds from sales of property............................ 8,727 32
------------ ------------
Net cash provided by (used in) investing activities......... 5,979 (5,341)
------------ ------------
Cash flows from financing activities
Proceeds from stock issued under employee benefit plans.... 530 271
Purchases of treasury stock................................ (4,554) -
Excess tax benefits from stock-based compensation.......... 2 -
Borrowings under lines of credit........................... - 600
Payments on lines of credit................................ - (600)
Payment of promissory notes................................ (35) (29)
------------ ------------
Net cash provided by (used in) financing activities......... (4,057) 242
------------ ------------
Net change in cash.......................................... (3,690) 34,439
Cash and cash equivalents
Beginning of the year...................................... 56,570 11,015
------------ ------------
End of period.............................................. $ 52,880 $ 45,454
============ ============
See notes to consolidated financial statements.
4
Conn's, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
April 30, 2008
1. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying unaudited, condensed consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. The accompanying financial statements reflect all
adjustments that are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature. Operating results for the three month period
ended April 30, 2008, are not necessarily indicative of the results that may be
expected for the year ending January 31, 2009. The financial statements should
be read in conjunction with the Company's (as defined below) audited
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K filed on March 27, 2008.
The Company's balance sheet at January 31, 2008, has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial presentation. Please see the
Company's Form 10-K for the fiscal year ended January 31, 2008, for a complete
presentation of the audited financial statements at that date, together with all
required footnotes, and for a complete presentation and explanation of the
components and presentations of the financial statements.
Principles of Consolidation. The consolidated financial statements include
the accounts of Conn's, Inc. and all of its wholly-owned subsidiaries (the
Company). All material intercompany transactions and balances have been
eliminated in consolidation.
The Company enters into securitization transactions to sell its retail
installment and revolving customer receivables and retains servicing
responsibilities and subordinated interests. These securitization transactions
are accounted for as sales in accordance with Statement of Financial Accounting
Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities, as amended by SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments, because the Company has relinquished
control of the receivables. Additionally, the Company has transferred the
receivables to a qualifying special purpose entity (QSPE). Accordingly, neither
the transferred receivables nor the accounts of the QSPE are included in the
consolidated financial statements of the Company. The Company's retained
interest in the transferred receivables is valued under the requirements of SFAS
No. 159, The Fair Value Option for Financial Assets and Liabilities, and SFAS
No. 157, Fair Value Measurements. On February 1, 2007, the Company elected the
fair value option because it believes that the fair value option provides a more
easily understood presentation for financial statement users. Prior to this
election, the Company had valued and reported its Interests in securitized
assets at fair value, though most changes in the fair value were recorded in
Other comprehensive income. The fair value option simplifies the treatment of
changes in the fair value of the asset, by reflecting all changes in the fair
value of its Interests in securitized assets in current earnings, in Finance
charges and other.
5
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. See the discussion under Note 2 regarding the change in the discount
rate used in the Company's valuation of its Interests in securitized assets.
Earnings Per Share. In accordance with SFAS No. 128, Earnings per Share,
the Company calculates basic earnings per share by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
include the dilutive effects of any stock options granted, as calculated under
the treasury-stock method. The following table sets forth the shares outstanding
for the earnings per share calculations:
Three Months Ended
April 30,
--------------------------
2007 2008
------------- ------------
Common stock outstanding, net of treasury stock, beginning of
period........................................................... 23,641,522 22,374,966
Weighted average common stock issued in stock option exercises.... 8,261 5,989
Weighted average common stock issued to employee stock purchase
plan............................................................. 1,144 1,522
Less: Weighted average treasury shares purchased.................. (84,401) -
------------- ------------
Shares used in computing basic earnings per share................. 23,566,526 22,382,477
Dilutive effect of stock options, net of assumed repurchase of
treasury stock................................................... 554,153 177,640
------------- ------------
Shares used in computing diluted earnings per share............... 24,120,679 22,560,117
============= ============
Reclassifications. Certain reclassifications have been made in the prior
year's financial statements to conform to the current year's presentation. In
order to present the Company's results on a basis that is more comparable with
others in its industry, the Company reclassified advertising expense of $7.6
million for the three months ended April 30, 2007, that was previously included
in costs of goods sold, to selling, general and administrative expense.
2. Interests in Securitized Assets
The Company estimates the fair value of its Interests in securitized assets
using a discounted cash flow model with most of the inputs used being
unobservable inputs. The primary unobservable inputs, which are derived
principally from the Company's historical experience, with input from its
investment bankers and financial advisors, include the estimated portfolio
yield, credit loss rate, discount rate, payment rate and delinquency rate and
reflect the Company's judgments about the assumptions market participants would
use in determining fair value. In determining the cost of borrowings, the
Company uses current actual borrowing rates, and adjusts them, as appropriate,
using interest rate futures data from market sources to project interest rates
over time. Changes in the assumptions over time, including varying credit
portfolio performance, market interest rate changes, market participant risk
premiums required, or a shift in the mix of funding sources, could result in
significant volatility in the fair value of the Interest in securitized assets,
and thus the earnings of the Company.
For the three months ended April 30, 2008, Finance charges and other
included a non-cash decrease in the fair value our Interests in securitized
assets of $3.1 million, reflecting primarily a higher risk premium added to the
discount rate assumption resulting from the volatility in the financial markets,
plus adjustments for other changes in the fair value assumptions, partially
offset by lower interest rates, including the risk-free interest rate (see
reconciliation of the balance of Interests in securitized assets below). The
change in fair value resulted in a charge to pretax income of $3.1 million, a
charge to net income of $2.0 million, and reduced basic and diluted earnings per
share by $0.09, for the three months ended April 30, 2008. During the period
ended April 30, 2008, returns required by market participants on many
investments increased significantly as a result of continued volatility in the
financial markets. Though the Company does not anticipate any significant
variation from the current earnings and cash flow performance of the securitized
credit portfolio, it increased the risk premium included in the discount rate
assumption used in the determination of the fair value of its interests in
securitized assets to reflect the higher estimated risk premium it believes a
market participant would require if purchasing the asset. Based on a review of
6
the changes in market risk premiums during the three months ended April 30,
2008, and discussions with its investment bankers and financial advisors, the
Company estimated that a market participant would require an approximately 300
basis point increase in the required risk premium. As a result, the Company
increased the weighted average discount rate assumption from 16.5% at January
31, 2008, to 19.3% at April 30, 2008, after reflecting a 26 basis point decrease
in the risk-free interest rate included in the discount rate assumption.
The increase in the discount rate will have the effect of deferring income
to future periods, but not permanently reducing securitization income or the
earnings of the Company. The deferred earnings will be recognized in future
periods as interest income on the Interests in securitized assets as the actual
cash flows on the receivables are realized. If a market participant were to
require a return on investment that is 100 basis points higher than estimated in
the Company's calculation, the fair value of its interests in securitized assets
would be decreased by an additional $1.7 million. The Company will continue to
monitor financial market conditions and, each quarter, as it reassesses the
assumptions used may adjust its assumptions up or down, including the risk
premiums a market participant will use. As the financial markets, especially
with respect to asset-backed securities, have continued to experience a
high-level of volatility, the Company will likely be required to record
additional non-cash gains and losses in future periods, until such time as
financial market conditions stabilize and liquidity available for asset-backed
securities improves.
7
The following is a reconciliation of the beginning and ending balances of
the Interests in securitized assets and the beginning and ending balances of the
servicing liability for the three months ended April 30, 2007 and 2008 (in
thousands):
Three Months Ended
April 30,
------------------------
2007 2008
----------- ------------
Reconciliation of Interests in Securitized Assets:
- --------------------------------------------------
Balance of Interests in securitized assets at beginning of period....... $ 136,848 $ 178,150
Amounts recorded in Finance charges and other:
Gains associated with increase in portfolio balances.................. 226 152
----------- ------------
Changes in fair value due to assumption changes:
Fair value increase (decrease) due to changing portfolio yield....... 269 (697)
Fair value increase due to lower projected interest rates............ 44 913
Fair value increase (decrease) due to changes in funding mix......... (633) 1,055
Fair value increase due to change in risk-free interest rate component
of discount rate.................................................. 335 448
Fair value decrease due to higher risk premium included in discount
rate.............................................................. - (5,128)
Other changes........................................................ (140) 197
----------- ------------
Net change in fair value due to assumption changes.................... (125) (3,212)
----------- ------------
Net Gains (Losses) included in Finance charges and other (a).......... 101 (3,060)
Change in balance of subordinated security and equity interest due to
transfers of receivables.............................................. 13,603 (6,190)
----------- ------------
Balance of Interests in securitized assets at end of period............. $ 150,552 $ 168,900
=========== ============
Reconciliation of Servicing Liability:
- --------------------------------------
Balance of servicing liability at beginning of period................... $ 1,052 $ 1,197
Amounts recorded in Finance charges and other:
Increase associated with change in portfolio balances................. 37 34
Increase (decrease) due to change in discount rate.................... 1 (19)
Other changes......................................................... (2) (8)
----------- ------------
Net change included in Finance charges and other (b).................. 36 7
Balance of servicing liability at end of period......................... $ 1,088 $ 1,204
=========== ============
Net increase (decrease) in fair value included
in Finance charges and other (a) - (b)................................. $ 65 $ (3,067)
=========== ============
8
3. Supplemental Disclosure of Revenue
The following is a summary of the classification of the amounts included as
Finance charges and other for the three months ended April 30, 2007 and 2008 (in
thousands):
Three Months ended
April 30,
--------------------
2007 2008
--------- ----------
Securitization income:
Servicing fees received........................ $ 5,819 $ 6,454
Gains on sale of receivables, net.............. 7,162 6,830
Change in fair value of securitized assets..... (125) (3,212)
Interest earned on retained interests.......... 5,104 7,267
--------- ----------
Total securitization income.................. 17,960 17,339
Insurance commissions........................... 5,261 5,205
Other........................................... 724 941
--------- ----------
Finance charges and other.................... $ 23,945 $ 23,485
========= ==========
4. Supplemental Disclosure Regarding Managed Receivables
The following tables present quantitative information about the receivables
portfolios managed by the Company (in thousands):
Total Principal Amount of Principal Amount 60 Days
Receivables or More Past Due (1)
------------------------- -------------------------
January 31, April 30, January 31, April 30,
2008 2008 2008 2008
------------ ------------ ----------- -------------
Primary portfolio:
Installment.................... $ 463,257 $ 472,005 $ 29,997 $ 26,441
Revolving...................... 48,329 44,695 1,561 1,348
------------ ------------ ----------- -------------
Subtotal............................. 511,586 516,700 31,558 27,789
Secondary portfolio:
Installment.................... 143,281 153,258 18,220 15,146
------------ ------------ ----------- -------------
Total receivables managed............ 654,867 669,958 49,778 42,935
Less receivables sold................ 645,862 661,160 47,778 41,267
------------ ------------ ----------- -------------
Receivables not sold................. 9,005 8,798 $ 2,000 $ 1,668
=========== =============
Non-customer receivables............. 27,095 25,531
------------ ------------
Total accounts receivable, net $ 36,100 $ 34,329
============ ============
(1) Amounts are based on end of period balances. The principal amount 60 days or
more past due relative to total receivables managed is not necessarily
indicative of relative balances expected at other times during the year due to
seasonal fluctuations in delinquency.
9
Average Balances Net Credit Charge-offs (1)
------------------------ --------------------------
Three Months Ended Three Months Ended
April 30, April 30,
------------------------ --------------------------
2007 2008 2007 2008
----------- ------------ ------------- ------------
Primary portfolio:
Installment.................. $ 383,652 $ 466,483
Revolving.................... 52,986 47,151
----------- ------------
Subtotal.......................... 436,638 513,634 $ 2,924 $ 3,588
Secondary portfolio:
Installment.................. 139,310 148,237 960 1,748
----------- ------------ ------------- ------------
Total receivables managed......... 575,948 661,871 3,884 5,336
Less receivables sold............. 566,222 652,959 3,687 5,181
----------- ------------ ------------- ------------
Receivables not sold.............. $ 9,726 $ 8,912 $ 197 $ 155
=========== ============ ============= ============
(1) Amounts represent total credit charge-offs, net of recoveries, on total
receivables.
5. Debt and Letters of Credit
On March 26, 2008, the Company executed an amendment to its bank credit
facility, to increase the commitment from $50 million to $100 million, to
provide additional liquidity, if needed, to support its growth plans. In
addition to the expanded commitment, the interest margin added to the applicable
base rate was increased by 25 basis points. At April 30, 2008, the Company had
$97.6 million of its $100 million revolving credit facility available for
borrowings. The amounts utilized under the revolving credit facility reflected
$2.4 million related to letters of credit issued under the facility. This credit
facility matures in October 2010.
There were no amounts outstanding under a short-term revolving bank
agreement that provides up to $8.0 million of availability on an unsecured
basis. This unsecured facility matures in June 2008 and is expected to be
renewed.
The Company utilizes unsecured letters of credit to secure a portion of the
QSPE's asset-backed securitization program, deductibles under the Company's
property and casualty insurance programs and international product purchases. At
April 30, 2008, the Company had outstanding unsecured letters of credit of $24.2
million. These letters of credit were issued under the three following separate
facilities:
o The Company has a $5.0 million sub limit provided under its revolving
line of credit for stand-by and import letters of credit. At April 30,
2008, $2.4 million of letters of credit were outstanding and callable
at the option of the Company's property and casualty insurance
carriers if the Company does not honor its requirement to fund
deductible amounts as billed under its insurance programs.
o The Company has arranged for a $20.0 million stand-by letter of credit
to provide assurance to the trustee of the asset-backed securitization
program that funds collected by the Company, as the servicer, would be
remitted as required under the base indenture and other related
documents. The letter of credit has a term of one year and expires in
August 2008.
o The Company obtained a $10.0 million commitment for trade letters of
credit to secure product purchases under an international arrangement.
At April 30, 2008, there was $1.8 million outstanding under this
commitment. The letter of credit commitment expires in November 2008.
No letter of credit issued under this commitment can have an
expiration date more than 180 days after the commitment expiration
date.
The maximum potential amount of future payments under these letter of
credit facilities is considered to be the aggregate face amount of each letter
of credit commitment, which totals $35.0 million as of April 30, 2008.
10
6. Contingencies
Legal Proceedings. The Company is involved in routine litigation incidental
to its business from time to time. Currently, the Company does not expect the
outcome of any of this routine litigation to have a material affect on its
financial condition, results of operations or cash flows. However, the results
of these proceedings cannot be predicted with certainty, and changes in facts
and circumstances could impact the Company's estimate of reserves for
litigation.
Service Maintenance Agreement Obligations. The Company sells service
maintenance agreements that extend the period of covered warranty service on the
products the Company sells. For certain of the service maintenance agreements
sold, the Company is the obligor for payment of qualifying claims. The Company
is responsible for administering the program, including setting the pricing of
the agreements sold and paying the claims. The typical term for these agreements
is between 12 and 36 months. The pricing is set based on historical claims
experience and expectations about future claims. While the Company is unable to
estimate maximum potential claim exposure, it has a history of overall
profitability upon the ultimate resolution of agreements sold. The revenues
related to the agreements sold are deferred at the time of sale and recorded in
revenues in the statement of operations over the life of the agreements. The
amounts of service maintenance agreement revenue deferred at January 31, 2008
and April 30, 2008 were $6.6 million and $7.0 million, respectively, and are
included in Deferred revenue and allowances in the accompanying balance sheets.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This report contains forward-looking statements. We sometimes use words
such as "believe," "may," "will," "estimate," "continue," "anticipate,"
"intend," "expect," "project" and similar expressions, as they relate to us, our
management and our industry, to identify forward-looking statements.
Forward-looking statements relate to our expectations, beliefs, plans,
strategies, prospects, future performance, anticipated trends and other future
events. We have based our forward-looking statements largely on our current
expectations and projections about future events and financial trends affecting
our business. Actual results may differ materially. Some of the risks,
uncertainties and assumptions about us that may cause actual results to differ
from these forward-looking statements include, but are not limited to:
o the success of our growth strategy and plans regarding opening new
stores and entering adjacent and new markets, including our plans to
continue expanding in existing markets;
o our ability to open and profitably operate new stores in existing,
adjacent and new geographic markets;
o our intention to update or expand existing stores;
o our ability to obtain capital for required capital expenditures and
costs related to the opening of new stores or to update or expand
existing stores;
o our cash flows from operations, borrowings from our revolving line of
credit and proceeds from securitizations to fund our operations, debt
repayment and expansion;
o the ability of the QSPE to obtain additional funding for the purpose
of purchasing our receivables, including limitations on the ability of
the QSPE to obtain financing through its commercial paper-based
funding sources and the ability of the QSPE to maintain its credit
rating issued by a recognized statistical rating organization;
o the effect of rising interest rates that could increase our cost of
borrowing or reduce securitization income;
o the effect of rising interest rates on sub-prime mortgage borrowers
that could impair our customers' ability to make payments on
outstanding credit accounts;
o our inability to make customer financing programs available that allow
consumers to purchase products at levels that can support our growth;
o the potential for deterioration in the delinquency status of the sold
or owned credit portfolios or higher than historical net charge-offs
in the portfolios could adversely impact earnings;
o the long-term effect of the change in bankruptcy laws could effect net
charge-offs in the credit portfolio which could adversely impact
earnings;
o technological and market developments, growth trends and projected
sales in the home appliance and consumer electronics industry,
including, with respect to digital products, DVD players, HDTV, GPS
devices, home networking devices and other new products, and our
ability to capitalize on such growth;
o the potential for price erosion or lower unit sales that could result
in declines in revenues;
o higher oil and gas prices that could adversely affect our customers'
shopping decisions and patterns, as well as the cost of our delivery
and service operations and our cost of products, if vendors pass on
their additional fuel costs through increased pricing for products;
12
o the ability to attract and retain qualified personnel;
o both short-term and long-term impact of adverse weather conditions
(e.g. hurricanes) that could result in volatility in our revenues and
increased expenses and casualty losses;
o changes in laws and regulations and/or interest, premium and
commission rates allowed by regulators on our credit, credit insurance
and service maintenance agreements as allowed by those laws and
regulations;
o our relationships with key suppliers;
o the adequacy of our distribution and information systems and
management experience to support our expansion plans;
o changes in the assumptions used in the valuation of our interests in
securitized assets at fair value;
o the accuracy of our expectations regarding competition and our
competitive advantages;
o the potential for market share erosion that could result in reduced
revenues;
o the accuracy of our expectations regarding the similarity or
dissimilarity of our existing markets as compared to new markets we
enter; and
o the outcome of litigation affecting our business.
