<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File No. 0-209
BASSETT FURNITURE INDUSTRIES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Virginia 54-0135270
- ----------------------------------------- ---------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Bassett, Virginia 24055
-------------------------
(Address of principal executive offices)
(Zip Code)
(540) 629-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
At March 20, 1998, 13,054,279 shares of common stock of the Registrant were
outstanding.
Page 1 of 12
<PAGE> 2
PART I - FINANCIAL INFORMATION
BASSETT FURNITURE INDUSTRIES, INCORPORATED
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS
OF INCOME AND RETAINED EARNINGS - UNAUDITED
FOR THE 13 WEEKS ENDED FEBRUARY 28, 1998 AND THE 3 MONTHS
ENDED FEBRUARY 28, 1997 (NOTE A)
(In thousands except per share data)
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Net sales $98,333 $109,806
------- ---------
Costs and expenses
Cost of sales 80,751 91,573
Selling, general and administrative 15,779 15,848
------ ---------
96,530 107,421
-------- --------
Income from operations 1,803 2,385
Other income, net 2,747 2,078
----------- ----------
Income before income taxes 4,550 4,463
Income taxes 1,115 1,030
----------- --------
NET INCOME 3,435 3,433
Retained earnings - beginning of period 188,761 222,417
Cash dividends (2,610) (5,230)
------ -------
Retained earnings - end of period $189,586 $220,620
======== ========
BASIC EARNINGS PER SHARE $.26 $.26
==== ====
DILUTED EARNINGS PER SHARE $.26 $.26
==== ====
DIVIDENDS PER SHARE $.20 $.40
==== ====
</TABLE>
- -------------------------------
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
Page 2 of 12
<PAGE> 3
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
February 28, 1998 and November 30, 1997
(in thousands except per share data)
<TABLE>
<CAPTION>
Assets 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash & cash equivalents $31,864 $29,552
Marketable securities 49,115 49,985
Trade accounts receivable, net 53,418 57,327
Inventories 41,137 41,714
Prepaid expenses 1,324 1,405
Refundable income taxes 4,904 5,025
Deferred income taxes 13,971 15,476
------ ------
Total current assets 195,733 200,484
------- -------
Property & equipment:
Cost 169,539 168,026
Allowances for depreciation (126,308) (124,547)
---------- ---------
Net property & equipment 43,231 43,479
------ ------
Other long-term assets:
Investment securities 30,308 29,922
Investment in affiliated companies 31,667 30,502
Deferred income taxes 1,946 1,866
Assets held for sale 3,623 3,506
Other 10,679 10,566
------ ------
Total other long-term assets 78,223 76,362
------ ------
Total assets $317,187 $320,325
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $17,091 $21,694
Accrued compensation 1,616 4,910
Other accrued liabilities 24,255 21,303
------ ------
Total current liabilities 42,962 47,907
------ ------
Long-term liabilities:
Employee benefits 11,426 11,248
------ ------
Total long-term liabilities 11,426 11,248
------ ------
Stockholders' equity:
Common stock 65,276 65,256
Additional paid in capital 2,508 2,438
Retained earnings 189,586 188,761
Unrealized holding gains, net of income tax effect 6,245 5,575
Unamortized stock compensation (816) (860)
----- -----
Total stockholders' equity 262,799 261,170
------- -------
Total liabilities and stockholders' equity $317,187 $320,325
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
Page 3 of 12
<PAGE> 4
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE 13 WEEKS ENDED FEBRUARY 28, 1998 AND THE THREE MONTHS
ENDED FEBRUARY 28, 1997 (NOTE A)
(in thousands except per share data)
<TABLE>
<CAPTION>
1998 1997
--------- ----------
- ----
<S> <C> <C>
Net Income $ 3,435 $ 3,433
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,611 1,759
Amortization of stock compensation expense 44 -
Equity in undistributed income of affiliated companies (1,165) (1,136)
Provision for losses on trade accounts receivable 61 14
Net gain from sales of investment securities (35) -
Net gain from sales of property & equipment (178) (216)
Deferred income taxes 1,425 21
Refundable income taxes 121 1,011
Changes in deferred liabilities 178 (67)
Changes in operating assets & liabilities:
Trade accounts receivable 3,848 (281)
Other receivables (113) (1,101)
Inventory 577 (822)
Prepaid expenses 81 115
Accounts payable and accured liabilities (7,555) (845)
------- -------
Net cash provided by operating activities 2,335 1,885
Investing activities:
Purchases of property and equipment (2,416) (4,314)
Proceeds from sales of property & equipment 1,114 333
Purchases of investment securities (414) (21)
Dividend from affiliated company - 272
Proceeds from sales of investment securities 733 -
Proceeds from sales of marketable securities, net 870 -
Other - 12
------- --
Net cash used in investing activities (113) (3,718)
Financing activities:
Issuance of common stock under stock option plan 90 -
------- -------
Net cash provided by financing activities 90 -
------- -------
Net change in cash and cash equivalents 2,312 (1,833)
Cash and cash equivalents, beginning of period 29,552 57,285
------- -------
Cash and cash equivalents, end of period $31,864 $55,452
======= =======
</TABLE>
- ---------------------------------
The accompanying notes to condensed consolidated financial statements are an
integral part of the condensed consolidated financial statements.
Page 4 of 12
<PAGE> 5
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
February 28, 1998 (in thousands except per share data)
Note A. Change in Accounting Period:
Effective December 1, 1997, the Company changed to a fiscal year end on the
fifty-second Saturday after December 1. For previous years reported, the
Company utilized a fiscal year ending on November 30.
Note B. Inventories:
Inventories are carried at last-in, first-out (LIFO) cost which is not in
excess of market. Inventories at February 28, 1998 and November 30, 1997
consisted of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
---- ----
<S> <C> <C>
Finished goods $29,337 $29,485
Work in process 9,193 9,025
Raw materials and supplies 28,011 28,420
------ ------
Total inventories valued at first-in,
first-out (FIFO) cost 66,541 66,930
LIFO adjustment 25,404 25,216
------ ------
Total inventories $41,137 $41,714
======= =======
</TABLE>
Note C. Investment in affiliated companies:
Summarized combined income statement information for the Company's equity
method investments for the thirteen week period ended February 28, 1998 and the
three month period ended February 28, 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $7,841 $7,613
Income from operations 4,660 4,639
Net income 2,870 3,119
</TABLE>
Information for each investee is summarized from the available financial
information for each entity.
Note D. Restructuring, Impaired Assets and Nonrecurring Charges:
During 1997, the Company commenced the restructuring of certain of its
operations and recorded restructuring and impaired asset charges of $20,646.
Of these charges, $14,397 was utilized during 1997, leaving $6,249 in reserves
to be utilized in future periods as the remaining activities related to the
restructuring charges are completed. The restructuring plans included the
closure of 14 manufacturing facilities and the severance of approximately 1,000
employees. As of November 30, 1997, five of the 14 facilities were closed and
approximately 600 employees had been severed. During the first quarter of
fiscal 1998, the remaining nine facilities were closed and approximately 400
employees were severed.
