<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KA
AMENDMENT NO. 1 TO FORM 10-K
AMENDMENT TO ANNUAL REPORT FILED PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 1996
Commission File Number 0-13076
50-OFF STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2640559
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
8750 Tesoro Drive
San Antonio, Texas 78217-0555
(Address of principal executive offices, including ZIP Code)
Registrant's telephone number, including area code:
(210) 805-9300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Each Class
-------------------
Common Stock, $0.01 par value
50-Off Stores, Inc. hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for
the fiscal year ended February 2, 1996 by amending Part I, Item 1 - Business -
Subsequent Events, Part I, Item 3 - Legal Proceedings, and Part II, Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Liquidity and Capital Resources); by adding Part III omitted from
its initial Form 10-K filing for such fiscal year in the expectation that they
would have been included in the Registrant's definitive proxy statement, and
by amending Part IV, Item 14 - Note 9 (Common Stock) to Financial Statements.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Subsequent Events
While significant operating losses continued through the Company's first
fiscal quarter of 1997 (final results are not yet available), in late February,
the Company began to address its liquidity problem by restructuring certain
debt obligations, including its unsecured trade obligations owed to vendors and
its long term notes with an insurance company. With the support of its
vendors, 50-OFF implemented a payment plan with respect to its $8,447,000 of
unsecured trade payables as of February 26, 1996. Under the plan, such
payables will be paid in full within a two year period. The restructuring of
the long term notes, including an extension of the maturity, reduced monthly
debt service requirements (see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, below).
On May 7, 1996, the Company's Board of Directors accepted the resignation
of Charles Siegel from his positions as President and Chief Executive Officer
of the Company, as well as his position on the Board. Mr. Siegel, who resigned
to pursue other endeavors, was a co-founder of the Company. Upon accepting Mr.
Siegel's resignation, the Board acted to appoint Charles J. Fuhrmann II to the
positions of President, Chief Executive Officer and Chief Financial Officer.
Mr. Fuhrmann, a Director of the Company since October 1994, has served in
various consulting capacities for 50-OFF, including Acting Chief Administrative
and Financial Officer until his new appointment. Mr. Fuhrmann, most recently a
private investor and strategic and financial consultant, was formerly Managing
Director-Investment Banking with Merrill Lynch & Co. in New York. Other
management changes included the promotions of Allen Fields to Senior Vice
President - Operations, Joe Goldstein to Senior Vice President - Merchandise
and James Scogin to Vice President - Controller, Chief Accounting Officer and
Assistant Secretary.
On May 13, 1996, the Company entered into a new $22.5 million revolving
credit arrangement with Foothill Capital Corporation and GBFC, Inc. which
provides for a 60.75% advance rate on eligible inventory (63.75%, September 16
- - December 15; 55.75%, December 16 - February 28) with interest set at prime
plus 1.75%. The new loan facility matures on May 31, 1998. This facility
replaces a prior commitment of $20.0 million providing for a 45% advance rate
with interest set at prime plus 1.75% expiring on January 12, 1998. The
agreement contains minimum gross margin, minimum EBITDA, minimum and maximum
inventory levels, minimum working capital and minimum trade support financial
covenants. The line of credit is secured by inventory, accounts receivable,
collateral assignment of claim proceeds and other assets. The Company expects
the increased liquidity under the new facility to provide important cash
resources to 50-OFF and, with the other restructurings discussed above,
increased creditworthiness. In conjunction with the establishment of this new
facility, the Company issued Foothill Capital and GBFC, Inc. a three year
warrant to purchase 400,000 shares of Common Stock at $2.50 per share and
granted related registration rights. As of May 13, 1996, the Company had
approximately $4,061,000 available for use under its line of credit.
For the balance of fiscal 1997, management has developed and is
implementing a business strategy (see Business Strategy, below) which seeks to
achieve higher gross margins than in fiscal 1996 and profitability. The key
elements of this strategy are more close-out buying, higher initial mark-ups,
less promotional pricing, new "hardlines" categories, elimination of certain
"softline" categories subject to high mark-downs and shrink, extensive programs
to reduce and control shrink generally and a reduced expense structure.
Although management believes that it has developed an appropriate plan for the
Company in its current environment, no assurance can be given that the Company
will be successful in its efforts to improve operations and reverse recent
operating trends.
2
<PAGE> 3
ITEM 3. LEGAL PROCEEDINGS
On February 21, 1995, the Company filed a lawsuit [50-Off Stores,
Inc. v. Banque Paribas (Suisse) S.A. Betafid, S.A., Yanni Koutsoubos,
Andalucian Villas (Forty Eight) Limited, Arnass Limited, Brocimast
Enterprises Ltd., Dennis Morris, Howard White, and Morris &
Associates, Case No. SA-95-CA-0159] in United States District Court
in San Antonio, Texas against Banque Paribas (Suisse) S.A., Betafid
S.A., three purchaser entities allegedly controlled by them and
certain affiliated individuals in connection with the breach by
certain of the defendants of their contractual obligation to purchase
an aggregate of 1,500,000 shares of the Company's common stock at
$3.65 per share. The lawsuit also includes securities fraud,
promissory estoppel, conspiracy and conversion claims. The
conversion claim relates to actions of the defendants in removing the
shares from an escrow account into which they had been issued for
authentication purposes, even though the defendants have never paid
anything for such shares. The Company seeks recovery of actual and
punitive damages, an injunction against the defendant's transfer of
such stock in violation of the Securities Act, pre- and
post-judgment interest, attorneys' fees and such other remedies to
which the Company may show itself entitled.