Additional important factors that could cause our actual results to differ
materially from our expectations are discussed under "Risk Factors" in our Form
10-K filed with the Securities Exchange Commission on March 27, 2008. In light
of these risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this report might not happen.
The forward-looking statements in this report reflect our views and
assumptions only as of the date of this report. We undertake no obligation to
update publicly or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by law.
All forward-looking statements attributable to us, or to persons acting on
our behalf, are expressly qualified in their entirety by these cautionary
statements.
General
We intend for the following discussion and analysis to provide you with a
better understanding of our financial condition and performance in the indicated
periods, including an analysis of those key factors that contributed to our
financial condition and performance and that are, or are expected to be, the key
"drivers" of our business.
We are a specialty retailer that sells home appliances, including
refrigerators, freezers, washers, dryers, dishwashers and ranges, a variety of
consumer electronics, including LCD, plasma and DLP televisions, camcorders,
digital cameras, DVD players, video game equipment, MP3 players and home theater
products, lawn and garden products, mattresses and furniture. We also sell home
office equipment, including computers and computer accessories and continue to
introduce additional product categories for the home and consumer entertainment,
such as GPS devices, to help increase same store sales and to respond to our
customers' product needs. We require our sales associates to be knowledgeable of
all of our products, but to specialize in certain specific product categories.
We currently operate 71 retail locations in Texas, Louisiana and Oklahoma,
and have additional stores under development.
13
Unlike many of our competitors, we provide flexible in-house credit options
for our customers. In the last three years, we financed, on average,
approximately 59% of our retail sales through our internal credit programs. We
finance a large portion of our customer receivables through an asset-backed
securitization facility, and we derive servicing fee income and interest income
from these assets. As part of our asset-backed securitization facility, we have
created a qualifying special purpose entity, which we refer to as the QSPE or
the issuer, to purchase customer receivables from us and issue medium-term and
variable funding notes secured by the receivables to third parties to finance
its acquisition of the receivables. We transfer receivables, consisting of
retail installment and revolving account receivables extended to our customers,
to the issuer in exchange for cash and subordinated securities.
We also derive revenues from repair services on the products we sell and
from product delivery and installation services we provide to our customers.
Additionally, acting as an agent for unaffiliated companies, we sell credit
insurance and service maintenance agreements to protect our customers from
credit losses due to death, disability, involuntary unemployment and property
damage and product failure not covered by a manufacturers' warranty. We also
derive revenues from the sale of extended service maintenance agreements, under
which we are the primary obligor, to protect the customers after the original
manufacturer's warranty or service maintenance agreement has expired.
Our business is moderately seasonal, with a slightly greater share of our
revenues, pretax and net income realized during the quarter ending January 31,
due primarily to the holiday selling season.
Executive Overview
This narrative is intended to provide an executive level overview of our
operations for the three months ended April 30, 2008. A detailed explanation of
the changes in our operations for these periods as compared to the prior year is
included under Results of Operations. As explained in that section, our pretax
income for the quarter ended April 30, 2008, decreased approximately $3.8
million, or 18.5%, primarily as a result of a $3.1 million non-cash decrease in
the fair value of our interests in securitized assets. Some of the more specific
items impacting our operating and pretax income were:
o Total revenues increased 6.5% on a net sales increase of 7.6%, with a
same store sales increase of 1.0% for the quarter. Total revenues were
negatively impacted by the $3.1 million non-cash fair value
adjustment.
o The addition of stores in our existing Houston, Dallas/Fort Worth, San
Antonio and South Texas markets and a new store in Oklahoma had a
positive impact on our revenues. We achieved approximately $12.0
million of increases in product sales and service maintenance
agreement commissions for the three months ended April 30, 2008, from
the seven new stores that were opened in these markets after February
1, 2007. Our plans provide for the opening of additional stores in and
around existing markets during fiscal 2009 as we focus on leveraging
our existing infrastructure.
o Deferred interest and "same as cash" plans continue to be an important
part of our sales promotion plans and are utilized to provide a wide
variety of financing to enable us to appeal to a broader customer
base. For the three months ended April 30, 2008, $45.6 million, or
25.4%, of our product sales were financed by deferred interest and
"same as cash" plans. For the comparable periods in the prior year,
product sales financed by deferred interest and "same as cash" sales
were $44.1 million, or 26.5%. Our promotional credit programs (same as
cash and deferred interest programs), which require monthly payments,
are reserved for our highest credit quality customers, thereby
reducing the overall risk in the portfolio, and are used primarily to
finance sales of our highest margin products. We expect to continue to
offer extended term promotional credit in the future.
o Our gross margin decreased from 38.5% to 35.3% for the three months
ended April 30, 2008, when compared to the same period in the prior
year. The decline resulted primarily from a reduction of product gross
margins from 25.4% to 22.7% for the three months ended April 30, 2008,
when compared to the same period in the prior year, and a $3.1
million, non-cash decrease in the fair value of our interests in
securitized assets. The product gross margins were negatively impacted
by a highly price competitive retail market, especially in consumer
electronics. The fair value decrease negatively impacted gross margin
by 90 basis points for the three months ended April 30, 2008.
14
o Finance charges and other decreased 1.9% for the quarter ended April
30, 2008, due primarily to a decrease in securitization income of $0.6
million. Securitization income declined due to the $3.1 million
non-cash decrease in the fair value of our interests in securitized
assets recorded during the quarter. Total gains on sales, servicing
fees and interest on retained interests increased $2.5 million, or
13.6% during the three months ended April 30, 2008, as compared to the
prior year, driven primarily by growth in the sold portfolio over the
past year, partially offset by a higher net credit loss rate. The net
credit loss rate rose to 3.2% for the three months ended April 30,
2008, from 2.7% for the same period in the prior year, but is expected
to improve over the remainder of the current fiscal year. The decrease
in the fair value of our Interests in securitized assets was primarily
a result of an increase in the estimated risk premium expected by a
market participant included in the discount rate assumption in the
discounted cash flow model used to determine the fair value of our
interests in securitized assets. The risk premium included in the
discount rate assumption was increased due to the continued volatility
in the financial markets during the period and is not related to the
performance of the credit portfolio or our credit collection
operations.
o During the three months ended April 30, 2008, Selling, general and
administrative (SG&A) expense decreased as a percent of revenues to
27.6% from 28.8% in the prior year period. The improvement was driven
by lower compensation costs in absolute dollars and as a percent of
revenues as compared to the prior year. Additionally, SG&A as a
percent of revenues in the current year period was negatively impacted
40 basis points by the $3.1 million non-cash fair value adjustment.
o The provision for income taxes for the three months ended April 30,
2008, was impacted primarily by the 18.5% reduction in pre-tax income
driven by the $3.1 million non-cash fair value adjustment and the $0.8
million decrease in Other income.
Operational Changes and Resulting Outlook
We have six stores under development, including one replacement store, that
we expect to open by January 31, 2009. In addition to these six stores, through
May 31, 2008, we had already opened two new and two replacement stores. This
represents a total of ten stores, including seven new and three replacement
stores, that we expect to open by January 31, 2009. We have additional sites
under consideration for future development and continue to evaluate our store
opening plans for future years, in light of capital availability.
The consumer electronics industry depends on new products to drive same
store sales increases. Typically, these new products, such as high-definition
televisions, DVD players, digital cameras, MP3 players and GPS devices are
introduced at relatively high price points that are then gradually reduced as
the product becomes mainstream. To sustain positive same store sales growth,
unit sales must increase at a rate greater than the decline in product prices.
The affordability of the product helps drive the unit sales growth. However, as
a result of relatively short product life cycles in the consumer electronics
industry, which limit the amount of time available for sales volume to increase,
combined with rapid price erosion in the industry, retailers are challenged to
maintain overall gross margin levels and positive same store sales. This has
historically been our experience, and we continue to adjust our marketing
strategies to address this challenge through the introduction of new product
categories and new products within our existing categories. Over the past year,
our gross margins have been negatively impacted by price competition on flat
panel televisions. As a result, our product gross margins began declining in the
second quarter of fiscal year 2008. We expect our product gross margins to
stabilize relative to prior year comparisons beginning in the second quarter,
though there is no guarantee that pricing pressures will not intensify.
Application of Critical Accounting Policies
In applying the accounting policies that we use to prepare our consolidated
financial statements, we necessarily make accounting estimates that affect our
reported amounts of assets, liabilities, revenues and expenses. Some of these
accounting estimates require us to make assumptions about matters that are
highly uncertain at the time we make the accounting estimates. We base these
assumptions and the resulting estimates on authoritative pronouncements,
historical information, advice of experts and other factors that we believe to
15
be reasonable under the circumstances, and we evaluate these assumptions and
estimates on an ongoing basis. We could reasonably use different accounting
estimates, and changes in our accounting estimates could occur from period to
period, with the result in each case being a material change in the financial
statement presentation of our financial condition or results of operations. We
refer to accounting estimates of this type as "critical accounting estimates."
We believe that the critical accounting estimates discussed below are among
those most important to an understanding of our consolidated financial
statements as of April 30, 2008.
Transfers of Financial Assets. We transfer customer receivables to a QSPE
that issues asset-backed securities to third-party lenders using these accounts
as collateral, and we continue to service these accounts after the transfer. We
recognize the sale of these accounts when we relinquish control of the
transferred financial asset in accordance with SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,
as amended by SFAS No. 155, Accounting for Certain Hybrid Financial Instruments.
As we transfer the accounts we record an asset representing our interest in the
cash flows of the QSPE, which is the difference between the interest earned on
customer accounts and the cost associated with financing and servicing the
transferred accounts, including a provision for bad debts associated with the
transferred accounts, plus our retained interest in the transferred receivables,
discounted using a return that would be expected by a third-party investor. We
recognize the income from our interest in these transferred accounts as gains on
the transfer of the asset, interest income and servicing fees. This income is
recorded as Finance charges and other in our consolidated statements of
operations. Additionally, changes in the fair value due to assumption changes
are recorded in Finance charges and other. We value our interest in the cash
flows of the QSPE at fair value under the provisions of SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, and SFAS No. 157,
Fair Value Measurements.
We estimate the fair value of our Interests in securitized assets using a
discounted cash flow model with most of the inputs used being unobservable
inputs. The primary unobservable inputs, which are derived principally from our
historical experience, with input from our investment bankers and financial
advisors, include the estimated portfolio yield, credit loss rate, discount
rate, payment rate and delinquency rate and reflect our judgments about the
assumptions market participants would use in determining fair value. In
determining the cost of borrowings, we use current actual borrowing rates, and
adjust them, as appropriate, using interest rate futures data from market
sources to project interest rates over time. Changes in the assumptions over
time, including varying credit portfolio performance, market interest rate
changes, market participant risk premiums required, or a shift in the mix of
funding sources, could result in significant volatility in the fair value of the
Interest in securitized assets, and thus our earnings.
During the three months ended April 30, 2008, risk premiums required by
market participants on many investments increased as a result of continued
volatility in the financial markets. Though we do not anticipate any significant
variation from the current earnings and cash flow performance of our securitized
credit portfolio, we increased the risk premium included in the discount rate
assumption used in the determination of the fair value of our interests in
securitized assets to reflect the higher expected risk premiums included in
investment returns we believe a market participant would require if purchasing
our interests. Based on a review of the changes in market risk premiums during
the three months ended April 30, 2008, and discussions with our investment
bankers and financial advisors, we estimated that a market participant would
require an approximately 300 basis point increase in the required risk premium.
As a result, the Company increased the weighted average discount rate assumption
from 16.5% at January 31, 2008, to 19.3% at April 30, 2008, after reflecting a
26 basis point decrease in the risk-free interest rate included in the discount
rate assumption. Due to the continued volatility in the securitization market,
we eliminated the assumed bond offering included in our January 31, 2008,
valuation and in its place have included an estimate of the increase in
borrowing costs due to the expected renewal of a portion of the QSPE's financing
facilities that we estimate a market participant would use in determining the
fair value of our Interests in securitized assets. The increase in the discount
rate has the effect of deferring income to future periods, but not permanently
reducing securitization income or our earnings. If a market participant were to
require a risk premium that is 100 basis points higher than we estimated in the
fair value calculation, the fair value of our Interests in securitized assets
would be decreased by an additional $1.7 million. If we had assumed a 10.0%
reduction in net interest spread (which might be caused by rising interest rates
or reductions in rates charged on the accounts transferred), our Interests in
securitized assets and Finance charges and other would have been reduced by $6.8
million as of April 30, 2008.
16
If the assumption used for estimating credit losses was increased by 0.5%, the
impact to Finance charges and other would have been a reduction in revenues and
pretax income of $2.5 million.
Revenue Recognition. Revenues from the sale of retail products are
recognized at the time the customer takes possession of the product. Such
revenues are recognized net of any adjustments for sales incentive offers such
as discounts, coupons, rebates, or other free products or services and discounts
of promotional credit sales that will extend beyond one year. We sell service
maintenance agreements and credit insurance contracts on behalf of unrelated
third parties. For contracts where the third parties are the obligors on the
contract, commissions are recognized in revenues at the time of sale, and in the
case of retrospective commissions, at the time that they are earned. Where we
sell service maintenance renewal agreements in which we are deemed to be the
obligor on the contract at the time of sale, revenue is recognized ratably, on a
straight-line basis, over the term of the service maintenance agreement. These
service maintenance agreements are renewal contracts that provide our customers
protection against product repair costs arising after the expiration of the
manufacturer's warranty and the third party obligor contracts. These agreements
typically range from 12 months to 36 months. These agreements are separate units
of accounting under Emerging Issues Task Force No. 00-21, Revenue Arrangements
with Multiple Deliverables. The amount of service maintenance agreement revenue
deferred at April 30, 2008, and January 31, 2008, was $7.0 million and $6.6
million, respectively, and is included in Deferred revenues and allowances in
the accompanying balance sheets.
Vendor Allowances. We receive funds from vendors for price protection,
product rebates (earned upon purchase or sale of product), marketing and
training and promotion programs which are recorded on the accrual basis as a
reduction to the related product cost or advertising expense according to the
nature of the program. We accrue rebates based on the satisfaction of terms of
the program and sales of qualifying products even though funds may not be
received until the end of a quarter or year. If the programs are related to
product purchases, the allowances, credits or payments are recorded as a
reduction of product cost; if the programs are related to product sales, the
allowances, credits or payments are recorded as a reduction of cost of goods
sold; if the programs are related to promotion or marketing of the product, the
allowances, credits, or payments are recorded as a reduction of advertising
expense in the period in which the expense is incurred.
Share-Based Compensation. In December 2004, SFAS No. 123R, Share-Based
Payment, was issued. Under the requirements of this statement we measure the
cost of employee services received in exchange for an award of equity
instruments, typically stock options, based on the grant-date fair value of the
award, and record that cost over the period during which the employee is
required to provide service in exchange for the award. The grant-date fair value
is based on our best estimate of key assumptions, including expected time period
over which the options will remain outstanding and expected stock price
volatility at the date of grant. Additionally, we must estimate expected
forfeitures for each stock option grant and adjust the recorded compensation
expense accordingly.
Accounting for Leases. The accounting for leases is governed primarily by
SFAS No. 13, Accounting for Leases. As required by the standard, we analyze each
lease, at its inception and any subsequent renewal, to determine whether it
should be accounted for as an operating lease or a capital lease. Additionally,
monthly lease expense for each operating lease is calculated as the average of
all payments required under the minimum lease term, including rent escalations.
Generally, the minimum lease term begins with the date we take possession of the
property and ends on the last day of the minimum lease term, and includes all
rent holidays, but excludes renewal terms that are at our option. Any tenant
improvement allowances received are deferred and amortized into income as a
reduction of lease expense on a straight line basis over the minimum lease term.