Activity within the restructuring reserves was as follows:
<TABLE>
<CAPTION>
November 30, Reserves February 28,
1997 reserve utilized in 1st 1998 reserve
balance Qtr 1998 balance
--------------------------------------------------
<S> <C> <C> <C>
Severance & related employee $4,910 $1,620 $3,290
benefit costs
Lease exit costs 614 32 582
Other 725 0 725
--------------------------------------------------
Total $6,249 $1,652 $4,597
--------------------------------------------------
</TABLE>
The Company projected at November 30, 1997, that it would incur an additional
$10,540 of charges during 1998 as a result of (1) operating inefficiencies at
plants involved in consolidations and (2) costs incurred at idle facilities.
The total of these expenses incurred during the 13 week period ended February
28, 1998, was $1,469.
Page 5 of 12
<PAGE> 6
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
February 28, 1998 (in thousands of dollars)
Note E. Contingencies:
A suit was filed last June in the Superior Court of the State of California for
the County of Los Angeles (the "Superior Court") against the Company, two major
retailers and certain current and former employees of the Company. The suit
sought certification of a class consisting of all consumers who purchased from
the major retailers certain mattresses and box springs which were manufactured
by a subsidiary of the Company, E. B. Malone Corporation, with different
specifications than those originally manufactured for sale by these retailers.
The suit alleged various causes of action, including negligent
misrepresentation, breach of warranty, violations of deceptive practices laws
and fraud, and sought compensatory damages of $100 million and punitive
damages. In September, 1997, the Superior Court sustained the Company's
demurrer seeking to dismiss several of plaintiffs' causes of action, but gave
plaintiffs leave to amend. Plaintiffs' Second Amended Complaint added certain
independent retailers as additional plaintiffs. In December, 1997, the
Superior Court sustained the Company's second demurrer as to several causes of
action, but again gave plaintiffs leave to amend. The plaintiffs filed a Third
Amended Complaint, and in February, 1998, the Superior Court sustained the
Company's third demurrer as to the class allegations and to many of the
individual claims, this time without giving the plaintiffs leave to amend.
Plaintiffs have filed a notice of appeal from the most recent demurrer rulings.
The suit has been transferred out of the Superior Court's class action
department, and recently was transferred out of the Superior Court for the
County of Los Angeles to the Superior Court for Orange County. Although it is
impossible to predict the ultimate outcome of this litigation, the Company
intends to vigorously defend this suit because it believes that the damages
sought are unjustified and because class certification is unnecessary and
inappropriate in this case. Because the Company believes that the two major
retailers were unaware of the changes in product specifications, the Company
has agreed to indemnify the two major retailers with respect to the above.
The Company is also involved in various other claims and actions, including
environmental matters at certain of its plant facilities, which arise in the
normal course of business. Although the final outcome of these legal and
environmental matters cannot be determined, based on the facts presently known,
it it management's opinion that the final resolution of these matters will not
have a material adverse effect on the Company's financial position or future
results of operations.
Note F. Earnings per share:
The Company adopted SFAS No. 128, "Earnings per Share," effective December 1,
1997. As a result, the Company's reported earnings per share for 1997 have
been restated. The effect of this accounting change on previously reported
earnings per share (EPS) data was not material.
<TABLE>
<CAPTION>
For the thirteen weeks ended February 28, 1998
----------------------------------------------
Income Shares Per share amount
------ ------ ----------------
<S> <C> <C> <C>
Basic earnings per share $3,435 13,022,883 $.26
Effect of dilutive securities:
Options issued to directors and employees 0 88,988 0
Restricted stock issued to employees 0 1,661 0
- ----- -
Diluted earnings per share $3,435 13,113,532 $.26
====== ========== ====
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended February 28, 1997
---------------------------------------
Income Shares Per share amount
------ ------ ----------------
<S> <C> <C> <C>
Basic earnings per share $3,433 13,075,595 $.26
Effect of dilutive securities:
Options issued to directors and employees 0 0 0
Restricted stock issued to employees 0 0 0
- - -
Diluted earnings per share $3,433 13,075,595 $.26
====== ========== ====
</TABLE>
Options to purchase 149,067 shares of common stock at $37.40 per share were
outstanding during the first quarter of 1998 but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares.
Page 6 of 12
<PAGE> 7
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
February 28, 1998 (in thousands of dollars)
Note F. Earnings per share: (continued)
Basic earnings per common share was computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock.
Basis of presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The major components of net income expressed as a percentage of net sales were
as follows. The proforma data excludes the effect of sales from closed
operations and the effect of nonrecurring charges.
<TABLE>
<CAPTION>
First Quarter Ended February 28,
--------------------------------
1998 Actual 1998 Proforma 1997 1996
----------- ------------- ---- ----
<S> <C> <C> <C> <C>
Cost of sales 82.1 % 80.7 % 83.4 % 84.1 %
Gross profit 17.9 19.3 16.6 15.9
SG&A expenses 16.0 16.0 14.4 13.8
Income from operations 1.8 3.4 2.2 2.0
Other income, net 2.8 2.8 1.9 3.6
Income before income taxes 4.6 6.2 4.1 5.7
Income taxes 1.1 1.7 .9 1.4
Net income 3.5 4.4 3.1 4.2
</TABLE>
Net Sales
Net sales for the first quarter compared with prior years was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $98,333 $109,806 $111,951
% change from prior year (10.4)% (1.92)% (9.4)%
</TABLE>
Wood Division sales were very strong throughout the quarter, increasing 12%
over prior year levels. However, Upholstery Division and Mattress Division
sales decreased significantly below the 1997 first quarter volume. Certain
recently introduced suites produced by the Wood Division, combined with
improvements in overall quality, account for the significant sales increase.
The sales decline in the Upholstery Division is generally attributable to the
consolidation of motion furniture manufacturing into the Dumas, Arkansas plant.
The consolidation resulted in the elimination of numerous SKU's and related
sales. Mattress Division sales are down due to the loss of Levitz Furniture as
a customer in late 1997. Overall, the net decrease in sales resulted primarily
from the discontinuance of the National/Mt. Airy and Impact product lines,
which accounted for $11,197 of sales in the first quarter of 1997 compared to
$846 in 1998.
Costs and expenses
The Company showed marked improvement in operating efficiencies in the first
quarter as gross profit margin increased to 17.9% of net sales from 16.6% in
1997. However, the 1998 percentage includes $1,270 in operating expenses
related to continuing costs of closed facilities. Excluding these continuing
costs, the gross profit margin was 19.3%. This improvement is a direct result
of the efficiencies gained through the Company's restructuring activities of
1997 and early 1998. Gross profit margins have improved in virtually every
facility compared to a year ago. In addition, production volumes and operating
margins have also improved in virtually every facility, except those involved
in consolidations from closed facilities.
The 1997 cost of sales percentages were down from 1996 as the Company made
improvements in its material cost component, which was more than offset by
increases in the labor component due to an initiative to increase
competitiveness of production employees' compensation rates.
Page 7 of 12
<PAGE> 8
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
February 28, 1998 (In thousands of dollars)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
SG&A expenses increased in 1998 compared to 1997 as the Company added key
senior management positions to grow the business, increased expenditures to
promote the Bassett brand name and continued expenditures to grow the Bassett
Furniture Direct ("BFD") stores and Gallery stores. Expenses related to BFD
stores and Gallery stores continues to escalate as the total number of these
stores grows. Although SG&A expenses as a percentage of sales in 1998 was
higher than in prior years, it is in line with the Company's expectations for
the quarter.
SG&A expenses as a percentage of sales for 1997 were up 60 basis points over
1996 due to costs associated with product promotion, BFD and Gallery store
programs and the Company's focus on customer service.
Other income, net
Other income increased 32% from $2,078 in 1997 to $2,747 in 1998. The increase
in cash, cash equivalents and marketable securities by $23,000 over the prior
year allowed the Company to increase its investment income. In addition, the
change in investment strategy announced in the fourth quarter of 1997 accounted
for increased income in the quarter.
In the first quarter of 1997, other income was down $1,964 from the first
quarter of 1996, when the Company generated $2,115 in income from gains on the
sale of investment securities.
Income taxes
The effective income tax rate for the first quarter of 1998 was 24.5 % compared
to 23.1 % in 1997. The rate increase occurred because many of the items in the
current investment portfolio, under the new investment strategy, have higher
tax rates than investments under the previous strategy. The new portfolio
strategy is, however, generating a higher net income.
Liquidity and Capital Resources
Cash provided by operating activities was $ 2,335 in 1998 compared to $ 1,885
in 1997. The current ratio as of February 28, 1998 and 1997, respectively, was
4.55 to 1 and 5.53 to 1. Working capital for 1998 was $ 152,771 compared to
$158,190 in 1997. There are no material commitments for capital expenditures at
February 28, 1998. Capital expenditures made in the future for normal
expansion are anticipated to be made from funds generated by operating
activities. The Company has not typically used the debt or equity markets as
sources of funds or capital.
The Company's consolidated financial statements are prepared on the basis of
historical dollars and are not intended to show the impact of inflation or
changing prices. Neither inflation nor changing prices has had a material
effect on the Company's consolidated financial position and results of
operations in prior years.
Contingencies
The Company is involved in various claims and litigation, including a lawsuit
concerning a subsidiary, E. B. Malone Corporation, as well as environmental
matters at certain plant facilities, which arise in the normal course of
business. The details of these matters are described in Note E in the Notes to
Condensed Consolidated Financial Statements. Although the final outcome of
these legal and environmental matters cannot be determined, based on the facts
presently known, it is management's opinion that the final resolution of these
matters will not have a material adverse effect on the Company's financial
position or future results of operations.
Page 8 of 12
<PAGE> 9
PART I - FINANCIAL INFORMATION - CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
February 28, 1998 (in thousands of dollars)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Year 2000
Over the past few years, the Company has been steadily reengineering its
business processes and information systems to prepare for the conversion to
year 2000. This effort has incorporated an analysis of Year 2000 issues, and
management believes that appropriate and timely action has been taken to
minimize the negative impact of this event. The Year 2000 issue results from
the inability of many computer systems and applications to recognize the year
2000 as the year following 1999. This could cause systems to process critical
information incorrectly. The Company plans to implement new systems and
technologies in 1998 and 1999 that will provide solutions to these issues. The
most significant step in accomplishing this goal was completed in the first
quarter of 1998 when a comprehensive enterprise system was purchased;
implementation began immediately and should be completed in the third quarter
of 1999. The system has been installed in over 4,400 companies and is Year
2000 compliant. The Company continues to work with its customers, suppliers
and third-party service providers to identify external weaknesses and provide
solutions which will prevent the disruption of business activities at that
time. The Company does not expect the cost of implementation to have a
material adverse effect on its future results of operations, liquidity or
capital resources.
Safe-harbor forward-looking statements
This discussion contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations and business of Bassett Furniture
Industries, Incorporated. These forward-looking statements involve certain
risks and uncertainties. No assurance can be given that any such matters will
be realized. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others,
the following possibilities: (I) competitive conditions in the industry in
which the Company operates; and (II) general economic conditions that are less
favorable than expected.
Page 9 of 12
<PAGE> 10
PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
February 28, 1998
Item 4. Submission of matters to a vote of security holders
The stockholders were asked to vote on four proposals for the Annual Meeting of
Stockholders: (1 ) nomination of thirteen directors, (2) approval of the
Company's 1997 Employee Stock Plan, (3) ratification of selection of Arthur
Andersen LLP as independent public accountants and (4) a stockholder proposal
regarding an independent chairperson.
The results of the votes by the stockholders was as follows:
(1) Election of directors:
<TABLE>
<CAPTION>
Voted for Withheld vote Abstained
--------- ------------- ---------
<S> <C> <C> <C>
Paul Fulton 12,728,034 185,557 137,688
Amy W. Brinkley 12,688,392 225,199 137,688
Peter W. Brown, M.D. 12,728,060 185,531 137,688
Thomas E. Capps 12,727,567 186,024 137,688
Willie D. Davis 12,682,074 231,517 137,688
Alan T. Dickson 12,726,567 187,024 137,688
William H. Goodwin, Jr. 12,729,434 184,157 137,688
Howard H. Haworth 12,691,396 222,195 137,688
James W. McGlothin 12,716,009 197,582 137,688
Thomas W. Moss, Jr. 12,700,905 212,686 137,688
Michael E. Murphy 12,729,633 183,958 137,688
Albert F. Sloan 12,726,467 187,124 137,688
Robert H. Spilman, Jr. 12,874,000 39,591 137,688
</TABLE>
(2) Approval of 1997 Employee Stock Plan:
voted for - 11,283,650; withheld vote - 1,146,765; abstained - 620,864
(3) Ratification of Arthur Andersen LLP as independent public accountants:
voted for - 13,027,418; withheld vote - 9,432; abstained - 14,429
(4) Stockholder proposal regarding an independent chairperson:
voted for - 3,282,446; withheld vote - 9,654,967; abstained - 113,866
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(10) 1997 Employee Stock Plan
(27) Financial Data Schedule
b. Reports on Form 8-K:
Reports on Form 8-K were filed on December 1, 1997, December 10, 1997 and
December 18, 1997 reporting the change in Registrant's public accountants.