The amortization of leasehold improvements is computed on a straight line basis
over the shorter of the remaining lease term or the estimated useful life of the
improvements. For transactions that qualify for treatment as a sale-leaseback,
any gain or loss is deferred and amortized as rent expense on a straight-line
basis over the minimum lease term. Any deferred gain would be included in
Deferred gain on sale of property and any deferred loss would be included in
Other assets on the consolidated balance sheets.
17
Results of Operations
The following table sets forth certain statement of operations information
as a percentage of total revenues for the periods indicated:
Three Months Ended
April 30,
-------------------------
2007 2008
----------- -------------
Revenues:
Product sales............................................ 81.2 % 82.3 %
Service maintenance agreement commissions (net).......... 4.5 4.6
Service revenues......................................... 2.7 2.4
----------- -------------
Total net sales........................................ 88.4 89.3
----------- -------------
Finance charges and other................................ 11.6 12.1
Net increase (decrease) in fair value.................... 0.0 (1.4)
----------- -------------
Total finance charges and other........................ 11.6 10.7
----------- -------------
Total revenues.................................... 100.0 100.0
Costs and expenses:
Cost of goods sold, including
warehousing and occupancy cost.......................... 60.6 63.6
Cost of parts sold, including
warehousing and occupancy cost.......................... 0.9 1.1
Selling, general and administrative expense.............. 28.8 27.6
Provision for bad debts.................................. 0.3 0.1
----------- -------------
Total costs and expenses.......................... 90.6 92.4
----------- -------------
Operating income......................................... 9.4 7.6
Interest income, net..................................... (0.1) 0.0
Other income, net........................................ (0.4) 0.0
----------- -------------
Income before income taxes............................... 9.9 7.6
Provision for income taxes............................... 3.6 2.8
----------- -------------
Net income............................................... 6.3 % 4.8 %
=========== =============
Same store sales growth is calculated by comparing the reported sales by
store for all stores that were open throughout a period, to reported sales by
store for all stores that were open throughout the prior year period. Sales from
closed stores, if any, are removed from each period. Sales from relocated stores
have been included in each period because each store was relocated within the
same general geographic market. Sales from expanded stores have been included in
each period.
The presentation of gross margins may not be comparable to other retailers
since we include the cost of our in-home delivery service as part of Selling,
general and administrative expense. Similarly, we include the cost related to
operating our purchasing function in Selling, general and administrative
expense. It is our understanding that other retailers may include such costs as
part of their cost of goods sold.
Three Months Ended April 30, 2008 Compared to Three Months Ended April 30, 2007
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Millions) 2008 2007 $ %
- --------------------------------------------------------------------------------
Net sales $ 195.1 $ 181.4 13.7 7.6
- --------------------------------------------------------------------------------
Finance charges and other 23.5 23.9 (0.4) (1.9)
- --------------------------------------------------------------------------------
Total Revenues $ 218.6 $ 205.3 13.3 6.5
- --------------------------------------------------------------------------------
The $13.7 million increase in net sales was made up of the following:
18
o a $1.7 million same store sales increase of 1.0%, driven by strength
in consumer electronics and track sales;
o a $12.0 million increase generated by seven retail locations that were
not open for the three months in each period;
o a $0.3 million increase resulted from a decrease in discounts on
extended-term promotional credit sales (those with terms longer than
12 months); and
o a $0.3 million decrease resulted from a decrease in service revenues.
The components of the $13.7 million increase in net sales were a $13.3
million increase in Product sales and a $0.4 million increase in service
maintenance agreement commissions and service revenues. The $13.3 million
increase in product sales resulted from the following:
o approximately $15.7 million increase attributable to an overall
increase in the average unit price. The increase was due primarily to
a change in the mix of product sales, driven by an increase in the
consumer electronics category, which has the highest average price
point of any category, as a percentage of total product sales.
Additionally, there were category price point increases as a result of
a shift to higher-priced high-efficiency laundry items and increases
in laptop computer and video game equipment sales, partially offset by
a decline in the average price points on our electronics, and lawn and
garden categories, and
o approximately $2.4 million decrease attributable to decreases in total
unit sales, due primarily to decreased home appliance and furniture
sales, which offset solid growth in consumer electronics.
The $0.4 million increase in service maintenance agreement commissions and
service revenues was driven by increased sales of service maintenance agreements
due to higher product sales, partially offset by lower service revenues.
The following table presents the makeup of net sales by product category in
each quarter, including service maintenance agreement commissions and service
revenues, expressed both in dollar amounts and as a percent of total net sales.
Classification of sales has been adjusted from previous filings to ensure
comparability between the categories.
Three Months Ended April 30,
-----------------------------------------------
2007 2008
--------------------- ------------------------- Percent
Category Amount Percent Amount Percent Change
----------- --------- ----------- ------------- -----------
Consumer electronics............ $ 58,823 32.4 % $ 73,799 37.8 % 25.5 % (1)
Home appliances................. 57,705 31.8 55,184 28.3 (4.4) (2)
Track........................... 21,684 12.0 23,086 11.8 6.5 (3)
Furniture and mattresses........ 17,917 9.9 17,713 9.1 (1.1) (4)
Lawn and garden................. 6,156 3.4 5,676 2.9 (7.8) (5)
Delivery....................... 3,063 1.7 3,137 1.6 2.4 (6)
Other.......................... 1,291 0.7 1,316 0.7 1.9
----------- --------- ----------- -------------
Total product sales........ 166,639 91.9 179,911 92.2 8.0
Service maintenance agreement
commissions.................... 9,281 5.1 9,970 5.1 7.4 (7)
Service revenues................ 5,445 3.0 5,192 2.7 (4.6) (8)
----------- --------- ----------- -------------
Total net sales............ $ 181,365 100.0 % $ 195,073 100.0 % 7.6 %
=========== ========= =========== =============
----------------------------------
(1) This increase is due to continued consumer interest in LCD
televisions, which offset declines in projection and plasma
televisions.
(2) The home appliance category declined primarily due to lower
refrigeration sales, as laundry sales rose slightly, and the appliance
market in general showed continued weakness.
19
(3) The increase in track sales (consisting largely of computers, computer
peripherals, video game equipment, portable electronics and small
appliances) is driven primarily by increased video game equipment and
laptop computer and computer monitor sales, and the addition of GPS
devices, partially offset by declines in camcorder and camera sales.
(4) This decrease is due to weakness in the furniture market in general,
partially offset by increases in bedding sales driven by the
multi-vendor strategy implemented during the prior year.
(5) This category was impacted by lower rainfall during this year's first
fiscal quarter negatively impacting the selling season as compared to
fiscal 2008.
(6) This increase was due to an increase in the delivery fee charged to
our customers, offset somewhat by a reduction in the total number of
deliveries
(7) This increase is due to the increase in product sales.
(8) This decrease is driven by a decrease in the number of service calls
performed by our technicians.
Finance charges and other decreased 1.9% for the quarter ended April 30,
2008, as securitization income decreased by $0.6 million, or 3.6% due primarily
to the $3.1 million non-cash decrease in the fair value of our interests in
securitized assets, recorded during the quarter. Total gains on sales, servicing
fees and interest on retained interests increased $2.5 million, or 13.6%. The
decrease in the fair value of our Interests in securitized assets was primarily
a result of an increase in the estimated risk premium expected by a market
participant included in the discount rate assumption used in the discounted cash
flow model used to determine the fair value of our interests in securitized
assets. The risk premium included in the discount rate assumption was increased
due to the continued volatility in the financial markets during the period and
is not related to the performance of the credit portfolio or our credit
collection operations.
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Millions) 2008 2007 $ %
- --------------------------------------------------------------------------------
Cost of goods sold $139.1 $124.4 14.7 11.8
- --------------------------------------------------------------------------------
As a percent of net product sales 77.3% 74.6%
- --------------------------------------------------------------------------------
Cost of goods sold increased as a percent of net product sales from the
2007 period to the 2008 period due to pricing pressures in retailing in general,
and especially on flat-panel TV's.
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Millions) 2008 2007 $ %
- --------------------------------------------------------------------------------
Cost of service parts sold $2.3 $1.9 0.4 21.1
- --------------------------------------------------------------------------------
As a percent of service revenues 44.9% 34.3%
- --------------------------------------------------------------------------------
This increase was due primarily to a 20.8% increase in parts sales, which
grew faster than labor sales.
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Millions) 2008 2007 $ %
- --------------------------------------------------------------------------------
Selling, general and
administrative expense $60.4 $59.2 1.2 2.0
- --------------------------------------------------------------------------------
As a percent of total revenues 27.6% 28.8%
- --------------------------------------------------------------------------------
The increase in SG&A expense was largely attributable to the growth of the
Company and addition of new stores. The improvement in our SG&A expense as a
percent of revenues was driven by lower compensation costs in absolute dollars
and as a percent of revenues as compared to the prior year. Additionally, SG&A
as a percent of revenues was negatively impacted 40 basis points by the $3.1
million non-cash fair value adjustment.
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Millions) 2008 2007 $ %
- --------------------------------------------------------------------------------
Provision for bad debts $0.3 $0.6 (0.3) (50.0)
- --------------------------------------------------------------------------------
As a percent of total revenues .12% .27%
- --------------------------------------------------------------------------------
The provision for bad debts on non-credit portfolio receivables and credit
portfolio receivables retained by us and not eligible to be transferred to the
QSPE decreased primarily as a result of reduced net credit charge-offs and
provision adjustments due to the decreased net credit losses. See the notes to
the financial statements for information regarding the performance of the credit
portfolio.
20
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Thousands) 2008 2007 $ %
- --------------------------------------------------------------------------------
Interest income, net $(15) $(240) (225) (93.8)
- --------------------------------------------------------------------------------
The decrease in net interest income was a result of a decrease in interest
income from invested funds due to lower balances of invested cash and lower
interest rates earned on amounts invested.
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Thousands) 2008 2007 $ %
- --------------------------------------------------------------------------------
Other income, net $(22) $(831) (809) (97.4)
- --------------------------------------------------------------------------------
Both periods included gains recognized on the sales of company assets.
During the quarter ended April 30, 2007, there were gains of approximately $0.8
million recognized on the sale of two of the Company's store locations. There
were approximately $1.2 million of gains realized, but not recognized, in the
quarter ended April 30, 2007, on transactions qualifying for sale-leaseback
accounting that were deferred and are being amortized as a reduction of rent
expense on a straight-line basis over minimum lease terms.
- --------------------------------------------------------------------------------
Change
--------------------
(Dollars in Millions) 2008 2007 $ %
- --------------------------------------------------------------------------------
Provision for income taxes $6.0 $7.4 (1.4) (18.9)
- --------------------------------------------------------------------------------
As a percent of income before
income taxes 36.1% 36.4%
- --------------------------------------------------------------------------------
This decrease in taxes was impacted primarily by the 18.5% decrease in
pretax income. Additionally, the effective tax rate declined from the 2007
period to the 2008 period, partially as a result of a provision adjustment
reversing a portion of our state tax accrual.
Liquidity and Capital Resources
Current Activities
We require capital to finance our growth as we add new stores and markets
to our operations, which in turn requires additional working capital for
increased receivables and inventory. We have historically financed our
operations through a combination of cash flow generated from operations and
external borrowings, including primarily bank debt, extended terms provided by
our vendors for inventory purchases, acquisition of inventory under consignment
arrangements and transfers of receivables to our asset-backed securitization
facilities.
On March 26, 2008, we executed an amendment to our bank credit facility, to
increase the commitment from $50 million to $100 million, to provide additional
liquidity, if needed, to support our growth plans. In addition to the expanded
commitment, the interest margin added to the applicable base rate was increased
by 25 basis points. Our $8.0 million unsecured bank line of credit matures in
June 2008 and we expect it to be renewed.
As of April 30, 2008, we had approximately $41.3 million in excess cash,
which was invested in short-term, tax-free instruments. In addition to the
excess cash, we had $97.6 million under our revolving line of credit, net of
standby letters of credit issued, and $8.0 million under our unsecured bank line
of credit available to us for general corporate purposes, $26.4 million under
extended vendor terms for purchases of inventory and $115.0 million in
commitments available to our QSPE for the transfer of receivables.
In its regularly scheduled meeting on August 24, 2006, our Board of
Directors authorized the repurchase of up to $50 million of our common stock,
dependent on market conditions and the price of the stock. Through April 30,
2008, we had spent $37.1 million under this authorization to acquire 1,723,205
shares of our common stock though there were no shares repurchased during the
three months ended April 30, 2008, as we suspended purchases under the
authorized repurchase program.
21
A summary of the significant financial covenants that govern our bank
credit facility compared to our actual compliance status at April 30, 2008, is
presented below:
Required
Minimum/
Actual Maximum
-------------- ---------------
Debt service coverage ratio must exceed required minimum 3.81 to 1.00 2.00 to 1.00
Total adjusted leverage ratio must be lower than required
maximum 1.75 to 1.00 3.00 to 1.00
Consolidated net worth must exceed required minimum $314.8 million $223.9 million
Charge-off ratio must be lower than required maximum 0.03 to 1.00 0.06 to 1.00
Extension ratio must be lower than required maximum 0.02 to 1.00 0.05 to 1.00
Thirty-day delinquency ratio must be lower than required
maximum 0.09 to 1.00 0.13 to 1.00
Note: All terms in the above table are defined by the bank credit facility
and may or may not agree directly to the financial statement captions in
this document.
We will continue to finance our operations and future growth through a
combination of cash flow generated from operations and external borrowings,
including primarily bank debt, extended vendor terms for purchases of inventory,
acquisition of inventory under consignment arrangements and the QSPE's
asset-backed securitization facilities. Based on our current operating plans, we
believe that cash generated from operations, available borrowings under our bank
credit facility and unsecured credit line, extended vendor terms for purchases
of inventory, acquisition of inventory under consignment arrangements and access
to the unfunded portion of the variable funding portion of the QSPE's
asset-backed securitization program will be sufficient to fund our operations,
store expansion and updating activities, stock repurchases, if any, and capital
programs for at least 12 months. However, there are several factors that could
decrease cash provided by operating activities, including:
o reduced demand or margins for our products;
o more stringent vendor terms on our inventory purchases;
o loss of ability to acquire inventory on consignment;
o increases in product cost that we may not be able to pass on to our
customers;
o reductions in product pricing due to competitor promotional
activities;
o changes in inventory requirements based on longer delivery times of
the manufacturers or other requirements which would negatively impact
our delivery and distribution capabilities;
o increases in the retained portion of our receivables portfolio under
our current QSPE's asset-backed securitization program as a result of
changes in performance or types of receivables transferred
(promotional versus non-promotional and primary versus secondary
portfolio), or as a result of a change in the mix of funding sources
available to the QSPE, requiring higher collateral levels, or
limitations on the ability of the QSPE to obtain financing through its
commercial paper-based funding sources;
o inability to expand our capacity for financing our receivables
portfolio under existing or replacement QSPE asset-backed
securitization programs or a requirement that we retain a higher
percentage of the credit portfolio under such programs;
o increases in program costs (interest and administrative fees relative
to our receivables portfolio associated with the funding of our
receivables);
o increases in personnel costs or other costs for us to stay competitive
in our markets; and
o the inability to get our current variable funding facility renewed.
22
During the three months ended April 30, 2008, net cash provided by
operating activities increased $45.2 million from $5.6 million used in operating
activities in the three months ended April 30, 2007, to $39.5 million provided
in the three months ended April 30, 2008. Operating cash flows for the current
period were impacted primarily by improved funding rates on the sold receivables
portfolio, as the QSPE paid off the 2002 Series B bonds, and an increase in
accounts payable balances, due to timing of inventory purchases.
As noted above, we offer promotional credit programs to certain customers
that provide for "same as cash" or deferred interest interest-free periods of
varying terms, generally three, six, 12, 18, 24 and 36 months, and require
monthly payments beginning in the month after the sale. The various "same as
cash" promotional accounts and deferred interest program accounts are eligible
for securitization up to the limits provided for in our securitization
agreements. This limit is currently 30.0% of eligible securitized receivables.
If we exceed this 30.0% limit, we would be required to use some of our other
capital resources to carry the unfunded balances of the receivables for the
promotional period. The percentage of eligible securitized receivables
represented by promotional receivables was 21.1% and 22.6%, as of April 30, 2007
and 2008, respectively. The weighted average promotional period was 14.1 months
and 15.4 months for promotional receivables outstanding as of April 30, 2007 and
2008, respectively. The weighted average remaining term on those same
promotional receivables was 10.7 months as of April 30, 2007 and 2008. While
overall these promotional receivables have a much shorter weighted average term
than non-promotional receivables, we receive less income on these receivables,
resulting in a reduction of the net interest margin used in the calculation of
the gain on the sale of receivables.
Net cash used in investing activities increased by $11.3 million, from $6.0
million provided in the fiscal 2008 period to $5.3 million used in the fiscal
2009 period. The net increase in cash used in investing activities resulted
primarily from a decline in proceeds from sales of property and equipment as
compared to the same quarter in the prior fiscal year, and increased purchases
of property and equipment in the current fiscal quarter. The cash expended for
property and equipment was used primarily for construction of new stores and the
reformatting of existing stores to better support our current product mix. Based
on current plans, we expect to increase expenditures for property and equipment
in the remainder of fiscal 2009 as we open additional stores.