Page 10 of 12
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BASSETT FURNITURE INDUSTRIES, INCORPORATED
- -------------------------------------------------------------
Douglas W. Miller, Vice President, Chief Financial Officer
DATE:
-------------------------
Page 11 of 12
<PAGE> 12
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
For the quarter ended Commission File Number
February 28, 1998 0-209
BASSETT FURNITURE INDUSTRIES, INCORPORATED
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
---------- ------------------- -------
27 Financial Data Schedule page 9
Page 12 of 12
<PAGE> 1
EXHIBIT 10
BASSETT FURNITURE INDUSTRIES, INCORPORATED
1997 EMPLOYEE STOCK PLAN
Effective Date: November 5, 1997
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article 1. Establishment, Purpose, and Duration 1
Article 2. Definitions 1
Article 3. Administration 5
Article 4. Shares Subject to the Plan 6
Article 5. Eligibility and Participation 7
Article 6. Stock Options 7
Article 7. Stock Appreciation Rights 10
Article 8. Payment Shares and Restricted Stock 12
Article 9. Performance Shares 13
Article 10. Performance Measures 14
Article 11. Beneficiary Designation 15
Article 12. Deferrals 15
Article 13. Rights of Key Employees 15
Article 14. Change in Control 16
Article 15. Amendment, Modification, and Termination 18
Article 16. Withholding 19
Article 17. Indemnification 19
Article 18. Successors 20
Article 19. Legal Construction 20
</TABLE>
<PAGE> 3
BASSETT FURNITURE INDUSTRIES, INCORPORATED
1997 EMPLOYEE STOCK PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Bassett Furniture Industries,
Incorporated, a Virginia corporation (hereinafter referred to as the
"Company"), hereby establishes an incentive compensation plan to be known as
the "Bassett Furniture Industries, Incorporated Employee Stock Plan"
(hereinafter referred to as the "Plan"), as set forth in this document. The
Plan permits the payment of compensation in shares of the Company's common
stock in lieu of cash and the grant of Nonqualified Stock Options, Incentive
Stock Options, Stock Appreciation Rights, Restricted Stock, and Performance
Shares.
Subject to approval by the Company's shareholders, the Plan shall
become effective as of November 5, 1997 (the "Effective Date") and shall remain
in effect as provided in Section 1.3 hereof. The Plan shall not become
effective unless shareholder approval is obtained.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to
promote the success and enhance the value of the Company by linking the
personal interests of Participants to those of the Company's shareholders, and
by providing Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants upon
whose judgment, interest and special effort the successful conduct of its
operation largely is dependent.
1.3 DURATION OF THE PLAN. The Plan shall commence on the
Effective Date, as described in Section 1.1 hereof, and shall remain in effect,
subject to the right of the Board of Directors to amend or terminate the Plan
at any time pursuant to Article 15 hereof, until all Shares subject to it shall
have been purchased or acquired according to the Plan's provisions. However, in
no event may an Award of an ISO be granted under the Plan after November 4,
2007.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized:
2.1 "AWARD" means, individually or collectively, a grant
under this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Payment Shares or Performance Shares.
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2.2 "AWARD AGREEMENT" means an agreement entered into by the
Company and each Participant setting forth the terms and provisions applicable
to Awards granted under this Plan.
2.3 "BOARD" or "BOARD OF DIRECTORS" means the Board of
Directors of the Company.
2.4 "CHANGE IN CONTROL" means and shall be deemed to have
occurred upon, any of the following events:
(i) The acquisition by any person, individual, entity or
"group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (collectively, "Persons") of beneficial ownership (the phrases "beneficial
ownership," "beneficial owners" and "beneficially owned" as used herein being
within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either (i) the then outstanding shares of Common Stock (the
"Outstanding Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (i)
any acquisition directly from the Company, (ii) any acquisition by the Company
or any of its subsidiaries, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any of its
subsidiaries, (iv) any acquisition by any corporation with respect to which,
following such acquisition, more than 75% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors are then beneficially owned by all
or substantially all of the Persons who were the beneficial owners,
respectively, of the Outstanding Common Stock and Outstanding Voting Securities
immediately prior to such acquisition in substantially the same proportions as
their beneficial ownership, immediately prior to such acquisition, of the
Outstanding Common Stock and Outstanding Voting Securities, as the case may be;
or
(ii) Individuals who, as of November 5, 1997, constitute
the Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors; provided,
however, that any individual who becomes a director subsequent to November 5,
1997 and whose election, or whose nomination for election by the Company's
shareholders, to the Board of Directors was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act), other actual or threatened solicitation of proxies or consents
or an actual or threatened tender offer; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to which
all or substantially all of the Persons who were the beneficial owners,
respectively, of the Outstanding Common Stock and
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Outstanding Voting Securities immediately prior to such reorganization, merger
or consolidation do not, following such reorganization, merger or
consolidation, beneficially own more than 75% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions
as their beneficial ownership, immediately prior to such reorganization, merger
or consolidation, of the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be; or
(iv) Approval by the shareholders of the Company of (i)
a complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, more than 75% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned by all or substantially
all of the Persons who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as their
beneficial ownership, immediately prior to such sale or other disposition, of
the Outstanding Common Stock and Outstanding Voting Securities, as the case may
be.
2.5 "CODE" means the Internal Revenue Code of 1986, as
amended from time to time. References to the Code shall include the valid and
binding governmental regulations, court decisions and other regulatory and
judicial authority issued or rendered thereunder.
2.6 "COMMITTEE" means the Organization, Compensation and
Nominating Committee of the Board, as specified in Article 3 herein, appointed
by the Board to administer the Plan with respect to grants of Awards.
2.7 "COMMON STOCK" means the common stock of the Company.
2.8 "COMPANY" means Bassett Furniture Industries,
Incorporated, a Virginia corporation, and any successor as provided in Article
18 herein.
2.9 "DIRECTOR" means any individual who is a member of the
Board of Directors of the Company.
2.10 "DISABILITY" with respect to a Participant, means
"disability" as defined from time to time under any long-term disability plan
of the Company or Subsidiary with which the Participant is employed.
2.11 "EARNINGS PER SHARE" means "earnings per common share" of
the Company determined in accordance with generally accepted accounting
principles that would be reported in the Company's Annual Report to
Shareholders.
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2.12 "EFFECTIVE DATE" shall have the meaning ascribed to such
term in Section 1.1 hereof.
2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
2.14 "FAIR MARKET VALUE" with respect to a share of the
Company's Common Stock at a particular time, shall be that value as determined
by the Committee which shall be (i) if such Common Stock is listed on a
national securities exchange, on any given date, (A) the average of the highest
and lowest market prices of shares of Common Stock, as reported on the
consolidated transaction reporting system for such exchange for that date, or
if shares of Common Stock were not traded on such date, on the next preceding
day on which shares of Common Stock were traded, or (B) if the Common Stock is
not reported on the consolidated transaction reporting system for such
exchange, the mean between the highest price and the lowest price at which the
Common Stock shall have been sold regular way on a national securities exchange
on said date, or, if no sales occur on said date, then on the next preceding
date on which there were such sales of Common Stock; or (ii) if the Common
Stock shall not be listed on a national securities exchange, the mean between
the average high bid and low asked prices last reported by the National
Association of Securities Dealers, Inc. for the over-the-counter market on said
date or, if no bid and asked prices are reported on said date, then on the next
preceding date on which there were such quotations; or (iii) if at any time
quotations for the Common Stock shall not be reported by the National
Association of Securities Dealers, Inc. for the over-the-counter market and the
Common Stock shall not be listed on any national securities exchange, the fair
market value determined by the Committee on the basis of available prices for
such Common Stock or in such other manner as the Committee may deem reasonable.
2.15 "FREESTANDING SAR" means an SAR that is granted
independently of any Options.
2.16 "INCENTIVE STOCK OPTION" or "ISO" means an option to
purchase Shares, granted under Article 6 herein, and which is designated as an
Incentive Stock Option which is intended to meet the requirements of Section
422 of the Code.
2.17 "INSIDER" shall mean an individual who is, on the
relevant date, an officer, director or ten percent (10%) beneficial owner of
any class of the Company's equity securities that is registered pursuant to
Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange
Act.
2.18 "KEY EMPLOYEE" means an employee of the Company,
including an officer of the Company, in a managerial or other important
position who can make important contributions to the Company, all as determined
by the Committee in its discretion.
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2.19 "NAMED EXECUTIVE OFFICER" means, for a calendar year, a
Participant who is one of the group of "covered employees" for such calendar
year within the meaning of Code Section 162(m) or any successor statute.
2.20 "NET INCOME" means "net income" of the Company determined
in accordance with generally accepted accounting principles that would be
reported in the Company's Annual Report to Shareholders.
2.21 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to
purchase Shares granted to Key Employees under Article 6 herein, and which is
not intended to meet the requirements of Code Section 422.
2.22 "OPERATING MARGIN" means the "operating margin" of the
Company determined in accordance with generally accepted accounting principles
as determined by the independent accountants regularly employed by the Company.
2.23 "OPTION" means an Incentive Stock Option or a
Nonqualified Stock Option.
2.24 "OPTION PRICE" means the price at which a Share may be
purchased by a Participant pursuant to an Option.
2.25 "OUTSIDE CONSULTANT" means any third party consultant
providing services to the Company to which the Committee determines to make an
Award (other than an ISO) under the Plan.
2.26 "PARTICIPANT" means a Key Employee, or to the extent
permitted by the Plan Outside Consultant, who has outstanding an Award granted
under the Plan.
2.27 "PAYMENT SHARES" means an Award granted to a Participant
pursuant to Article 8 herein (other than Restricted Stock) in lieu of cash
compensation otherwise payable to the Participant under the compensation plans
and arrangements of the Company.
2.28 "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception set forth in Code Section 162(m)(4)(C) from the deductibility
limitations of Code Section 162(m).
2.29 "PERFORMANCE SHARE" means an Award granted to a Key
Employee, as described in Article 9 herein.
2.30 "PERIOD OF RESTRICTION" means the period during which the
transfer of Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the occurrence
of other events as determined by the Committee, at its discretion), and the
Shares are subject to a substantial risk of forfeiture, as provided in Article
8 herein.
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2.31 "RESTRICTED STOCK" means an Award granted to a
Participant pursuant to Article 8 herein (other than Payment Shares).
2.32 "RETURN ON ASSETS" means "return on average assets" of
the Company determined in accordance with generally accepted accounting
principles that would be reported in the Company's Annual Report to
Shareholders.
2.33 "RETURN ON EQUITY" means "return on average common
shareholders' equity" of the Company determined in accordance with generally
accepted accounting principles that would be reported in the Company's Annual
Report to Shareholders.
2.31 "REVENUES" means the "revenues" of the Company determined
in accordance with generally accepted accounting principles that would be
reported in the Company's Annual Report to Shareholders.
2.32 "SHARES" means the shares of Common Stock of the Company.
2.33 "STOCK APPRECIATION RIGHT" or "SAR" means an Award,
granted alone or in connection with a related Option, designated as an SAR,
pursuant to the terms of Article 7 herein.
2.34 "SUBSIDIARY" means any corporation, partnership, joint
venture, affiliate, or other entity in which the Company has an ownership
interest, and which the Committee designates as a participating entity in the
Plan.
2.35 "TANDEM SAR" means an SAR that is granted in connection
with a related Option, the exercise of which shall require forfeiture of the
right to purchase a Share under the related Option (and when a Share is
purchased under the Option, the Tandem SAR shall similarly be canceled).
2.36 "TOTAL SHAREHOLDER RETURN" means the percentage change in
value of an initial investment in Shares over a specified period assuming
reinvestment of all dividends during the period.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the
Organization, Compensation and Nominating Committee of the Board or by any
other Committee appointed by the Board consisting of not less than two (2)
Directors. The members of the Committee shall be appointed from time to time
by, and shall serve at the discretion of, the Board of Directors. Each of the
members of the Committee shall be a "Non-Employee Director" within the meaning
of Rule 16b-3 under the Exchange Act. In addition, any action taken with
respect to Named Executive Officers for purposes of meeting the
Performance-Based Exception shall be taken by the Committee only if all of the
members of the Committee are "outside directors" within the meaning of Code
Section 162(m), subject to any applicable transition rules under Code Section
162(m).
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If all of the members of the Committee are not "outside directors", such action
shall be taken by a subcommittee of the Committee comprised of at least two (2)
members who are "outside directors."
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law, or
by the Articles of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Key Employees
who shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and provisions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 15 herein),
amend the terms and provisions of any outstanding Award to the extent such
terms and provisions are within the discretion of the Committee as provided in
the Plan. Further, the Committee shall make all other determinations which may
be necessary or advisable for the administration of the Plan. To the extent
permitted by law, the Committee may delegate its authority hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made
by the Committee pursuant to the provisions of the Plan and all related orders
and resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company, its shareholders, employees, Participants, and
their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to the
provisions of this Article IV, the maximum number of Shares that may be
delivered to Participants (or their beneficiaries) under the Plan shall equal
the sum of:
(i) Nine Hundred Fifty Thousand (950,000); plus
(ii) the number of Shares available for future awards under
the Company's 1993 Long-Term Incentive Plan as of the
Effective Date; plus
(iii) any Shares that are represented by awards granted under
any prior plan of the Company which are forfeited, expire
or are canceled without the delivery of Shares or which
result in the forfeiture of Shares back to the Company.
Any Shares covered by an Award (or portion of an Award) granted under
the Plan which is forfeited, is canceled, expires or is settled in cash shall
be deemed to not have been delivered for purposes of determining the maximum
number of Shares available for delivery under the Plan. In addition, if any
Stock Option is exercised by the Participant tendering previously-acquired
Shares owned by the Participant in payment of all or a portion of the Option
Price, then only the number of Shares issued net of the Shares so tendered
shall be deemed delivered for purposes of determining the maximum number of
Shares available for delivery under the Plan. Further, Shares issued under the
Plan through the settlement, assumption or substitution of outstanding
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awards or obligations to grant future awards as a condition to the Company
acquiring another entity shall not reduce the maximum number of Shares
available for delivery under the Plan.
Notwithstanding any provision of this Plan to the contrary, the
following additional limits shall apply:
(i) No more than Nine Hundred Fifty Thousand (950,000) Shares
may cover Incentive Stock Options granted under the Plan.
(ii) The maximum number of Shares that may be covered by
Awards to an individual Participant shall not exceed Two
Hundred Eighty-Five Thousand (285,000) during any three
(3) consecutive calendar years.