Net cash from financing activities increased by $4.3 million from $4.1
million used during the three months ended April 30, 2007, to $0.2 million
provided during the three months ended April 30, 2008, as we suspended our stock
repurchase program in the current fiscal period.
Off-Balance Sheet Financing Arrangements
Since we extend credit in connection with a large portion of our retail,
service maintenance and credit insurance sales, we have created a qualified
special purpose entity, which we refer to as the QSPE or the issuer, to purchase
customer receivables from us and to issue medium-term and variable funding notes
secured by the receivables to third parties to obtain cash for these purchases.
We transfer receivables, consisting of retail installment contracts and
revolving accounts extended to our customers, to the issuer in exchange for cash
and subordinated, unsecured promissory notes. To finance its acquisition of
these receivables, the issuer has issued the notes and bonds described below to
third parties. The unsecured promissory notes issued to us are subordinate to
these third party notes and bonds.
At April 30, 2008, the issuer had issued two series of notes and bonds: the
2002 Series A variable funding note with a total availability of $450 million
and three classes of 2006 Series A bonds with an aggregate amount outstanding of
$150 million, of which $6.0 million was required to be placed in a restricted
cash account for the benefit of the bondholders. The 2002 Series A variable
funding note is composed of a $250 million 364-day tranche, and a $200 million
tranche that matures in 2012. The 364-day commitment matures on July 31, 2008,
and we are currently in discussions to renew a portion of this facility. $150
million of the 364 day commitment will stay in place until the first to occur
of: (i) the QSPE completes a medium-term bond issuance, or (ii) the note is not
renewed by the note holders. At this time we do not expect this portion of the
facility to be renewed. If the net portfolio yield, as defined by agreements,
falls below 5.0%, then the issuer may be required to fund additions to the cash
reserves in the restricted cash accounts. At April 30, 2008, the net portfolio
yield was 9.0%. Private institutional investors, primarily insurance companies,
purchased the 2006 Series A bonds at a weighted fixed rate of 5.75%. The
weighted average interest on the variable funding note during the month of April
2008, was 3.68%.
23
The Company and the issuer are currently exploring various financing
alternatives to provide additional long-term capital to support our continued
growth, but no assurance can be given that a transaction can be completed on
terms favorable to them. At this time, the Company is unsure if or when the
issuer can complete the issuance of a new series of fixed-rate bonds. The
proceeds of any new financing arrangement will provide us additional capacity
for growth of the Company and the receivables portfolio. Additionally, we expect
that renewals of existing financing facilities, if renewed, or entry into new
financing facilities will result in higher borrowing costs than we are currently
experiencing. If the issuer is unable to complete the new financing arrangement,
then, after its current funding sources are exhausted, we may have to fund
growth in the receivables portfolio. If the 364-day commitment is not renewed,
or is renewed in an amount that, in combination with the $200 million long-term
tranche, provides less borrowing capacity than the then outstanding balance, the
issuer will be required to use the cash from payments on receivables to reduce
the balance on the variable funding note. As such, the Company would be required
to fund new receivables and growth in the portfolio. At April 30, 2008, the
Company had $41.3 million of excess cash and $97.6 million of availability under
its revolving credit facilities, among other liquidity sources, to provide
funding, if needed, to fund receivable portfolio growth. If necessary, in
addition to available cash balances, cash flow from operations and borrowing
capacity under our revolving facilities, additional cash to fund our growth and
increase receivables balances could be obtained by:
o reducing capital expenditures for new store openings,
o taking advantage of longer payment terms and financing available
for inventory purchases,
o utilizing other sources for providing financing to our customers,
o negotiating to expand the capacity available under existing
credit facilities, and
o accessing new debt or equity markets.
We continue to service the transferred accounts for the QSPE, and we
receive a monthly servicing fee, so long as we act as servicer, in an amount
equal to .25% multiplied by the average aggregate principal amount of
receivables serviced, including the amount of average aggregate defaulted
receivables. The issuer records revenues equal to the interest charged to the
customer on the receivables less losses, the cost of funds, the program
administration fees paid in connection with either the 2002 Series A, or 2006
Series A bond holders, the servicing fee and additional earnings to the extent
they are available.
Currently the 2002 Series A variable funding note permits the issuer to
borrow funds up to $450 million to purchase receivables from us or make
principal payments on other bonds, thereby functioning as a "basket" to
accumulate receivables. As issuer borrowings under the 2002 Series A variable
funding note approach $450 million, the issuer is required to request an
increase in the 2002 Series A amount or issue a new series of bonds and use the
proceeds to pay down the then outstanding balance of the 2002 Series A variable
funding note, so that the basket will once again become available to accumulate
new receivables or meet other obligations required under the transaction
documents. As of April 30, 2008, borrowings under the 2002 Series A variable
funding note were $335.0 million.
We are not directly liable to the lenders under the asset-backed
securitization facility. If the issuer is unable to repay the 2002 Series A note
and 2006 Series A bonds due to its inability to collect the transferred customer
accounts, the issuer could not pay the subordinated notes it has issued to us in
partial payment for transferred customer accounts, and the 2006 Series A bond
holders could claim the balance in its $6.0 million restricted cash account. We
are also contingently liable under a $20.0 million letter of credit that secures
the performance of our obligations or services under the servicing agreement as
it relates to the transferred assets that are part of the asset-backed
securitization facility.
The issuer is subject to certain affirmative and negative covenants
contained in the transaction documents governing the 2002 Series A variable
funding note and 2006 Series A bonds, including covenants that restrict, subject
to specified exceptions: the incurrence of non-permitted indebtedness and other
obligations and the granting of additional liens; mergers, acquisitions,
investments and disposition of assets; and the use of proceeds of the program.
The issuer also makes representations and warranties relating to compliance with
certain laws, payment of taxes, maintenance of its separate legal entity,
preservation of its existence, protection of collateral and financial reporting.
In addition, the program requires the issuer to maintain a minimum net worth.
24
A summary of the significant financial covenants that govern the 2002
Series A variable funding note compared to actual compliance status at April 30,
2008, is presented below:
Required
Minimum/
As reported Maximum
-------------- ---------------
Issuer interest must exceed required minimum $83.3 million $75.4 million
Gross loss rate must be lower than required maximum 3.6% 10.0%
Net portfolio yield must exceed required minimum 9.0% 2.0%
Payment rate must exceed required minimum 6.8% 3.0%
Note: All terms in the above table are defined by the asset backed
securitization program and may or may not agree directly to the financial
statement captions in this document.
Events of default under the 2002 Series A variable funding note and the
2006 Series A bonds, subject to grace periods and notice provisions in some
circumstances, include, among others: failure of the issuer to pay principal,
interest or fees; violation by the issuer of any of its covenants or agreements;
inaccuracy of any representation or warranty made by the issuer; certain
servicer defaults; failure of the trustee to have a valid and perfected first
priority security interest in the collateral; default under or acceleration of
certain other indebtedness; bankruptcy and insolvency events; failure to
maintain certain loss ratios and portfolio yield; change of control provisions
and certain other events pertaining to us. The issuer's obligations under the
program are secured by the receivables and proceeds.
Securitization Facilities
We finance most of our customer receivables through asset-backed securitization facilities
--------------------------------------
| 2002 Series A Note |
| $450 million Commitment |
---->| $335 million Outstanding |
| | Credit Rating: P1/A1 |
| | Bank Commercial Paper Conduits |
| --------------------------------------
|
Customer Receivables |
- ---------------------- ---------------------------> ----------------------------- |
| Retail | | Qualifying | |
| Sales | | Special Purpose |<----|
| Entity | | Entity | |
| | | ("QSPE") | |
- ---------------------- <-------------------------- ----------------------------- |
|
| ---------------------------
1. Cash Proceeds | | 2006 Series A Bonds |
2. Subordinated Securities | | $150 million |
3. Right to Receive Cash Flows | | Private Institutional |
Equal to Interest Spread ---->| Investors |
| Class A: $90 mm (Aaa) |
| Class B: $43.3 mm (A2) |
| Class C: $16.7 mm (Baa2)|
---------------------------
Both the bank credit facility and the asset-backed securitization program
are significant factors relative to our ongoing liquidity and our ability to
meet the cash needs associated with the growth of our business. Our inability to
use either of these programs because of a failure to comply with their covenants
would adversely affect our continued growth. Funding of current and future
receivables under the QSPE's asset-backed securitization program can be
adversely affected if we exceed certain predetermined levels of re-aged
receivables, size of the secondary portfolio, the amount of promotional
receivables, write-offs, bankruptcies or other ineligible receivable amounts. If
the funding under the QSPE's asset-backed securitization program was reduced or
terminated, we would have to draw down our bank credit facility more quickly
than we have estimated.
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rates under our bank credit facility are variable and are
determined, at our option, as the base rate, which is the greater of prime rate
or federal funds rate plus 0.50% plus the base rate margin, which ranges from
0.25% to 0.75%, or LIBOR plus the LIBOR margin, which ranges from 1.00% to
2.00%. Accordingly, changes in the prime rate, the federal funds rate or LIBOR,
which are affected by changes in interest rates generally, will affect the
interest rate on, and therefore our costs under, our bank credit facility. We
are also exposed to interest rate risk through the interest only strip we
receive from our sales of receivables to the QSPE. Since January 31, 2008, our
interest rate sensitivity has increased on the interest only strip as the
variable rate portion of the QSPE's debt has increased from $278.0 million, or
59.4% of its total debt, to $335.0 million, or 69.1% of its total debt. As a
result, a 100 basis point increase in interest rates on the variable rate debt
would increase borrowing costs $3.4 million over a 12-month period, based on the
balance outstanding at April 30, 2008.
Item 4. Controls and Procedures
Based on management's evaluation (with the participation of our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the
period covered by this report, our CEO and CFO have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in SEC rules and
forms, and is accumulated and communicated to management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
For the quarter ended April 30, 2008, there have been no changes in our
internal controls over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934) that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in routine litigation incidental to our business from time
to time. Currently, we do not expect the outcome of any of this routine
litigation to have a material affect on our financial condition, results of
operations or cash flows. However, the results of these proceedings cannot be
predicted with certainty, and changes in facts and circumstances could impact
our estimate of reserves for litigation.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended January 31, 2008, which could
materially affect our business, financial condition or future results. The risks
described in our Annual Report on Form 10-K are not the only risks facing our
Company. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 25, 2006, we announced that our Board of Directors had authorized
a common stock repurchase program, permitting us to purchase, from time to time,
in the open market and in privately negotiated transactions, up to an aggregate
of $50.0 million of our common stock, dependent on market conditions and the
price of the stock. No repurchases were made during the quarter ended April 30,
2008, as we suspended purchases under the authorized repurchase program. There
is approximately $13 million remaining for future purchases under the originally
authorized program.
Item 4. Submission of Matters to a Vote of Security Holders
None.
26
Item 5. Other Information
There have been no material changes to the procedures by which security
holders may recommend nominees to our board of directors since we last provided
disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule
14A.
Appointment of Chief Executive Officer Designate
Timothy L. Frank, currently our President and Chief Operating Officer, was
appointed to be our Chief Executive Officer Designate, effective June 1, 2008.
Mr. Frank will, subject to final approval by the Company's Board of Directors,
become our Chief Executive Officer upon the retirement of Thomas J. Frank as our
Chief Executive Officer. Timothy L. Frank has served as the Company's President
and Chief Operating Officer since June 1, 2007 and as President since April 1,
2006. Timothy L. Frank also served as Senior Vice President -- Retail from May,
2005. He joined the Company in September 1995 and has served in various roles,
including Director of Advertising, Director of Credit, Director of Legal
Collections, Director of Direct Marketing, and as Vice President of Special
Projects. Prior to joining the Company, Mr. Frank served in various marketing
positions with a nationally known marketing consulting company. Mr. Frank holds
a B.S. in Liberal Arts from Texas A & M University and a MBA in Marketing from
the University of North Texas. Mr. Frank has also completed a post-graduate
program at Harvard University. In connection with Mr. Frank being appointed
Chief Executive Officer Designate, the Board of Directors increased his base
salary from $240,000 to $285,000. Mr. Frank continues to be eligible for bonus
in accordance with the Company's reported bonus plan. Mr. Frank is the son of
our Chairman of the Board and Chief Executive Officer.
Reduction in Time Commitment and Salary and Bonus Opportunities of Chief
Executive Officer and Executive Vice Chairman
Thomas J. Frank has served as the Chairman of the Board of Directors and
the Company's Chief Executive Officer since November 2003 when the Company
became a publicly held entity. Mr. Frank has an Employment Agreement with the
Company providing for his employment through January 31, 2011 (as may be
extended). Mr. Frank and the Board of Directors of the Company have agreed that
he will continue to serve as the Company's Chairman of the Board of Directors
and our Chief Executive Officer until January 31, 2009, or for such other period
of time as he and our Board of Directors may agree, and after that time, during
the remaining term of this Employment Agreement, Mr. Frank shall serve as the
Company's Chairman of the Board of Directors. During Mr. Frank's continuing
position of Chief Executive Officer, he will work to attain an orderly
transition of the office of Chief Executive Officer to Timothy L. Frank, so that
the Company's transition to its new Chief Executive Office will be as seamless
as possible. Mr. Thomas J. Frank has agreed that he will continue to be
integrally involved in the operations of the Company beyond January 31, 2009, as
the Company's executive Chairman, and will continue to be responsible for, to
the extent required by the Company's Board of Directors, major business
decisions and transactions of the Company. Thomas J. Frank will devote as much
of his time as he and the Board of Directors deem necessary to perform his
responsibilities to the Company. Mr. Thomas J. Frank and the Board of Directors
have agreed that Mr. Frank shall reduce his time commitment to the Company to
half-time, and his salary and bonus opportunities have been adjusted to reflect
Mr. Frank's time commitment.
William C. Nylin, Jr. will continue to serve the Company as its Executive
Vice Chairman of the Board, and continues to report to Thomas J. Frank, but will
reduce his committed time to the Company to one-half, with salary and bonus
opportunities adjusted to reflect Dr. Nylin's time commitment. Dr. Nylin will
continue to be responsible for the Information Technology and Risk Management
functions of the Company.
Item 5.03 Amendments to Articles of Incorporation or Bylaws: Change in Fiscal
Year
Our Board of Directors amended and restated our Bylaws, effective as of June 1,
2008, to create new officerships of Chief Executive Designate and additional
Presidents of divisions of our Company.
The full text of the amendment and restatement of the Bylaws, is filed at
Exhibit 3.2.3 to this Report on Form 10-Q, and is incorporated herein by
reference.
Item 6. Exhibits
The exhibits required to be furnished pursuant to Item 6 of Form 10-Q are
listed in the Exhibit Index filed herewith, which Exhibit Index is incorporated
herein by reference.
27
SIGNATURE
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.
CONN'S, INC.
By: /s/ Michael J. Poppe
----------------------------------------
Michael J. Poppe
Chief Financial Officer
(Principal Financial Officer and duly
authorized to sign this report on
behalf of the registrant)
Date: June 4, 2008
28
INDEX TO EXHIBITS
Exhibit Description
Number -----------
- ------
2 Agreement and Plan of Merger dated January 15, 2003, by and among
Conn's, Inc., Conn Appliances, Inc. and Conn's Merger Sub, Inc.
(incorporated herein by reference to Exhibit 2 to Conn's, Inc.
registration statement on Form S-1 (file no. 333-109046) as filed
with the Securities and Exchange Commission on September 23,
2003).
3.1 Certificate of Incorporation of Conn's, Inc. (incorporated herein
by reference to Exhibit 3.1 to Conn's, Inc. registration
statement on Form S-1 (file no. 333-109046) as filed with the
Securities and Exchange Commission on September 23, 2003).
3.1.1 Certificate of Amendment to the Certificate of Incorporation of
Conn's, Inc. dated June 3, 2004 (incorporated herein by reference
to Exhibit 3.1.1 to Conn's, Inc. Form 10-Q for the quarterly
period ended April 30, 2004 (File No. 000-50421) as filed with
the Securities and Exchange Commission on June 7, 2004).
3.2 Bylaws of Conn's, Inc. (incorporated herein by reference to
Exhibit 3.2 to Conn's, Inc. registration statement on Form S-1
(file no. 333-109046) as filed with the Securities and Exchange
Commission on September 23, 2003).
3.2.1 Amendment to the Bylaws of Conn's, Inc. (incorporated herein by
reference to Exhibit 3.2.1 to Conn's Form 10-Q for the quarterly
period ended April 30, 2004 (File No. 000-50421) as filed with
the Securities and Exchange Commission on June 7, 2004).
3.2.2 Amendment to the Bylaws of Conn's, Inc. effective as of December
18, 2007 (incorporated by reference to Exhibit 3.1 to Conn's,
Inc. Current Report on Form 8-K as filed with the Securities and
Exchange Commission on December 18, 2007.)
3.2.3 Amended and Restated Bylaws of Conn's, Inc. effective as of June
3, 2008 (filed herewith).