The number of Shares reserved for grants of Awards and the limits on
such Awards under this Section 4.1 shall be subject to adjustment as provided
in Section 4.2.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change
in corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares which may be
delivered under the Plan under Section 4.1, and in the number and class of
and/or price of Shares subject to outstanding Awards granted under the Plan, as
may be determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; provided, however,
that the number of Shares subject to any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan
are any Outside Consultants selected by the Committee and all Key Employees of
the Company, as determined by the Committee, including Key Employees who are
Directors, but excluding Directors who are not Key Employees.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the
Plan, the Committee may, from time to time, select from any Outside Consultants
and all eligible Key Employees those to whom Awards shall be granted and shall
determine the nature and amount of each Award.
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ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of
the Plan, Options may be granted to Key Employees in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee. In addition, subject to the terms and provisions of the Plan, NQSOs
(but not ISOs) may be granted to Outside Consultants in such number, and upon
such terms, and at any time and from time to time as shall be determined by the
Committee
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by
an Award Agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The Award Agreement also shall
specify whether the Option is intended to be an ISO within the meaning of
Section 422 of the Code, or an NQSO whose grant is intended not to fall under
Code Section 422.
6.3 OPTION PRICE. The Committee shall determine the Option
Price for each grant of an Option under this Plan, which such Option Price (i)
shall not be less than the Fair Market Value of a Share on the date of grant
and (ii) shall be set forth in the applicable Award Agreement.
6.4 DURATION OF OPTIONS. Each Option shall expire at such
time as the Committee shall determine at the time of grant; provided, however,
that no Option shall be exercisable later than the tenth (10th) anniversary
date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve and which shall be
set forth in the applicable Award Agreement, which need not be the same for
each grant or for each Participant.
6.6 PAYMENT. Options shall be exercised by the delivery of a
written notice of exercise to the Company, setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full
payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
(either actually or by attestation) previously acquired Shares having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to satisfy the
Option Price), or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation G or Regulation T, subject to applicable
securities law restrictions, or by any other means which the Committee
determines to be consistent with the Plan's purpose and applicable law.
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As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of an
Option granted under this Article 6 as it may deem advisable, including,
without limitation, restrictions under applicable Federal securities laws,
under the requirements of any stock exchange or market upon which such Shares
are then listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Each Participant's Option
Award Agreement shall set forth the extent to which the Participant shall have
the right to exercise the Option following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with Participants, need not be uniform among all
Options issued pursuant to this Article 6, may reflect distinctions based on
the reasons for termination of employment and may include provisions relating
to the Participant's competition with the Company after termination of
employment. In that regard, if an Award Agreement permits exercise of an Option
following the death of the Participant, the Award Agreement shall provide that
such Option shall be exercisable to the extent provided therein by any person
that may be empowered to do so under the Participant's will, or if the
Participant shall fail to make a testamentary disposition of the Option or
shall have died intestate, by the Participant's executor or other legal
representative.
6.9 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under this
Article 6 may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. Further, all
ISOs granted to a Participant under the Plan shall be
exercisable during his or her lifetime only by such
Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided
in a Participant's Award Agreement, no NQSO granted under
this Article 6 may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under
this Article 6 shall be exercisable during his or her
lifetime only by such Participant.
6.10 NO RIGHTS. A Participant granted an Option shall have no
rights as a shareholder of the Company with respect to the Shares covered by
such Option except
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to the extent that Shares are issued to the Participant upon the due exercise
of the Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and provisions of the
Plan, SARs may be granted to Key Employees at any time and from time to time as
shall be determined by the Committee. The Committee may grant Freestanding
SARs, Tandem SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the
number of Shares covered by SARs granted hereunder (subject to Article 4
herein) and, consistent with the provisions of the Plan, in determining the
terms and provisions pertaining to such SARs. The number of Shares covered by a
Freestanding SAR shall be counted against the number of Shares available for
grants of Awards under Section 4.1, but the number of Shares covered by a
Tandem SAR shall not be so counted.
The grant price of a Freestanding SAR shall equal the Fair Market
Value of a Share on the date of grant of the SAR. The grant price of Tandem
SARs shall equal the Option Price of the related Option.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for
all or part of the Shares subject to the related Option upon the surrender of
the right to exercise the equivalent portion of the related Option. A Tandem
SAR may be exercised only with respect to the Shares for which its related
Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary,
with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem
SAR will expire no later than the expiration of the underlying ISO; (ii) the
value of the payout with respect to the Tandem SAR may be for no more than one
hundred percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the
underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the Shares subject to
the ISO exceeds the Option Price of the ISO.
7.3 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be
exercised upon whatever terms and provisions the Committee, in its sole
discretion, imposes upon them.
7.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an
Award Agreement that shall specify the grant price, the term of the SAR, and
such other provisions as the Committee shall determine.
7.5 TERM OF SARS. The term of an SAR granted under the Plan
shall be determined by the Committee, in its sole discretion; provided,
however, that such term shall not exceed ten (10) years.
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7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a
Participant shall be entitled to receive payment from the Company in an amount
determined by multiplying:
(a) The difference between the Fair Market Value of a Share
on the date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR exercise may
be in cash, in Shares of equivalent value, or in some combination thereof;
provided, however, that from and after the date of a Change in Control, the
exercise of an SAR may be settled only in cash.
7.7 RULE 16b-3 REQUIREMENTS. Notwithstanding any other
provision of the Plan, the Committee may impose such conditions on exercise of
an SAR (including, without limitation, the right of the Committee to limit the
time of exercise to specified periods) as may be required to satisfy the
requirements of Section 16 (or any successor provision) of the Exchange Act.
7.8 TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall
set forth the extent to which the Participant shall have the right to exercise
the SAR following termination of the Participant's employment with the Company
and its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with Participants, need not be uniform among all SARs issued pursuant to
the Plan, and may reflect distinctions based on the reasons for termination of
employment. In that regard, if an Award Agreement permits exercise of an SAR
following the death of the Participant, the Award Agreement shall provide that
such SAR shall be exercisable to the extent provided therein by any person that
may be empowered to do so under the Participant's will, or if the Participant
shall fail to make a testamentary disposition of the SAR or shall have died
intestate, by the Participant's executor or other legal representative.
7.9 NONTRANSFERABILITY OF SARS. Except as otherwise provided
in a Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant.
7.10 NO RIGHTS. A Participant granted an SAR shall have no
rights as a shareholder of the Company with respect to the Shares covered by
such SAR except to the extent that Shares are issued to the Participant upon
the due exercise of the SAR.
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ARTICLE 8. PAYMENT SHARES AND RESTRICTED STOCK
8.1 PAYMENT SHARES. The Committee may, at any time and from
time to time in its sole an exclusive discretion, grant to a Participant
Payment Shares in lieu of cash compensation otherwise payable to the
Participant under any compensation plans or arrangements of the Company, which
such Payment Shares shall have an aggregate Fair Market Value on the date of
grant equal to the amount of the cash compensation otherwise payable to the
Participant.
8.2 GRANT OF RESTRICTED STOCK. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock to eligible Key Employees or Outside
Consultants in such amounts as the Committee shall determine.
8.3 RESTRICTED STOCK AWARD AGREEMENT. Each Restricted Stock
grant shall be evidenced by a Restricted Stock Award Agreement that shall
specify the Period of Restriction, or Periods, the number of Shares of
Restricted Stock granted, and such other provisions as the Committee shall
determine
8.4 TRANSFERABILITY. Except as provided in this Article 8,
the Shares of Restricted Stock granted herein may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified in
the Restricted Stock Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be available during his or
her lifetime only to such Participant.
8.5 OTHER RESTRICTIONS. The Committee may impose such other
conditions and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without limitation, a
requirement that Participants pay a stipulated purchase price for each Share of
Restricted Stock, restrictions based upon the achievement of specific
performance goals (Company-wide, divisional, and/or individual), time-based
restrictions on vesting following the attainment of the performance goals,
and/or restrictions under applicable Federal or state securities laws.
The Company shall retain the certificates representing Shares of
Restricted Stock in the Company's possession until such time as all conditions
and/or restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8 or in the applicable
Award Agreement, Shares of Restricted Stock covered by each Restricted Stock
grant made under the Plan shall become freely transferable by the Participant
after the last day of the Period of Restriction.
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<PAGE> 16
8.6 VOTING RIGHTS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares.
8.7 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted hereunder
may be credited with regular cash dividends paid with respect to the underlying
Shares while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate.
In the event that any dividend constitutes a "derivative security" or
an "equity security" pursuant to Rule 16(a) under the Exchange Act, such
dividend shall be subject to a vesting period equal to the remaining vesting
period of the Shares of Restricted Stock with respect to which the dividend is
paid.
8.8 TERMINATION OF EMPLOYMENT. Each Restricted Stock Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive unvested Restricted Shares following termination of the
Participant's employment with the Company and its Subsidiaries. Such provisions
shall be determined in the sole discretion of the Committee, shall be included
in the Award Agreement entered into with Participants, need not be uniform
among all Shares of Restricted Stock issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination of employment. In
amplification but not limitation of the foregoing, in the case of an award of
Restricted Stock to a Named Executive Officer which is intended to qualify for
the Performance-Based Exception, the Award Agreement may provide that such
Restricted Stock may become payable in the event of a termination of employment
by reason of death, Disability or Change in Control, such payment not to occur
before attainment of the related performance goal.
ARTICLE 9. PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE SHARES. Subject to the terms and
provisions of the Plan, Performance Shares may be granted to eligible Key
Employees or Outside Consultants in such amount and upon such terms, and at
such time(s), as shall be determined by the Committee. The number and/or
vesting of Performance Shares granted, in the Committee's discretion, shall be
contingent upon the degree of attainment of specified performance goals or
other conditions over a specified period (the "Performance Period"). The terms
and provisions of an Award of Performance Shares shall be evidenced by an
appropriate Award Agreement.
9.2 VALUE OF PERFORMANCE SHARES. The value of a Performance
Share at any time shall equal the Fair Market Value of a Share at such time.
14
<PAGE> 17
9.3 FORM AND TIMING OF PAYMENT OF PERFORMANCE SHARES. During
the course of a Performance Period, the Committee shall determine the number of
Performance Shares as to which the Participant has earned a right to be paid
pursuant to the terms of the applicable Award Agreement. The Committee shall
pay any earned Performance Shares as soon as practicable after they are earned
in the form of cash, Shares or a combination thereof (as determined by the
Committee) having an aggregate Fair Market Value equal to the value of the
earned Performance Shares as of the date they are earned. Any Shares used to
pay out earned Performance Shares may be granted subject to any restrictions
deemed appropriate by the Committee. In addition, the Committee, in its
discretion, may cancel any earned Performance Shares and grant Stock Options to
the Participant which the Committee determines to be of equivalent value based
on a conversion formula stated in the Performance Shares Award Agreement.
The Committee, in its discretion, may also grant dividend equivalents
rights with respect to earned but unpaid Performance Shares as evidenced by the
applicable Award Agreement. Performance Shares shall not have any voting
rights.
9.4 TERMINATION OF EMPLOYMENT. Each Performance Share Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive unearned Performance Shares following termination of the
Participant's employment with the Company and its Subsidiaries. Such provisions
shall be determined in the sole discretion of the Committee, shall be included
in the Award Agreements entered into with Participants, need not be uniform
among all Performance Shares awarded pursuant to the Plan, and may reflect
distinctions based on the reasons of termination of employment. In
amplification but not limitation of the foregoing, in the case of an award of
Performance Shares to a Named Executive Officer which is intended to qualify
for the Performance-Based Exception, the Award Agreement may provide that such
Performance Shares may become payable in the event of a termination of
employment by reason of death, Disability or Change in Control, such payment
not to occur before attainment of the related performance goal.
9.5 NONTRANSFERABILITY. Except as otherwise provided in a
Participant's Award Agreement, Performance Shares may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. Further, except as otherwise
provided in a Participant's Award Agreement, a Participant's rights under the
Plan shall be exercisable during the Participant's lifetime only by the
Participant.
ARTICLE 10. PERFORMANCE MEASURES
The performance measure(s) to be used for purposes of Awards (other
than Options) to Named Executive Officers which are designed to qualify for the
Performance-Based Exception shall be chosen from among the following
alternatives:
(a) Earnings Per Share;
15
<PAGE> 18
(b) Net Income;
(c) Operating Margin;
(d) Return On Assets;
(e) Return On Equity;
(f) Revenues; or
(g) Total Shareholder Return.
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 12. DEFERRALS
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise
be due to such Participant by virtue of the exercise of an Option or SAR, the
lapse or waiver of restrictions with respect to Restricted Stock, or the
satisfaction of any requirements or goals with respect to Performance Shares.
If any such deferral election is required or permitted, the Committee shall, in
its sole discretion, establish rules and procedures for such payment deferrals.
ARTICLE 13. RIGHTS OF KEY EMPLOYEES
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment at any time, nor confer upon any Participant any right to continue
in the employ of the Company. For purposes of this Plan, a transfer of a
Participant's employment between the Company and a Subsidiary, or between
Subsidiaries, shall not be deemed to be a termination of employment.
13.2 PARTICIPATION. No Key Employee shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
16
<PAGE> 19
ARTICLE 14. CHANGE IN CONTROL
14.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a
Change in Control, unless otherwise specifically prohibited under applicable
laws, or by the rules and regulations of any governing governmental agencies or
national securities exchanges:
(a) Any and all Options and SARs granted hereunder shall
become immediately exercisable, and shall remain
exercisable throughout their entire term;
(b) Any restriction periods and restrictions imposed on
shares of Restricted Stock shall lapse; and
(c) The target payout opportunities attainable under all
outstanding Awards of Restricted Stock and Performance
Shares shall be deemed to have been fully earned for the
entire Performance Period(s) as of the effective date of
the Change in Control, and the vesting of all Awards
shall be accelerated as of the effective date of the
Change in Control.