4.1 Specimen of certificate for shares of Conn's, Inc.'s common stock
(incorporated herein by reference to Exhibit 4.1 to Conn's, Inc.
registration statement on Form S-1 (file no. 333-109046) as filed
with the Securities and Exchange Commission on October 29, 2003).
10.1 Amended and Restated 2003 Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 10.1 to Conn's, Inc.
registration statement on Form S-1 (file no. 333-109046) as filed
with the Securities and Exchange Commission on September 23,
2003).t
10.1.1 Amendment to the Conn's, Inc. Amended and Restated 2003 Incentive
Stock Option Plan (incorporated herein by reference to Exhibit
10.1.1 to Conn's Form 10-Q for the quarterly period ended April
30, 2004 (File No. 000-50421) as filed with the Securities and
Exchange Commission on June 7, 2004).t
10.1.2 Form of Stock Option Agreement (incorporated herein by reference
to Exhibit 10.1.2 to Conn's, Inc. Form 10-K for the annual period
ended January 31, 2005 (File No. 000-50421) as filed with the
Securities and Exchange Commission on April 5, 2005).t
10.2 2003 Non-Employee Director Stock Option Plan (incorporated herein
by reference to Exhibit 10.2 to Conn's, Inc. registration
statement on Form S-1 (file no. 333-109046)as filed with the
Securities and Exchange Commission on September 23, 2003).t
10.2.1 Form of Stock Option Agreement (incorporated herein by reference
to Exhibit 10.2.1 to Conn's, Inc. Form 10-K for the annual period
ended January 31, 2005 (File No. 000-50421) as filed with the
Securities and Exchange Commission on April 5, 2005).t
29
10.3 Employee Stock Purchase Plan (incorporated herein by reference to
Exhibit 10.3 to Conn's, Inc. registration statement on Form S-1
(file no. 333-109046) as filed with the Securities and Exchange
Commission on September 23, 2003).t
10.4 Conn's 401(k) Retirement Savings Plan (incorporated herein by
reference to Exhibit 10.4 to Conn's, Inc. registration statement
on Form S-1 (file no. 333-109046) as filed with the Securities
and Exchange Commission on September 23, 2003).t
10.5 Shopping Center Lease Agreement dated May 3, 2000, by and between
Beaumont Development Group, L.P., f/k/a Fiesta Mart, Inc., as
Lessor, and CAI, L.P., as Lessee, for the property located at
3295 College Street, Suite A, Beaumont, Texas (incorporated
herein by reference to Exhibit 10.5 to Conn's, Inc. registration
statement on Form S-1 (file no. 333-109046) as filed with the
Securities and Exchange Commission on September 23, 2003).
10.5.1 First Amendment to Shopping Center Lease Agreement dated
September 11, 2001, by and among Beaumont Development Group,
L.P., f/k/a Fiesta Mart, Inc., as Lessor, and CAI, L.P., as
Lessee, for the property located at 3295 College Street, Suite A,
Beaumont, Texas (incorporated herein by reference to Exhibit
10.5.1 to Conn's, Inc. registration statement on Form S-1 (file
no. 333-109046) as filed with the Securities and Exchange
Commission on September 23, 2003).
10.6 Industrial Real Estate Lease dated June 16, 2000, by and between
American National Insurance Company, as Lessor, and CAI, L.P., as
Lessee, for the property located at 8550-A Market Street,
Houston, Texas (incorporated herein by reference to Exhibit 10.6
to Conn's, Inc. registration statement on Form S-1 (file no.
333-109046) as filed with the Securities and Exchange Commission
on September 23, 2003).
10.6.1 First Renewal of Lease dated November 24, 2004, by and between
American National Insurance Company, as Lessor, and CAI, L.P., as
Lessee, for the property located at 8550-A Market Street,
Houston, Texas (incorporated herein by reference to Exhibit
10.6.1 to Conn's, Inc. Form 10-K for the annual period ended
January 31, 2005 (File No. 000-50421) as filed with the
Securities and Exchange Commission on April 5, 2005).
10.7 Lease Agreement dated December 5, 2000, by and between Prologis
Development Services, Inc., f/k/a The Northwestern Mutual Life
Insurance Company, as Lessor, and CAI, L.P., as Lessee, for the
property located at 4810 Eisenhauer Road, Suite 240, San Antonio,
Texas (incorporated herein by reference to Exhibit 10.7 to
Conn's, Inc. registration statement on Form S-1 (file no.
333-109046) as filed with the Securities and Exchange Commission
on September 23, 2003).
10.7.1 Lease Amendment No. 1 dated November 2, 2001, by and between
Prologis Development Services, Inc., f/k/a The Northwestern
Mutual Life Insurance Company, as Lessor, and CAI, L.P., as
Lessee, for the property located at 4810 Eisenhauer Road, Suite
240, San Antonio, Texas (incorporated herein by reference to
Exhibit 10.7.1 to Conn's, Inc. registration statement on Form S-1
(file no. 333-109046) as filed with the Securities and Exchange
Commission on September 23, 2003).
10.8 Lease Agreement dated June 24, 2005, by and between Cabot
Properties, Inc. as Lessor, and CAI, L.P., as Lessee, for the
property located at 1132 Valwood Parkway, Carrollton, Texas
(incorporated herein by reference to Exhibit 99.1 to Conn's, Inc.
Current Report on Form 8-K (file no. 000-50421) as filed with the
Securities and Exchange Commission on June 29, 2005).
10.9 Credit Agreement dated October 31, 2005, by and among Conn
Appliances, Inc. and the Borrowers thereunder, the Lenders party
thereto, JPMorgan Chase Bank, National Association, as
Administrative Agent, Bank of America, N.A., as Syndication
Agent, and SunTrust Bank, as Documentation Agent (incorporated
herein by reference to Exhibit 10.9 to Conn's, Inc. Quarterly
Report on Form 10-Q (file no. 000-50421) as filed with the
Securities and Exchange Commission on December 1, 2005).
30
10.9.1 Letter of Credit Agreement dated November 12, 2004 by and between
Conn Appliances, Inc. and CAI Credit Insurance Agency, Inc., the
financial institutions listed on the signature pages thereto, and
JPMorgan Chase Bank, as Administrative Agent (incorporated herein
by reference to Exhibit 99.2 to Conn's Inc. Current Report on
Form 8-K (File No. 000-50421) as filed with the Securities and
Exchange Commission on November 17, 2004).
10.9.2 First Amendment to Credit Agreement dated August 28, 2006 by and
between Conn Appliances, Inc. and CAI Credit Insurance Agency,
Inc., the financial institutions listed on the signature pages
thereto, and JPMorgan Chase Bank, as Administrative Agent
(incorporated herein by reference to Exhibit 10.1 to Conn's Inc.
Current Report on Form 8-K (File No. 000-50421) as filed with the
Securities and Exchange Commission on August 28, 2006).
10.9.3 Second Amendment to Credit Agreement dated March 26, 2008 by and
among Conn Appliances, Inc. and CAI Credit Insurance Agency,
Inc., the financial institutions listed on the signature pages
thereto, and JPMorgan Chase Bank, as Administrative Agent,
(incorporated herein by reference to Exhibit 10.9.3 to Conn's,
Inc. Form 10-K for the annual period ended January 31, 2008 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on March 27, 2008).
10.10 Receivables Purchase Agreement dated September 1, 2002, by and
among Conn Funding II, L.P., as Purchaser, Conn Appliances, Inc.
and CAI, L.P., collectively as Originator and Seller, and Conn
Funding I, L.P., as Initial Seller (incorporated herein by
reference to Exhibit 10.10 to Conn's, Inc. registration statement
on Form S-1 (file no. 333-109046) as filed with the Securities
and Exchange Commission on September 23, 2003).
10.10.1 First Amendment to Receivables Purchase Agreement dated August 1,
2006, by and among Conn Funding II, L.P., as Purchaser, Conn
Appliances, Inc. and CAI, L.P., collectively as Originator and
Seller (incorporated herein by reference to Exhibit 10.10.1 to
Conn's, Inc. Form 10-Q for the quarterly period ended July 31,
2006 (File No. 000-50421) as filed with the Securities and
Exchange Commission on September 15, 2006).
10.11 Base Indenture dated September 1, 2002, by and between Conn
Funding II, L.P., as Issuer, and Wells Fargo Bank Minnesota,
National Association, as Trustee (incorporated herein by
reference to Exhibit 10.11 to Conn's, Inc. registration statement
on Form S-1 (file no. 333-109046) as filed with the Securities
and Exchange Commission on September 23, 2003).
10.11.1 First Supplemental Indenture dated October 29, 2004 by and
between Conn Funding II, L.P., as Issuer, and Wells Fargo Bank,
National Association, as Trustee (incorporated herein by
reference to Exhibit 99.1 to Conn's, Inc. Current Report on Form
8-K (File No. 000-50421) as filed with the Securities and
Exchange Commission on November 4, 2004).
10.11.2 Second Supplemental Indenture dated August 1, 2006 by and between
Conn Funding II, L.P., as Issuer, and Wells Fargo Bank, National
Association, as Trustee (incorporated herein by reference to
Exhibit 99.1 to Conn's, Inc. Current Report on Form 8-K (File No.
000-50421) as filed with the Securities and Exchange Commission
on August 23, 2006).
10.12 Amended and Restated Series 2002-A Supplement dated September 10,
2007, by and between Conn Funding II, L.P., as Issuer, and Wells
Fargo Bank, National Association, as Trustee (incorporated herein
by reference to Exhibit 99.2 to Conn's, Inc. Current Report on
Form 8-K (File No. 000-50421) as filed with the Securities and
Exchange Commission on September 11, 2007).
10.12.1 Amended and Restated Note Purchase Agreement dated September 10,
2007 by and between Conn Funding II, L.P., as Issuer, and Wells
Fargo Bank, National Association, as Trustee (incorporated herein
by reference to Exhibit 99.3 to Conn's, Inc. Current Report on
Form 8-K (File No. 000-50421) as filed with the Securities and
Exchange Commission on September 11, 2007).
31
10.13 Series 2002-B Supplement to Base Indenture dated September 1,
2002, by and between Conn Funding II, L.P., as Issuer, and Wells
Fargo Bank Minnesota, National Association, as Trustee
(incorporated herein by reference to Exhibit 10.13 to Conn's,
Inc. registration statement on Form S-1 (file no. 333-109046) as
filed with the Securities and Exchange Commission on September
23, 2003).
10.13.1 Amendment to Series 2002-B Supplement dated March 28, 2003, by
and between Conn Funding II, L.P., as Issuer, and Wells Fargo
Bank Minnesota, National Association, as Trustee (incorporated
herein by reference to Exhibit 10.13.1 to Conn's, Inc. Form 10-K
for the annual period ended January 31, 2005 (File No. 000-50421)
as filed with the Securities and Exchange Commission on April 5,
2005).
10.14 Servicing Agreement dated September 1, 2002, by and among Conn
Funding II, L.P., as Issuer, CAI, L.P., as Servicer, and Wells
Fargo Bank Minnesota, National Association, as Trustee
(incorporated herein by reference to Exhibit 10.14 to Conn's,
Inc. registration statement on Form S-1 (file no. 333-109046) as
filed with the Securities and Exchange Commission on September
23, 2003).
10.14.1 First Amendment to Servicing Agreement dated June 24, 2005, by
and among Conn Funding II, L.P., as Issuer, CAI, L.P., as
Servicer, and Wells Fargo Bank, National Association, as Trustee
(incorporated herein by reference to Exhibit 10.14.1 to Conn's,
Inc. Form 10-Q for the quarterly period ended July 31, 2005 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on August 30, 2005).
10.14.2 Second Amendment to Servicing Agreement dated November 28, 2005,
by and among Conn Funding II, L.P., as 10.14.2 Issuer, CAI, L.P.,
as Servicer, and Wells Fargo Bank, National Association, as
Trustee (incorporated herein by reference to Exhibit 10.14.2 to
Conn's, Inc. Form 10-Q for the quarterly period ended October 31,
2005 (File No. 000-50421) as filed with the Securities and
Exchange Commission on December 1, 2005).
10.14.3 Third Amendment to Servicing Agreement dated May 16, 2006, by and
among Conn Funding II, L.P., as Issuer, CAI, L.P., as Servicer,
and Wells Fargo Bank, National Association, as Trustee
(incorporated herein by reference to Exhibit 10.14.3 to Conn's,
Inc. Form 10-Q for the quarterly period ended July 31, 2006 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on September 15, 2006).
10.14.4 Fourth Amendment to Servicing Agreement dated August 1, 2006, by
and among Conn Funding II, L.P., as Issuer, CAI, L.P., as
Servicer, and Wells Fargo Bank, National Association, as Trustee
(incorporated herein by reference to Exhibit 10.14.4 to Conn's,
Inc. Form 10-Q for the quarterly period ended July 31, 2006 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on September 15, 2006).
10.15 Form of Executive Employment Agreement (incorporated herein by
reference to Exhibit 10.15 to Conn's, Inc. registration statement
on Form S-1 (file no. 333-109046) as filed with the Securities
and Exchange Commission on October 29, 2003).t
10.15.1 First Amendment to Executive Employment Agreement between Conn's,
Inc. and Thomas J. Frank, Sr., Approved by the stockholders May
26, 2005 (incorporated herein by reference to Exhibit 10.15.1 to
Conn's, Inc. Form 10-Q for the quarterly period ended July 31,
2005 (file No. 000-50421) as filed with the Securities and
Exchange Commission on August 30, 2005).t
10.16 Form of Indemnification Agreement (incorporated herein by
reference to Exhibit 10.16 to Conn's, Inc. registration statement
on Form S-1 (file no. 333-109046) as filed with the Securities
and Exchange Commission on September 23, 2003).t
10.17 Description of Compensation Payable to Non-Employee Directors
(incorporated herein by reference to Form 8-K (file no.
000-50421) filed with the Securities and Exchange Commission on
June 2, 2005).t
32
10.18 Dealer Agreement between Conn Appliances, Inc. and Voyager
Service Programs, Inc. effective as of January 1, 1998
(incorporated herein by reference to Exhibit 10.19 to Conn's,
Inc. Form 10-K for the annual period ended January 31, 2006 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on March 30, 2006).
10.18.1 Amendment #1 to Dealer Agreement by and among Conn Appliances,
Inc., CAI, L.P., Federal Warranty Service Corporation and Voyager
Service Programs, Inc. effective as of July 1, 2005 (incorporated
herein by reference to Exhibit 10.19.1 to Conn's, Inc. Form 10-K
for the annual period ended January 31, 2006 (File No. 000-50421)
as filed with the Securities and Exchange Commission on March 30,
2006).
10.18.2 Amendment #2 to Dealer Agreement by and among Conn Appliances,
Inc., CAI, L.P., Federal Warranty Service Corporation and Voyager
Service Programs, Inc. effective as of July 1, 2005 (incorporated
herein by reference to Exhibit 10.19.2 to Conn's, Inc. Form 10-K
for the annual period ended January 31, 2006 (File No. 000-50421)
as filed with the Securities and Exchange Commission on March 30,
2006).
10.18.3 Amendment #3 to Dealer Agreement by and among Conn Appliances,
Inc., CAI, L.P., Federal Warranty Service Corporation and Voyager
Service Programs, Inc. effective as of July 1, 2005 (incorporated
herein by reference to Exhibit 10.19.3 to Conn's, Inc. Form 10-K
for the annual period ended January 31, 2006 (File No. 000-50421)
as filed with the Securities and Exchange Commission on March 30,
2006).
10.18.4 Amendment #4 to Dealer Agreement by and among Conn Appliances,
Inc., CAI, L.P., Federal Warranty Service Corporation and Voyager
Service Programs, Inc. effective as of July 1, 2005 (incorporated
herein by reference to Exhibit 10.19.4 to Conn's, Inc. Form 10-K
for the annual period ended January 31, 2006 (File No. 000-50421)
as filed with the Securities and Exchange Commission on March 30,
2006).
10.18.5 Amendment #5 to Dealer Agreement by and among Conn Appliances,
Inc., CAI, L.P., Federal Warranty Service Corporation and Voyager
Service Programs, Inc. effective as of April 7, 2007
(incorporated herein by reference to Exhibit 10.18.5 to Conn's,
Inc. Form 10-Q for the quarterly period ended July 31, 2007 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on August 30, 2007).
10.19 Service Expense Reimbursement Agreement between Affiliates
Insurance Agency, Inc. and American Bankers Life Assurance
Company of Florida, American Bankers Insurance Company Ranchers &
Farmers County Mutual Insurance Company, Voyager Life Insurance
Company and Voyager Property and Casualty Insurance Company
effective July 1, 1998 (incorporated herein by reference to
Exhibit 10.20 to Conn's, Inc. Form 10-K for the annual period
ended January 31, 2006 (File No. 000-50421) as filed with the
Securities and Exchange Commission on March 30, 2006).
10.19.1 First Amendment to Service Expense Reimbursement Agreement by and
among CAI, L.P., Affiliates Insurance Agency, Inc., American
Bankers Life Assurance Company of Florida, Voyager Property &
Casualty Insurance Company, American Bankers Life Assurance
Company of Florida, American Bankers Insurance Company of Florida
and American Bankers General Agency, Inc. effective July 1, 2005
(incorporated herein by reference to Exhibit 10.20.1 to Conn's,
Inc. Form 10-K for the annual period ended January 31, 2006 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on March 30, 2006).