14.2 LIMITATION ON CHANGE-IN-CONTROL BENEFITS. It is the
intention of the Company and the Participants to reduce the amounts payable or
distributable to a Participant hereunder if the aggregate Net After Tax
Receipts (as defined below) to the Participant would thereby be increased, as a
result of the application of the excise tax provisions of Section 4999 of the
Code. Accordingly, anything in this Plan to the contrary notwithstanding, in
the event that the independent accountants regularly employed by the Company
immediately prior to any "change" described below (the "Accounting Firm") shall
determine that receipt of all Payments (as defined below) would subject the
Participant to tax under Section 4999 of the Code, it shall determine whether
some amount of Payments would meet the definition of a "Reduced Amount," (as
defined below). If the Accounting Firm determines that there is a Reduced
Amount, the aggregate Payments shall be reduced to such Reduced Amount in
accordance with the provisions of Section 14.2(b) below.
(a) For purposes of this Section 14.2(a):
(i) A "Payment" shall mean any payment or
distribution in the nature of compensation to
or for the benefit of a Participant who is a
"disqualified individual" within the meaning of
Section 280G(c) of the Code and which is
contingent on a "change" described in Section
280G(b)(2)(A)(i) of the Code with respect to
the Company, whether paid or payable pursuant
to this Plan or otherwise;
17
<PAGE> 20
(ii) "Plan Payment" shall mean a Payment paid or
payable pursuant to this Plan (disregarding
this Section 14.2);
(iii) "Net After Tax Receipt" shall mean the Present
Value of a Payment, net of all taxes imposed on
the Participant with respect thereto under
Sections 1 and 4999 of the Code, determined by
applying the highest marginal rate under
Section 1 of the Code which applied to the
Participant's Federal taxable income for the
immediately preceding taxable year;
(iv) "Present Value" shall mean such value
determined in accordance with Section
280G(d)(4) of the Code; and
(v) "Reduced Amount" shall mean the smallest
aggregate amount of Payments which (A) is less
than the sum of all Payments and (B) results in
aggregate Net After Tax Receipts which are
equal to or greater than the Net After Tax
Receipts which would result if all Payments
were paid to or for the benefit of the
Participant.
(b) If the Accounting Firm determines that aggregate Payments
should be reduced to the Reduced Amount, the Committee
shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof, and the
Participant may then elect, in the Participant's sole
discretion, which and how much of the Payments, including
without limitation Plan Payments, shall be eliminated or
reduced (as long as after such election the Present Value
of the aggregate Payments is equal to the Reduced
Amount), and shall advise the Committee in writing of
such election within ten (10) days of the Participant's
receipt of notice. If no such election is made by the
Participant within such ten (10) day period, the
Committee may elect which of the Payments, including
without limitation Plan Payments, shall be eliminated or
reduced (as long as after such election the Present Value
of the aggregate Payments is equal to the Reduced Amount)
and shall notify the Participant promptly of such
election. All determinations made by the Accounting Firm
under this Section 14.2 shall be binding upon the Company
and the Participant and shall be made within sixty (60)
days immediately following the event constituting the
"change" referred to above. As promptly as practicable
following such determination, the Company shall pay to or
distribute for the benefit of the Participant such
Payments as are then due to the Participant under this
Plan.
(c) At the time of the initial determination by the
Accounting Firm hereunder, it is possible that amounts
will have been paid or distributed by the Company to or
for the benefit of the Participant pursuant to this Plan
which should not have
18
<PAGE> 21
been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or
distributed by the Company to or for the benefit of the
Participant pursuant to this Plan could have been so paid
or distributed ("Underpayment"), in each case, consistent
with the calculation of the Reduced Amount hereunder. In
the event that the Accounting Firm, based either upon the
assertion of a deficiency by the Internal Revenue Service
against the Company or the Participant which the
Accounting Firm believes has a high probability of
success or controlling precedent or other substantial
authority, determines that an Overpayment has been made,
any such Overpayment paid or distributed by the Company
to or for the benefit of the Participant shall be treated
for all purposes as a loan ab initio to the Participant
which the Participant shall repay to the Company together
with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code; provided, however,
that no such loan shall be deemed to have been made and
no amount shall be payable by the Participant to the
Company if and to the extent such deemed loan and payment
would not either reduce the amount on which the
Participant is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm, based upon
controlling precedent or other substantial authority,
determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to or
for the benefit of the Participant together with interest
at the applicable Federal rate provided for in Section
7872(f)(2) of the Code.
14.3 TERMINATION, AMENDMENT, AND MODIFICATIONS OF
CHANGE-IN-CONTROL PROVISIONS. Notwithstanding any other provision of this Plan
or any Award Agreement provision, the provisions of this Article 14 may not be
terminated, amended, or modified on or after the date of a Change in Control to
affect adversely any Award theretofore granted under the Plan without the prior
written consent of the Participant with respect to said Participant's
outstanding Awards; provided, however, the Board of Directors, upon
recommendation of the Committee, may terminate, amend, or modify this Article
14 at any time and from time to prior to the date of a Change in Control.
ARTICLE 15. AMENDMENT, MODIFICATION, AND TERMINATION
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may
at any time and from time to time, alter, amend, suspend or terminate the Plan
in whole or in part. The Committee shall not have the authority to cancel
outstanding Awards and issue substitute Awards in replacement thereof.
19
<PAGE> 22
15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
15.3 ACCELERATION OF AWARD VESTING; WAIVER OF RESTRICTIONS.
Notwithstanding any provision of this Plan or any Award Agreement provision to
the contrary, the Committee, in its sole and exclusive discretion, shall have
the power at any time to (i) accelerate the vesting of any Award granted under
the Plan, including without limitation, acceleration to such a date that would
result in said Awards becoming immediately vested, or (ii) waive any
restrictions of any Award granted under the Plan.
ARTICLE 16. WITHHOLDING
16.1 TAX WITHHOLDING. The Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising as a result of this Plan.
16.2 SHARE WITHHOLDING. With respect to withholding required
upon the exercise of Options or SARs, upon the lapse of restrictions on
Restricted Stock, or upon any other taxable event arising as a result of Awards
granted hereunder, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date as of
which the tax is to be determined equal to the minimum statutory total tax
which could be imposed on the transaction. All such elections shall be made in
writing, signed by the Participant, and shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.
ARTICLE 17. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or
of the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which
20
<PAGE> 23
such persons may be entitled under the Company's Articles of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
ARTICLE 18. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 19. LEGAL CONSTRUCTION
19.1 GENDER AND NUMBER. Except where otherwise indicated by
the context, any masculine term used herein also shall include the feminine;
the plural shall include the singular and the singular shall include the
plural.
19.2 SEVERABILITY. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included.
19.3 REQUIREMENTS OF LAW. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
19.4 SECURITIES LAW COMPLIANCE. With respect to Insiders,
transactions under this Plan are intended to comply with all applicable
conditions or Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
19.5 GOVERNING LAW. To the extent not preempted by Federal
law, the Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the Commonwealth of Virginia.
21
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