10.20 Service Expense Reimbursement Agreement between CAI Credit
Insurance Agency, Inc. and American Bankers Life Assurance
Company of Florida, American Bankers Insurance Company Ranchers &
Farmers County Mutual Insurance Company, Voyager Life Insurance
Company and Voyager Property and Casualty Insurance Company
effective July 1, 1998 (incorporated herein by reference to
Exhibit 10.21 to Conn's, Inc. Form 10-K for the annual period
ended January 31, 2006 (File No. 000-50421) as filed with the
Securities and Exchange Commission on March 30, 2006).
33
10.20.1 First Amendment to Service Expense Reimbursement Agreement by and
among CAI Credit Insurance Agency, Inc., American Bankers Life
Assurance Company of Florida, Voyager Property & Casualty
Insurance Company, American Bankers Life Assurance Company of
Florida, American Bankers Insurance Company of Florida, American
Reliable Insurance Company, and American Bankers General Agency,
Inc. effective July 1, 2005 (incorporated herein by reference to
Exhibit 10.21.1 to Conn's, Inc. Form 10-K for the annual period
ended January 31, 2006 (File No. 000-50421) as filed with the
Securities and Exchange Commission on March 30, 2006).
10.21 Consolidated Addendum and Amendment to Service Expense
Reimbursement Agreements by and among Certain Member Companies of
Assurant Solutions, CAI Credit Insurance Agency, Inc. and
Affiliates Insurance Agency, Inc. effective April 1, 2004
(incorporated herein by reference to Exhibit 10.22 to Conn's,
Inc. Form 10-K for the annual period ended January 31, 2006 (File
No. 000-50421) as filed with the Securities and Exchange
Commission on March 30, 2006).
10.22 Series 2006-A Supplement to Base Indenture, dated August 1, 2006,
by and between Conn Funding II, L.P., as Issuer, and Wells Fargo
Bank, National Association, as Trustee (incorporated herein by
reference to Exhibit 10.23 to Conn's, Inc. Form 10-Q for the
quarterly period ended July 31, 2006 (File No. 000-50421) as
filed with the Securities and Exchange Commission on September
15, 2006).
10.23 Fourth Amended and Restated Subordination and Priority Agreement,
dated August 31, 2006, by and among Bank of America, N.A. and
JPMorgan Chase Bank, as Agent, and Conn Appliances, Inc. and/or
its subsidiary CAI, L.P (incorporated herein by reference to
Exhibit 10.24 to Conn's, Inc. Form 10-Q for the quarterly period
ended October 31, 2006 (File No. 000-50421) as filed with the
Securities and Exchange Commission on November 30, 2006).
10.23.1 Fourth Amended and Restated Security Agreement, dated August 31,
2006, by and among Conn Appliances, Inc. and CAI, L.P. and Bank
of America, N.A. (incorporated herein by reference to Exhibit
10.24.1 to Conn's, Inc. Form 10-Q for the quarterly period ended
October 31, 2006 (File No. 000-50421) as filed with the
Securities and Exchange Commission on November 30, 2006).
10.24 Letter of Credit and Reimbursement Agreement, dated September 1,
2002, by and among CAI, L.P., Conn Funding II, L.P. and SunTrust
Bank (incorporated herein by reference to Exhibit 10.25 to
Conn's, Inc. Form 10-Q for the quarterly period ended October 31,
2006 (File No. 000-50421) as filed with the Securities and
Exchange Commission on November 30, 2006).
10.24.1 Amendment to Standby Letter of Credit dated August 23, 2006, by
and among CAI, L.P., Conn Funding II, L.P. and SunTrust Bank
(incorporated herein by reference to Exhibit 10.25.1 to Conn's,
Inc. Form 10-Q for the quarterly period ended October 31, 2006
(File No. 000-50421) as filed with the Securities and Exchange
Commission on November 30, 2006).
10.24.2 Amendment to Standby Letter of Credit dated September 20, 2006,
by and among CAI, L.P., Conn Funding II, L.P. and SunTrust Bank
(incorporated herein by reference to Exhibit 10.25.2 to Conn's,
Inc. Form 10-Q for the quarterly period ended October 31, 2006
(File No. 000-50421) as filed with the Securities and Exchange
Commission on November 30, 2006).
11.1 Statement re: computation of earnings per share is included under
Note 1 to the financial statements.
21 Subsidiaries of Conn's, Inc. (incorporated herein by reference to
Exhibit 21 to Conn's, Inc. Form 10-Q for the quarterly period
ended July 31, 2007 (File No. 000-50421) as filed with the
Securities and Exchange Commission on August 30, 2007).
31.1 Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer)
(filed herewith).
31.2 Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
(filed herewith).
34
32.1 Section 1350 Certification (Chief Executive Officer and Chief
Financial Officer) (furnished herewith).
99.1 Subcertification by Executive Vice-Chairman of the Board in
support of Rule 13a-14(a)/15d-14(a) Certification (Chief
Executive Officer) (filed herewith).
99.2 Subcertification by Chief Operating Officer in support of Rule
13a-14(a)/15d-14(a) Certification (Chief Executive Officer)
(filed herewith).
99.3 Subcertification by Treasurer in support of Rule
13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
(filed herewith).
99.4 Subcertification by Secretary in support of Rule
13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
(filed herewith).
99.5 Subcertification of Executive Vice-Chairman of the Board, Chief
Operating Officer, Treasurer and Secretary in support of Section
1350 Certifications (Chief Executive Officer and Chief Financial
Officer) (furnished herewith).
t Management contract or compensatory plan or arrangement.
35
EXHIBIT 3.2.3
================================================================================
AMENDED AND RESTATED BYLAWS
OF
CONN'S, INC.
AS OF JUNE 3, 2008
================================================================================
TABLE OF CONTENTS
Page
ARTICLE 1 OFFICES..........................................................................1
Section 1.1 Registered Office...........................................................1
Section 1.2 Other Offices...............................................................1
ARTICLE 2 MEETINGS OF STOCKHOLDERS.........................................................1
Section 2.1 Place of Meetings...........................................................1
Section 2.2 Annual Meeting..............................................................1
Section 2.3 Special Meetings............................................................1
Section 2.4 Notice......................................................................1
Section 2.5 Voting List.................................................................2
Section 2.6 Quorum......................................................................2
Section 2.7 Adjourned Meeting...........................................................2
Section 2.8 Required Vote...............................................................2
Section 2.9 Proxies.....................................................................2
Section 2.10 Record Date.................................................................3
Section 2.11 Action By Remote Communication..............................................4
Section 2.12 No Stockholder Action by Written Consent....................................4
Section 2.13 Inspectors of Elections.....................................................4
Section 2.14 Notice of Stockholder Business; Nominations.................................5
ARTICLE 3 DIRECTORS........................................................................5
Section 3.1 Management..................................................................5
Section 3.2 Number; Election; Change In Number..........................................5
Section 3.3 Removal; Resignation........................................................6
Section 3.4 Vacancies and Newly Created Directorships...................................6
Section 3.5 Cumulative Voting Prohibited................................................6
Section 3.6 Place of Meetings...........................................................6
Section 3.7 First Meetings..............................................................6
Section 3.8 Regular Meetings............................................................6
Section 3.9 Special Meetings............................................................6
-i-
TABLE OF CONTENTS
(continued)
Page
Section 3.10 Quorum......................................................................6
Section 3.11 Action Without Meeting; Telephone Meetings..................................7
Section 3.12 Chairman of the Board; Vice Chairman........................................7
Section 3.13 Compensation................................................................7
ARTICLE 4 COMMITTEES.......................................................................7
Section 4.1 Designation.................................................................7
Section 4.2 Number; Term................................................................7
Section 4.3 Authority...................................................................7
Section 4.4 Committee Changes; Removal..................................................8
Section 4.5 Alternate Members; Acting Members...........................................8
Section 4.6 Regular Meetings............................................................8
Section 4.7 Special Meetings............................................................8
Section 4.8 Quorum; Majority Vote.......................................................8
Section 4.9 Minutes.....................................................................8
Section 4.10 Compensation................................................................8
ARTICLE 5 NOTICES..........................................................................8
Section 5.1 Method......................................................................8
Section 5.2 Waiver......................................................................9
Section 5.3 Exception to Notice Requirement.............................................9
ARTICLE 6 OFFICERS........................................................................10
Section 6.1 Officers...................................................................10
Section 6.2 Election...................................................................10
Section 6.3 Compensation...............................................................10
Section 6.4 Removal and Vacancies......................................................10
Section 6.5 Chief Executive Officer....................................................10
Section 6.6 President..................................................................10
Section 6.7 Chief Financial Officer....................................................11
Section 6.8 Chief Operating Officer....................................................11
Section 6.9 Executive Vice Presidents..................................................11
Section 6.10 Vice Presidents............................................................11
Section 6.11 Secretary..................................................................12
-ii-
TABLE OF CONTENTS
(continued)
Page
Section 6.12 Assistant Secretaries......................................................12
Section 6.13 Treasurer..................................................................12
Section 6.14 Assistant Treasurers.......................................................12
Section 6.15 Other Officers.............................................................12
ARTICLE 7 CERTIFICATES REPRESENTING SHARES................................................12
Section 7.1 Certificated and Uncertificated Shares.....................................12
Section 7.2 Legends....................................................................13
Section 7.3 Lost Certificates..........................................................13
Section 7.4 Transfers..................................................................13
Section 7.5 Registered Stockholders....................................................13
ARTICLE 8 INDEMNIFICATION.................................................................13
Section 8.1 Actions, Suits or Proceedings Other Than by or in the Right of the
Corporation................................................................13
Section 8.2 Actions or Suits by or in the Right of the Corporation.....................14
Section 8.3 Indemnification for Costs, Charges and Expenses of Successful Party........14
Section 8.4 Determination of Right to Indemnification..................................14
Section 8.5 Advance of Costs, Charges and Expenses.....................................14
Section 8.6 Procedure for Indemnification..............................................15
Section 8.7 Other Rights; Continuation of Right to Indemnification.....................15
Section 8.8 Construction...............................................................15
Section 8.9 Savings Clause.............................................................16
Section 8.10 Insurance..................................................................16
ARTICLE 9 GENERAL PROVISIONS..............................................................17
Section 9.1 Dividends..................................................................17
Section 9.2 Reserves...................................................................17
Section 9.3 Authority to Sign Instruments..............................................17
Section 9.4 Fiscal Year................................................................17
Section 9.5 Seal.......................................................................17
Section 9.6 Transactions with Directors and Officers...................................17
Section 9.7 Amendments.................................................................18
Section 9.8 Table of Contents; Headings................................................18
-iii-
BYLAWS
OF
CONN'S, INC.
- --------------------------------------------------------------------------------
ARTICLE 1
OFFICES
Section 1.1 Registered Office. The registered office and registered agent
of Conn's, Inc., a Delaware corporation (the "Corporation"), will be as from
time to time set forth in the Corporation's Certificate of Incorporation or in
any certificate filed with the Secretary of State of the State of Delaware, and
the appropriate County Recorder or Recorders, as the case may be, to amend such
information.
Section 1.2 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 may from time to time determine or the business of the Corporation may
require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings. Meetings of stockholders for all purposes
may be held at such time and place, either within or without the State of
Delaware, as designated by the Board of Directors and as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof. The Board
of Directors may, in its sole discretion, determine that a meeting of
stockholders shall not be held at any place, but may instead be held solely by
means of remote communication as authorized by Section 211 of the Delaware
General Corporation Law.
Section 2.2 Annual Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year at such time 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 of such meeting. At such meeting,
the stockholders shall elect directors and transact such other business as may
properly be brought before the meeting.
Section 2.3 Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, the Corporation's
Certificate of Incorporation or these Bylaws, may be called only by the Chairman
of the Board, President or by a majority of the Board of Directors. Business
transacted at all special meetings shall be confined to the purposes stated in
the notice of the meeting.
Section 2.4 Notice. Written or printed notice stating the place, if any,
date, and hour of each meeting of the stockholders, the means of remote
communications, if any, by which stockholders and proxy holders may be deemed to
be present in person and vote at such meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting, to each stockholder entitled to vote at such meeting. If such notice is
sent by mail, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at the stockholder's address as it appears
on the records of the Corporation. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent or other agent of the Corporation that the
notice has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy.
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Section 2.5 Voting List. At least ten (10) days before each meeting of
stockholders, the Secretary or other officer of the Corporation who has charge
of the Corporation's stock ledger, either directly or through another officer
appointed by the Secretary or such other officer or through a transfer agent
appointed by the Board of Directors, shall prepare 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, for a period of at least
ten (10) days prior to the meeting: (i) on a reasonably accessible electronic
network, provided that the information required to gain access to such list is
provided with the notice of the meeting; or (ii) during ordinary business hours,
at the principal place of business of the Corporation. In the event that the
Corporation determines to make the list available on an electronic network, the
Corporation may take reasonable steps to ensure that such information is
available only to stockholders of the Corporation. If the meeting is to be held
at a place, then the list shall be produced and kept at the time and place of
the meeting during the whole time of the meeting and may be inspected by any
stockholder who is present. If the meeting is to be held solely by means of
remote communication, then the list shall also be open to the examination of any
stockholder during the whole time of the meeting on a reasonably accessible
electronic network, and the information required to access such list shall be
provided with the notice of the meeting.
Section 2.6 Quorum. A majority of the shares entitled to vote, present in
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders, except as otherwise provided by statute, the Corporation's
Certificate of Incorporation or these Bylaws. The stockholders present at a duly
constituted meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. If a quorum shall not be present at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation, may adjourn the meeting from time to time until a quorum shall be
present.
Section 2.7 Adjourned Meeting. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if the time, place,
if any, thereof, and the means of remote communications, if any, by which
stockholders and proxy holders may be deemed to be present in person and vote at
such adjourned meeting are announced at the meeting at which the adjournment is
taken. At any adjourned meeting at which a quorum shall be present, any business
may be transacted which might have been transacted at the original meeting had a
quorum been present. If the adjournment is for more than thirty (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 of record
entitled to vote at the meeting.
Section 2.8 Required Vote. In all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, unless the question is one on which, by
express provision of statute, the Corporation's Certificate of Incorporation or
these Bylaws, a different vote is required, in which case such express provision
shall govern and control the decision of the question.
Section 2.9 Proxies.
(a) Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for such stockholder by proxy,
but no such proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period. Each proxy shall be filed
with the Secretary of the Corporation prior to or at the time of the meeting.
(b) Without limiting the manner in which a stockholder may authorize
another person or persons to act for such stockholder as proxy pursuant to
subsection (a) of this section, the following shall constitute a valid means by
which a stockholder may grant such authority:
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(1) A stockholder may execute a writing authorizing another person
or persons to act for such stockholder as proxy. Execution may be accomplished
by the stockholder or by an authorized officer, director, employee or agent of
the stockholder signing such writing or causing such stockholder's signature to
be affixed to such writing by any reasonable means including, but not limited
to, by facsimile signature.
(2) stockholder may authorize another person or persons to act for
such stockholder as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, provided that any such
telegram, cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
(c) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (b)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
(d) A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.
Section 2.10 Record Date.
(a) 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, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. 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.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, if so
permitted by the Corporation's Certificate of Incorporation and these Bylaws,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by statute or these Bylaws, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Such delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
statute or these Bylaws, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
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(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders 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 a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such payment, exercise, or other action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
Section 2.11 Action By Remote Communication. If authorized by the Board of
Directors in its sole discretion, and subject to such guidelines and procedures
as the Board of Directors may adopt, stockholders and proxy holders not
physically present at a meeting of stockholders may, by means of remote
communication: (i) participate in a meeting of stockholders; and (ii) be deemed
present in person and vote at a meeting of stockholders, whether such meeting is
to be held at a designated place or solely by means of remote communication,
provided that (A) the Corporation shall implement reasonable measures to verify
that each person deemed present and permitted to vote at the meeting by means of
remote communication is a stockholder or proxy holder; (B) the Corporation shall
implement reasonable measures to provide such stockholders and proxy holders a
reasonable opportunity to participate in the meeting and to vote on matters
submitted to the stockholders, including an opportunity to read or hear the
proceedings of the meeting substantially concurrently with such proceedings; and
(C) if any stockholder or proxy holder votes or takes other action at the
meeting by means of remote communication, a record of such vote or other action
shall be maintained by the Corporation.
Section 2.12 No Stockholder Action by Written Consent. Any action required
or permitted to be taken by the stockholders of the Corporation must be effected
at a duly called annual or special meeting of stockholders of the Corporation
and may not be effected by any consent in writing by such stockholders, unless
the action to be effected by written consent of the stockholders and the taking
of such action by such written consent have been expressly approved in advance
by the Board of Directors.
Section 2.13 Inspectors of Elections. The Board of Directors may, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If any of the inspectors so appointed
shall fail to appear or act, the chairman of the meeting shall, or if inspectors
shall not have been appointed, the chairman of the meeting may, appoint one or
more inspectors. Each inspector, before entering upon the discharge of such
inspector's duties, shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, and
the validity and effect of proxies and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the results, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the chairman of the
meeting, the inspectors shall make a report in writing of any challenge,
request, or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as an inspector of an election of directors. Inspectors need not be
stockholders.
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Section 2.14 Notice of Stockholder Business; Nominations.
(a) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (1) pursuant to the Corporation's notice of
such meeting; (2) by or at the direction of the Board of Directors; or (3) by
any stockholder of the Corporation who was a stockholder of record at the time
of giving of the notice provided for in this Section 2.14, who is entitled to
vote at such meeting and who complies with the notice procedures set forth in
this Section 2.14.
(b) For nominations or other business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to the first anniversary of the preceding year's
proxy statement in connection with the last annual meeting. Such stockholder's
notice shall set forth: (1) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (2) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (3) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(A) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner; and (B) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner.
(c) Notwithstanding the aforementioned procedure, the Board of
Directors may, in its discretion, exclude from any proxy materials sent to
stockholders any matters that may properly be excluded under the Exchange Act,
Securities and Exchange Commission rules or other applicable laws.
ARTICLE 3
DIRECTORS
Section 3.1 Management. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute, the Corporation's Certificate of Incorporation or these Bylaws
directed or required to be exercised or done by the stockholders. The Board of
Directors shall keep regular minutes of its proceedings.
Section 3.2 Number; Election; Change In Number. Except as otherwise
provided for or fixed pursuant to the provisions of Article FOUR of the
Corporation's Certificate of Incorporation relating to the rights of holders of
any series of Preferred Stock to elect additional directors, the total number of
directors which shall constitute the entire Board of Directors of the
Corporation shall be no less than three (3) directors. The number of directors
which shall constitute the entire Board of Directors may be increased or
(subject to the immediately preceding sentence) decreased by one or more
resolutions adopted by the Board of Directors. Except with respect to the
current terms of directors elected prior to the effective time of the amendment
to the Corporation's Certificate of Incorporation eliminating the classified
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Board of Directors, who shall serve the remainder of their term, each director
shall hold office until the next annual meeting of the stockholders of the
Corporation following such director's election or appointment and, the foregoing
notwithstanding, shall serve until his successor shall have been duly elected
and qualified, unless he shall resign, become disqualified, disabled or shall
otherwise be removed. If authorized by the Board of Directors, a ballot may be
submitted by electronic transmission, provided that any such electronic
transmission must either set forth, or be submitted with, information from which
it can be determined that the electronic transmission was authorized by the
stockholder or proxy holder. No decrease in the number of directors constituting
the whole Board of Directors shall have the effect of shortening the term of any
incumbent director.
Section 3.3 Removal; Resignation. Any director or the entire Board of
Directors may be removed from office at any time, but only for cause and only by
the affirmative vote of at least 75% of the total voting power of the
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors voting together as a single class. Any
director may resign at any time upon notice given in writing or by electronic
transmission to the Corporation.
Section 3.4 Vacancies and Newly Created Directorships. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. Each director so chosen
shall hold office until the next election of directors and until such director's
successor is elected and qualified or until such director's earlier death,
resignation or removal. If at any time there are no directors in office, an
election of directors may be held in the manner provided by statute. Except as
otherwise provided in these Bylaws, when one or more directors shall resign from
the Board of Directors, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have the power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in these Bylaws with respect to the filling of
other vacancies.
Section 3.5 Cumulative Voting Prohibited. Cumulative voting shall be
prohibited.
Section 3.6 Place of Meetings. The directors of the Corporation may hold
their meetings, both regular and special, either within or without the State of
Delaware.
Section 3.7 First Meetings. The first meeting of each newly elected Board
of Directors shall be held without further notice immediately following the
annual meeting of stockholders, and at the same place, unless by unanimous
consent of the directors then elected and serving, such time or place shall be
changed.
Section 3.8 Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 3.9 Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on twenty-four (24)
hours' notice to each director, if by telecopier, electronic facsimile or hand
delivery, or on three (3) days' notice to each director, if by mail or by
telegram. Except as may be otherwise expressly provided by law or the
Corporation's Certificate of Incorporation, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
Section 3.10 Quorum. At all meetings of the Board of Directors, a majority
of the total number of directors shall constitute a quorum for the transaction
of business, and the vote of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors, except
as may be otherwise specifically provided by law or the Corporation's
Certificate of Incorporation. If a quorum shall not be present at any meeting 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.
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Section 3.11 Action Without Meeting; Telephone Meetings. Any action
required or permitted to be taken at a meeting of the Board of Directors, or of
any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing or by electronic transmission, and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the
Board of Directors or such committee, respectively. Such filing shall be in
paper form if the minutes are maintained in paper form and shall be in
electronic form if the minutes are maintained in electronic form. Such consent
shall have the same force and effect as a unanimous vote at a meeting. Subject
to applicable notice provisions and unless otherwise restricted by the
Corporation's Certificate of Incorporation, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in and
hold a meeting by means of conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such meeting shall constitute presence in
person at such meeting, except where a person's participation is for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 3.12 Chairman of the Board; Vice Chairman. The Board of Directors
may elect a Chairman of the Board to preside at their meetings and to perform
such other duties as the Board of Directors may from time to time assign to such
person. The Chairman of the Board may be either an Executive Chairman of the
Board, who shall be an executive of the Corporation; or a Non-Executive Chairman
of the Board. The Board of Directors may also elect a Vice Chairman of the Board
to preside at their meetings in the absence of the Chairman of the Board and to
perform such other duties as the Board of Directors may from time to time assign
to such person. The Vice Chairman of the Board may be either an Executive Vice
Chairman of the Board, who shall be an executive of the Corporation, or a
Non-Executive Vice Chairman of the Board.
Section 3.13 Compensation. The Board of Directors may fix the compensation
of the members of the Board of Directors at any time and from time to time.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE 4
COMMITTEES
Section 4.1 Designation. The Board of Directors may designate one or more
committees.
Section 4.2 Number; Term. Each committee shall consist of one or more
directors. The number of committee members may be increased or decreased from
time to time by the Board of Directors. Each committee member shall serve as
such until the earliest of (i) the expiration of such committee member's term as
director; (ii) such committee member's resignation as a committee member or as a
director; or (iii) such committee member's removal as a committee member or as a
director.
Section 4.3 Authority. Each committee, to the extent expressly provided in
the resolution of the Board of Directors establishing such committee, shall have
and may exercise all of the authority of the Board of Directors in the
management of the business and affairs of the Corporation except to the extent
expressly restricted by statute, the Corporation's Certificate of Incorporation
or these Bylaws.
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Section 4.4 Committee Changes; Removal. The Board of Directors shall have
the power at any time to fill vacancies in, to change the membership of, and to
discharge any committee. The Board of Directors may remove any committee member,
at any time, with or without cause.
Section 4.5 Alternate Members; Acting Members. The Board of Directors may
designate one or more directors as alternate members of any committee. Any such
alternate member may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member.
Section 4.6 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
Section 4.7 Special Meetings. Special meetings of any committee may be held
whenever called by the Chairman of the Committee, or, if the committee members
have not elected a Chairman, by any committee member. The Chairman of the
Committee or the committee member calling any special meeting shall cause notice
of such special meeting, including therein the time and place of such special
meeting, to be given to each committee member at least (i) twenty-four (24)
hours before such special meeting if notice is given by telecopy, electronic
facsimile or hand delivery or (ii) at least three days before such special
meeting if notice is given by mail or by telegram. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
Section 4.8 Quorum; Majority Vote. At meetings of any committee, a majority
of the number of members designated as the Committee by the Board of Directors
shall constitute a quorum for the transaction of business. Alternate members and
acting members shall be counted in determining the presence of a quorum. If a
quorum is not present at a meeting of any committee, a majority of the members
present may adjourn the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum is present. The vote of a majority
of the members, including alternate members and acting members, present at any
meeting at which a quorum is present shall be the act of a committee, unless the
act of a greater number is required by law or the Corporation's Certificate of
Incorporation.
Section 4.9 Minutes. Each committee shall cause minutes of its proceedings
to be prepared and shall report the same to the Board of Directors upon the
request of the Board of Directors. The minutes of the proceedings of each
committee shall be delivered to the Secretary of the Corporation for placement
in the minute books of the Corporation.
Section 4.10 Compensation. Committee members may, by resolution of the
Board of Directors, be allowed a fixed sum and expenses of attendance, if any,
for attending any committee meetings or a stated salary.
ARTICLE 5
NOTICES
Section 5.1 Method.
(a) Whenever by statute, the Corporation's Certificate of
Incorporation, or these Bylaws, notice is required to be given to any
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stockholder, director or committee member, and no provision is made as to how
such notice shall be given, personal notice shall not be required, and any such
notice may be given (i) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at such stockholder's address as it
appears on the books or (in the case of a stockholder) the stock transfer
records of the Corporation; or (ii) by any other method permitted by law
(including, but not limited to, overnight courier service, facsimile
telecommunication, electronic mail, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be given when
deposited in the United States mail as aforesaid. Any notice required or
permitted to be given by overnight courier service shall be deemed to be given
at the time delivered to such service with all charges prepaid and addressed as
aforesaid.
(b) Without limiting the manner by which notice otherwise may be given
effectively to stockholders, any notice to stockholders given by the Corporation
under any provision of the Delaware General Corporation Law, the Corporation's
Certificate of Incorporation, or these Bylaws shall be effective if given by a
form of electronic transmission consented to by the stockholder to whom the
notice is given. Any such consent shall be revocable by the stockholder by
written notice to the Corporation. Any such consent shall be deemed revoked if:
(i) the Corporation is unable to deliver by electronic transmission two (2)
consecutive notices given by the Corporation in accordance with such consent;
and (ii) such inability becomes known to the Secretary or an Assistant Secretary
of the Corporation or to the transfer agent, or other person responsible for the
giving of notice; provided, however, the inadvertent failure to treat such
inability as a revocation shall not invalidate any meeting or other action.
(c) Notice given pursuant to Section 5.1(b) shall be deemed given: (i)
if by facsimile telecommunication, when directed to a number at which the
stockholder has consented to receive notice; (ii) if by electronic mail, when
directed to an electronic mail address at which the stockholder has consented to
receive notice; (iii) if by a posting on an electronic network together with
separate notice to the stockholder of such specific posting, upon the later of
(A) such posting and (B) the giving of such separate notice; and (iv) if by any
other form of electronic transmission, when directed to the stockholder.
(d) An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent or other agent of the Corporation that the notice has been given,
including by a form of electronic transmission, shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
Section 5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by law, the
Corporation's Certificate of Incorporation or these Bylaws, a written waiver
thereof, signed by the person or persons entitled to such notice, or a waiver by
electronic transmission by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to notice.
Attendance of a stockholder, director, or committee member at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
for the express purpose of objecting at the beginning of the meeting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 5.3 Exception to Notice Requirement. The giving of any notice
required under any provision of the Delaware General Corporation Law, the
Corporation's Certificate of Incorporation or these Bylaws shall not be required
to be given to any stockholder to whom: (i) notice of two consecutive annual
meetings, and all notices of meetings or of the taking of action by written
consent without a meeting to such stockholder during the period between such two
consecutive annual meetings; or (ii) all, and at least two, payments (if sent by
first-class mail) of dividends or interest on securities during a twelve-month
period, have been mailed addressed to such person at such person's address as
shown on the records of the Corporation and have been returned undeliverable. If
any such stockholder shall deliver to the Corporation a written notice setting
forth such stockholder's then current address, the requirement that notice be
given to such stockholder shall be reinstated. The exception provided for in
this Section 5.3 to the requirement that notice be given shall not be applicable
to any notice returned as undeliverable if the notice was given by electronic
transmission.
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ARTICLE 6
OFFICERS
Section 6.1 Officers. The officers of the Corporation shall be a Chief
Executive Officer, a President, one or more Vice Presidents (who shall rank in
such order and who shall have such additional titles or designations, such as
"Executive," "Senior," "First," or "Second," as may be determined from time to
time by the Board of Directors), a Chief Financial Officer, a Chief Operating
Officer, a Secretary, and a Treasurer. The Board of Directors may also choose a
Chairman of the Board, Vice Chairman of the Board, Presidents of divisions of
the Corporation, additional Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers or other officers. The Board of Directors
may also from time to time, in its discretion, assign titles, powers, duties and
reporting arrangements for any elected officer. Any two or more offices may be
held by the same person.
Section 6.2 Election. The Board of Directors at its first meeting after
each annual meeting of stockholders shall elect the officers of the Corporation,
none of whom need be a member of the Board, a stockholder or a resident of the
State of Delaware. The Board of Directors may appoint such other officers and
agents as it shall deem necessary, who shall be appointed 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.
Section 6.3 Compensation. The compensation of all officers and agents of
the Corporation shall be fixed by the Compensation Committee.
Section 6.4 Removal and Vacancies. Each officer of the Corporation shall
hold office until such officer's successor is elected and qualified or until
such officer's earlier resignation or removal. Any officer or agent elected or
appointed by the Board of Directors may be removed either for or without cause
by a majority of the directors represented at a meeting of the Board of
Directors at which a quorum is represented, whenever in the judgment of the
Board of Directors the best interests of the Corporation will be served thereby,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors, however, any office
of the Corporation may be left vacant from time to time at the discretion of the
Board of Directors.
Section 6.5 Chief Executive Officer. The Chief Executive Officer shall be
the senior officer of the Corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless the Board of Directors shall
elect a Chairman of the Board or Vice Chairman of the Board, in which event the
Chief Executive Officer shall preside at meetings of the Board of Directors only
in the absence of both the Chairman of the Board and Vice Chairman of the Board,
if any. The Chief Executive Officer shall be an ex-officio member of the
executive committee (if established), and will share the general and active
management of the business of the Corporation with the President(s), and shall
see, along with the President(s), that all orders and resolutions of the Board
of Directors are carried into effect. Under the seal of the Corporation, he
shall execute bonds, mortgages, and other contracts requiring a seal, except
where required or permitted by law to be otherwise signed and executed, except
where the signing and execution shall be especially delegated by the Board of
Directors to some other officer or agent of the Corporation. Unless otherwise
provided by the Board of Directors, all other officers of the Corporation shall
report directly or indirectly to the Chief Executive Officer.
Section 6.6 President. The President shall, subject to the control of the
Board of Directors, Chairman of the Board of Directors and Chief Executive
Officer, in the absence, disability, or inability to act of the Chief Executive
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Officer, exercise all powers and perform all duties of the Chief Executive
Officer (except such powers and duties as are incident to the Chief Executive
Officer's position or a member of the Board of Directors or any Executive
Committee appointed by the Board of Directors pursuant to Section 4.3 of Article
4). The President shall have general and active management of the business and
affairs of the Corporation, shall see that all orders and resolutions of the
Board are carried into effect, and shall perform such other duties as the Board
of Directors, the Chairman of the Board of Directors, or the Chief Executive
Officer shall prescribe.
Section 6.7 Chief Financial Officer. The Chief Financial Officer of the
Corporation shall, subject to the control of the Board of Directors, the
Chairman of the Board of Directors and the Chief Executive Officer, be the chief
financial officer of the Corporation. The Chief Financial Officer shall have
custody of the funds and securities of the Corporation and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all monies 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 (or any duly authorized committee thereof). The Chief
Financial Officer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital and stock. The
Chief Financial Officer shall receive and give receipts and acquittances for
money paid in an account of the Corporation and shall pay out of the
Corporation's funds on hand all bills, payrolls and other just debts of the
Corporation of whatever nature upon maturity. The Chief Financial Officer shall
render to the Chief Executive Officer and the Board of Directors, at its regular
meetings or when the Board of Directors so requires, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
Corporation. The Chief Financial Officer shall have such other powers and
perform such other duties as may from time to time be assigned to such officer
by the Board of Directors, the Chairman of the Board of Directors or the Chief
Executive Officer.
Section 6.8 Chief Operating Officer. The Chief Operating Officer shall,
subject to the control of the Board of Directors, the Chairman of the Board of
Directors and the Chief Executive Officer, be the chief administrative officer
of the Corporation and shall have general charge of the business, affairs and
property of the Corporation, and control over its officers (other than the Chief
Executive Officer, the President and the Chief Financial Officer), agents and
employees. The Chief Operating Officer shall see to it that all orders and
resolutions of the Board of Directors (or any duly authorized committee
thereof), the Chairman of the Board of Directors and the Chief Executive Officer
are carried into effect. The Chief Operating Officer shall have such other
powers and perform such other duties as may from time to time be assigned to
such officer by the Board of Directors, the Chairman of the Board of Directors
or the Chief Executive Officer.
Section 6.9 Executive Vice Presidents. The Board of Directors may designate
one or more Vice President(s) as Executive Vice President(s), who shall, in the
absence, disability, or inability to act of the President, perform all the
duties, exercise the powers and assume all responsibilities of the President.
They shall also generally assist the President and exercise any other powers and
perform such other duties as are delegated to them by the Chief Executive
Officer, President or such other officer to whom they report and as the Board of
Directors shall prescribe.
Section 6.10 Vice Presidents. In the absence or disability of the
President, and Executive Vice Presidents, the Vice President (or in the event
there is more than one Vice President, the Vice Presidents in the order
designated by the Board, or in the absence of any designation, then in the order
of their election or appointment) shall perform the duties of the President, and
when so acting shall have all the powers of and be subject to all of the
restrictions upon the President. Each Vice President shall have only such powers
and perform only such duties as the Board of Directors may from time to time
prescribe or as the Chief Executive Officer, the President or such other officer
to whom they report may from time to time delegate.
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Section 6.11 Secretary. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for any committee when required. Except as otherwise
provided herein, 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 the Secretary shall be. The Secretary
shall keep in safe custody the seal of the Corporation and, when authorized by
the Board of Directors, affix the same to any instrument requiring it, and, when
so affixed, it shall be attested by the signature of the Secretary or by the
signature of the Treasurer or an Assistant Secretary.
Section 6.12 Assistant Secretaries. Each Assistant Secretary shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe or as the Chief Executive Officer or the President may
from time to time delegate.
Section 6.13 Treasurer. The Treasurer shall perform such duties and have
such powers as from time to time may be assigned to him by the Board of
Directors (or any duly authorized committee thereof), the Chairman of the Board
of Directors, the Chief Executive Officer or the Chief Financial Officer and if
there be no Chief Financial Officer or in the absence of the Chief Financial
Officer or in the event of the Chief Financial Officer's disability or refusal
to act, shall perform the duties of the Chief Financial Officer, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Chief Financial Officer.
Section 6.14 Assistant Treasurers. Each Assistant Treasurer shall have only
such powers and perform only such duties as the Board of Directors may from time
to time prescribe or as the Chief Executive Officer or the President may from
time to time delegate.
Section 6.15 Other Officers. Other officers of the Corporation shall have
such powers and perform such duties as may be prescribed from time to time by
the Board of Directors, or the Chief Executive Officer, or any officer of the
Corporation to whom such other officer shall report, may from time to time
delegate.
ARTICLE 7
CERTIFICATES REPRESENTING SHARES
Section 7.1 Certificated and Uncertificated Shares. The shares of stock of
the Corporation shall be represented by certificates of stock; provided,
however, that the Board of Directors may provide by resolution or resolutions
that some or all of any or all classes or series of the Corporation's stock
shall be uncertificated shares; provided, further, that any such resolution
shall not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request, every holder of uncertificated shares shall be
entitled to have a certificate signed by the Chairman or Vice Chairman of the
Board of Directors or the President, a Vice President or other officer
designated by the Board of Directors, countersigned by the Treasurer or the
Secretary or an Assistant Treasurer or an Assistant Secretary. Such signature of
the Chairman or Vice Chairman of the Board, President, Vice President, or other
officer, such countersignature of the Treasurer or Secretary or Assistant
Treasurer or Assistant Secretary, and such seal, or any of them, may be executed
in facsimile, engraved or printed. In case any officer who has signed or whose
facsimile signature has been placed upon any share certificate shall have ceased
to be such officer because of death, resignation or otherwise before the
certificate is issued, it may be issued by the Corporation with the same effect
as if the officer had not ceased to be such at the date of its issue. Said
certificates of stock shall be in such form as the Board of Directors may from
time to time prescribe.
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Section 7.2 Legends. The Board of Directors shall have the power and
authority to provide that certificates representing shares of stock shall bear
such legends, and stop transfer instructions and the equivalent of legends with
respect to any uncertificated shares, as the Board of Directors shall authorize,
including, without limitation, such legends as the Board of Directors deems
appropriate to assure that the Corporation does not become liable for violations
of federal or state securities laws or other applicable law, including, but not
limited to, the requirements imposed pursuant to Section 151(f) of the Delaware
General Corporation Law.
Section 7.3 Lost Certificates. The Corporation may issue a new certificate
representing shares 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 to be lost,
stolen or destroyed. The Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may require the owner of such lost,
stolen or destroyed certificate, or such owner's legal representative, to
advertise the same in such manner as it shall specify and/or to give the
Corporation a bond in such form, in such sum, and with such surety or sureties
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 7.4 Transfers. Certificated shares of the Corporation will only be
transferred on its books upon the surrender to the Corporation of the share
certificates duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer. The surrendered certificates shall be
canceled, new certificates issued to the person entitled to them and the
transaction recorded on the books of the Corporation. Uncertificated shares will
only be transferred on the books of the Corporation upon the written instruction
from the registered owner of such uncertificated shares, or from a duly
authorized attorney, or from an individual presenting proper evidence of
succession, assignment or authority to transfer the stock.
Section 7.5 Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof for any and all purposes, and, accordingly, shall not be bound to
recognize any equitable or other claim 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 8
INDEMNIFICATION
Section 8.1 Actions, Suits or Proceedings Other Than by or in the Right of
the Corporation. 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 such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner such person 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
such person's 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 meet the standards of conduct set forth in this Section 8.1.
Section 8.2 Actions or Suits by or in the Right of the Corporation. 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 such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit, if such person acted in good faith and in
a manner such person 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 Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
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 8.3 Indemnification for Costs, Charges and Expenses of Successful
Party. Notwithstanding the other provisions of this Article 8, to the extent
that a present or former director or officer of the Corporation has been
successful on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Section 8.1 and Section 8.2 of this Section 8.8, or in
the defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
Section 8.4 Determination of Right to Indemnification. Any indemnification
under Section 8.1 and Section 8.2 of this Article 8 (unless ordered by a court)
shall be paid by the Corporation only as authorized in the specific case upon a
determination that indemnification of the present or former director, officer,
employee or agent is proper in the circumstances because the person has met the
applicable standard of conduct set forth in Section 8.1 and Section 8.2 of this
Article 8. Such determination shall be made, with respect to a person who is a
director or officer at the time of such determination, (a) by a majority vote of
the Board of Directors who were not parties to such action, suit or proceeding,
even though less than a quorum, or (b) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum,
(c) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (d) by the stockholders.
Section 8.5 Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys, fees) incurred by a person referred to in Section
8.1 and Section 8.2 of this Article 8 in defending a civil or criminal action,
suit or proceeding (including investigations by any government agency and all
costs, charges and expenses incurred in preparing for any threatened action,
suit or proceeding) shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a director or officer in
such person's capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such person while a director or officer)
in advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article 8. No security shall be required
for such undertaking and such undertaking shall be accepted without reference to
the recipient's financial ability to make repayment. The repayment of such
charges and expenses incurred by other employees and agents of the Corporation
which are paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as permitted by this Section 8.5 may be required upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
The Board of Directors may, in the manner set forth above, and subject to the
approval of such director, officer, employee or agent of the Corporation,
authorize the Corporation's counsel to represent such person, in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
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Section 8.6 Procedure for Indemnification. Any indemnification under
Section 8.1 and Section 8.2 or Section 8.3 or advance of costs, charges and
expenses under Section 8.5 of this Article 8 shall be made promptly, and in any
event within 30 days, upon the written request of the director, officer,
employee or agent directed to the Secretary of the Corporation. The right to
indemnification or advances as granted by this Article 8 shall be enforceable by
the director, officer, employee or agent in any court of competent jurisdiction
if the Corporation denies such request, in whole or in part, or if no
disposition thereof is made within 30 days. Such person's costs and expenses
incurred in connection with successfully establishing such person's right to
indemnification or advances, in whole or in part, in any such action shall also
be indemnified by the Corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for the advance of costs,
charges and expenses under Section 8.5 of this Article 8 where the required
undertaking, if any, has been received by the Corporation) that the claimant has
not met the standard of conduct set forth in Section 8.1 and Section 8.2 of this
Article 8, but the burden of proving that such standard of conduct has not been
met shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 8.1 and Section 8.2 or Section 8.3 of this Article 8, nor the fact that
there has been an actual determination by the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 8.7 Other Rights; Continuation of Right to Indemnification. The
indemnification provided by this Article 8 shall not be deemed exclusive of any
other rights to which a person seeking indemnification may be entitled under any
law (common or statutory), agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding office or while employed by or
acting as agent for the Corporation, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the estate, heirs, executors and administrators of such person. All
rights to indemnification under this Article 8 shall be deemed to be a contract
between the Corporation and each director, officer, employee or agent of the
Corporation who serves or served in such capacity at any time while this Article
8 is in effect. No amendment or repeal of this Article 8 or of any relevant
provisions of the Delaware General Corporation Law or any other applicable laws
shall adversely affect or deny to any director, officer, employee or agent any
rights to indemnification which such person may have, or change or release any
obligations of the Corporation, under this Article 8 with respect to any costs,
charges, expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement which arise out of an action, suit or proceeding based in
whole or substantial part on any act or failure to act, actual or alleged, which
takes place before or while this Article 8 is in effect. The provisions of this
Section 8.7 shall apply to any such action, suit or proceeding whenever
commenced, including any such action, suit or proceeding commenced after any
amendment or repeal of this Article 8.
Section 8.8 Construction. For purpose of this Article 8:
(i) "the Corporation" shall include any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
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merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request
of such constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article 8 with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued;
(ii) "other enterprises" shall include employee benefit plans,
including, but not limited to, any employee benefit plan of the
Corporation;
(iii) "serving at the request of the Corporation" shall include any
service which imposes duties on, or involves services by, a director,
officer, employee, or agent of the Corporation with respect to an employee
benefit plan, its participants, or beneficiaries, including acting as a
fiduciary thereof;
(iv) "fines" shall include any penalties and any excise or similar
taxes assessed on a person with respect to an employee benefit plan;
(v) a person who acted in good faith and in a manner such person
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 Section 8.1 and Section 8.2 of this Article 8; and
(vi) service as a partner, trustee or member of management or similar
committee of a partnership or joint venture, or as a director, officer,
employee or agent of a corporation which is a partner, trustee or joint
venturer, shall be considered service as a director, officer, employee or
agent of the partnership, joint venture, trust or other enterprise.
Section 8.9 Savings Clause. If this Article 8 or any portion hereof shall
be invalidated on any ground by a court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee and
agent of the Corporation as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of the Corporation, to the full extent permitted by
any applicable portion of this Article 8 that shall not have been invalidated
and to the full extent permitted by applicable law.
Section 8.10 Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
or on such person's behalf in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of this Article 8,
provided that such insurance is available on acceptable terms as determined by a
vote of a majority of the entire Board of Directors.
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ARTICLE 9
GENERAL PROVISIONS
Section 9.1 Dividends. The Board of Directors, subject to any restrictions
contained in the Corporation's Certificate of Incorporation, may declare
dividends upon the shares of the Corporation's capital stock. Dividends may be
paid in cash, in property, or in shares of the Corporation, subject to the
provisions of the Delaware General Corporation Law and the Corporation's
Certificate of Incorporation.
Section 9.2 Reserves. By resolution of the Board of Directors, the
directors may set apart out of any of the funds of the Corporation such reserve
or reserves as the directors from time to time, in their discretion, think
proper to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purposes as the
directors shall think beneficial to the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 9.3 Authority to Sign Instruments. Any checks, drafts, bills of
exchange, acceptances, bonds, notes or other obligations or evidences of
indebtedness of the Corporation, and all deeds, mortgages, indentures, bills of
sale, conveyances, endorsements, assignments, transfers, stock powers, or other
instruments of transfer, contracts, agreements, dividend and other orders,
powers of attorney, proxies, waivers, consents, returns, reports, certificates,
demands, notices, or documents and other instruments or writings of any nature
whatsoever may be signed, executed, verified, acknowledged, and delivered, for
and in the name and on behalf of the Corporation, by such officers, agents, or
employees of the Corporation, or any of them, and in such manner, as from time
to time may be authorized by the Board of Directors, and such authority may be
general or confined to specific instances.
Section 9.4 Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 9.5 Seal. The corporate seal shall have inscribed thereon the name
of the Corporation. Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise.
Section 9.6 Transactions with Directors and Officers. No contract or other
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 voidable 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
which authorizes the contract or transaction, or solely because any such
director's or officer's votes are counted for such purpose, if: (a) the material
facts as to the director's or officer's relationship or interest and 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 vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum, or (b) the material facts as to the director's or officer's relationship
or interest 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 (c) 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 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.
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Section 9.7 Amendments. These Bylaws may be altered, amended, or repealed
or new bylaws may be adopted by the Board of Directors or by written consent of
the Board of Directors. In addition to any requirements of law and any other
provision of these Bylaws, the affirmative vote of the holders of at least 75
percent of the of the combined voting power of the then outstanding shares of
all classes and series of capital stock entitled generally to vote in the
election of directors of the Corporation, voting together as a single class,
shall be required for stockholders to adopt, amend, alter, or repeal Section
2.3, Section 2.12, Section 2.14, Section 3.2, Section 3.3, and Section 3.4 of
these Bylaws or to amend this Section 9.7 as it relates to the vote required to
adopt, amend, alter or repeal the aforementioned sections of these Bylaws.
Section 9.8 Table of Contents; Headings. The table of contents and headings
used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.
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EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
(CHIEF EXECUTIVE OFFICER)
I, Thomas J. Frank, Sr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Thomas J. Frank, Sr.
----------------------------
Thomas J. Frank, Sr.
Chairman of the Board
and Chief Executive Officer
Date: June 4, 2008
36
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
(CHIEF FINANCIAL OFFICER)
I, Michael J. Poppe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Michael J. Poppe
---------------------------
Michael J. Poppe
Chief Financial Officer
Date: June 4, 2008
37
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Conn's, Inc. (the "Company") on
Form 10-Q for the period ended April 30, 2008 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), we, Thomas J. Frank, Sr.,
Chairman of the Board and Chief Executive Officer of the Company and Michael J.
Poppe, Chief Financial Officer of the Company, hereby certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Thomas J. Frank, Sr.
----------------------------
Thomas J. Frank, Sr.
Chairman of the Board and
Chief Executive Officer
/s/ Michael J. Poppe
----------------------------
Michael J. Poppe
Chief Financial Officer
Dated: June 4, 2008
A signed original of this written statement required by Section 906 has been
provided to Conn's, Inc. and will be retained by Conn's, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request. The foregoing
certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and
is not being filed as part of the Report or as a separate disclosure document.
38
EXHIBIT 99.1
SUBCERTIFICATION OF EXECUTIVE VICE-CHAIRMAN OF THE BOARD IN SUPPORT OF
RULE 13a-14(a)/15d-14(a) CERTIFICATION (CHIEF EXECUTIVE OFFICER)
I, William C. Nylin Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ William C. Nylin, Jr.
-------------------------------------
William C. Nylin, Jr.
Executive Vice-Chairman of the Board
Date: June 4, 2008
39
EXHIBIT 99.2
SUBCERTIFICATION OF CHIEF OPERATING OFFICER IN SUPPORT OF
RULE 13a-14(a)/15d-14(a) CERTIFICATION (CHIEF EXECUTIVE OFFICER)
I, Timothy L. Frank, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Timothy L. Frank
--------------------------------------
Timothy L. Frank
Chief Executive Officer Designate,
President and Chief Operating Officer
Date: June 4, 2008
40
EXHIBIT 99.3
SUBCERTIFICATION OF TREASURER IN SUPPORT OF RULE 13a-14(a)/15d-14(a)
CERTIFICATION (CHIEF FINANCIAL OFFICER)
I, David R. Atnip, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ David R. Atnip
------------------------------------
David R. Atnip
Senior Vice President and Treasurer
Date: June 4, 2008
41
EXHIBIT 99.4
SUBCERTIFICATION OF SECRETARY IN SUPPORT OF RULE 13a-14(a)/15d-14(a)
CERTIFICATION (CHIEF EXECUTIVE OFFICER)
I, Sydney K. Boone, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Sydney K. Boone, Jr.
----------------------------------------
Sydney K. Boone, Jr.
Corporate General Counsel and Secretary
Date: June 4, 2008
42
EXHIBIT 99.5
SUBCERTIFICATION OF EXECUTIVE VICE CHAIRMAN OF THE BOARD,
CHIEF OPERATING OFFICER, TREASURER AND SECRETARY IN SUPPORT OF
18 U.S.C. SECTION 1350 CERTIFICATION,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Conn's, Inc. (the "Company") on
Form 10-Q for the period ended April 30, 2008 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), we, William C. Nylin,
Jr., Executive Vice-Chairman of the Board, Timothy L. Frank, President and Chief
Operating Officer of the Company, David R. Atnip, Senior Vice President and
Treasurer of the Company, and Sydney K. Boone, Jr., Corporate General Counsel
and Secretary of the Company, hereby certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ William C. Nylin, Jr.
----------------------------------------
William C. Nylin, Jr.
Executive Vice-Chairman of the Board
/s/ Timothy L. Frank
----------------------------------------
Timothy L. Frank
Chief Executive Officer Designate,
President and Chief Operating Officer
/s/ David R. Atnip
----------------------------------------
David R. Atnip
Senior Vice President and Treasurer
/s/ Sydney K. Boone, Jr.
----------------------------------------
Sydney K. Boone, Jr.
Corporate General Counsel and Secretary
Dated: June 4, 2008
A signed original of this written statement has been provided to Conn's, Inc.
and will be retained by Conn's, Inc. The foregoing certification is being
furnished solely to support certifications pursuant to 18 U.S.C. Section 1350
and is not being filed as part of the Report or as a separate disclosure
document.
43