Dennis Morris has answered the Complaint. Defaults have been sought
and/or entered against Andalucian Villas, Brocimast and Koutsoubos
for failure to appear. Banque Paribas, Betafid and Howard White have
moved to dismiss the action for lack of jurisdiction and forum non
conveniens.
Written discovery has been served on all defendants who have
appeared. The Court referred all pretrial matters to a U.S.
Magistrate who entered an order requiring Paribas and Betafid to make
witnesses available in the United States for depositions. Paribas
appealed that decision.
The Company, based upon advice of counsel, believes that it will
obtain a favorable judgment against one or more of these defendants,
however, the collectibility of any such judgment is uncertain at this
time. Until the matter has been resolved, the Company will treat the
1,500,000 shares of Common Stock as outstanding with no proceeds
recognized from their sale. The related subscription receivable
recorded in the accompanying consolidated balance sheet is based upon
a share price of $2.94, the closing price of the Company's Common
Stock on January 12, 1995 and the date the stock was removed from
escrow. If the Company is unable to collect amounts due and the
shares are not ultimately returned, an extraordinary non-cash charge
to earnings for the uncollected amount of the subscription receivable
will be recorded in the consolidated financial statements. Damages
awarded to the Company or settlement amounts paid to the Company, if
any, in excess of the subscriptions receivable would be credited
to earnings.
On January 9, 1996, the Company filed a lawsuit [50-OFF Stores, Inc.
v. Jefferies & Company, Inc. and Jefferies International, Ltd., Cause
No. 96-CI-00349] in Bexar County District Court in San Antonio, Texas
against the Company's placement agents in the securities offering
referenced in the lawsuit discussed above. The suit alleges that the
defendants breached their contracts with the Company, breached their
fiduciary duties to the Company and were reckless or grossly
negligent in failing to investigate properly the qualifications of
the purchasers they introduced to the Company. The Company seeks to
recover actual and exemplary damages in excess of $10,000,000, pre-
and post-judgment interest, costs and attorney's fees.
Both defendants have answered the Petition and raised the affirmative
defense of contributory negligence. Additionally, Jefferies &
Company filed a cross-claim against Howard White. Discovery is
proceeding.
The Company will continue to prosecute these cases vigorously.
The Company is party to certain other legal proceedings arising in
the ordinary coarse of business, none of which are believed to be
material.
3
<PAGE> 4
PART II
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company began fiscal 1996 with cash of $2,062,676. During the year,
the Company increased borrowings by a net of $3,061,021, used $1,090,802 in
operating activities, used $3,691,561 for capital expenditures in refurbishing
existing stores and opening five stores and ended the year with cash on hand of
$341,334. The Company had a line of credit loan facility for up to
$20,000,000, obtained in January 1994, which was to expire on January 12, 1998;
permitted loans up to the lesser of (i) 45% of eligible inventory or (ii) 80%
of liquidation value of inventory, both minus $1,500,000; and bore interest at
1.75% over the prime rate. The line of credit was secured by inventory and
other assets of the Company and contained minimum tangible net worth, minimum
working capital and minimum pre-tax profit financial covenants. The maximum
amounts outstanding under the line of credit during fiscal 1996 and fiscal 1995
were approximately $16,834,000 and $13,312,000, respectively. Peak cash
requirements have historically occurred in the late third and early fourth
fiscal quarters. As of February 2, 1996, the Company had approximately $23,000
in letters of credit and had approximately $143,000 available for use under its
line of credit.
The Company opened five stores during fiscal 1996. The Company has opened
one store in fiscal 1997 and has no other lease commitments for additional
stores. Further store openings will depend upon the sales and income
performance of existing stores and the Company's ability to obtain attractive
leases for locations in existing markets where the targeted customer base is
large enough to support additional stores.
As stated above, during fiscal 1996, certain factors negatively affected
the Company's liquidity, including significant operating losses. While
significant operating losses continued through the Company's first fiscal
quarter of 1997 (final results are not yet available), in late February, the
Company began to address its liquidity problem and anticipated violations of
financial covenants in its credit agreements by restructuring certain debt
obligations, including its unsecured trade obligations owed to vendors and its
long term notes with an affiliate of an insurance company. With the support of
its vendors, 50-OFF implemented a payment plan with respect to its $8,447,000
of unsecured trade payables as of February 26, 1996. Under the plan, such
payables will be paid in full within a two year period. The restructuring of
the notes, including an extension of the maturity, reduced monthly debt service
requirements.
On May 13, 1996, the Company entered into a new $22.5 million revolving
credit arrangement with Foothill Capital Corporation and GBFC, Inc. which
provides for a 60.75% advance rate on eligible inventory (63.75%, September 16
- - December 15; 55.75%, December 16 - February 28) with interest set at prime
plus 1.75%. The new loan facility matures on May 31, 1998. This facility
replaces a prior commitment of $20.0 million providing for a 45% advance rate
with interest set at prime plus 1.75% expiring on January 12, 1998. The
agreement contains minimum gross margin, minimum EBITDA, minimum and maximum
inventory levels, minimum working capital and minimum trade support financial
covenants. The line of credit is secured by inventory, accounts receivable,
collateral assignment of claim proceeds and other assets. The Company expects
the increased liquidity under the new facility to provide important cash
resources and, with the other restructurings discussed above, increased
creditworthiness. In conjunction with the establishment of this new facility,
the Company issued Foothill Capital and GBFC, Inc. a three year warrant to
purchase 400,000 shares of Common Stock at $2.50 per share (see Note 4 of Notes
to Consolidated Financial Statements) and granted related registration rights.
As of May 13, 1996, the Company had approximately $4,061,000 available for use
under its line of credit.
The Company believes its operating cash flow, its new, increased line of
credit with its larger advance rate, its restructuring of certain other debt
obligations and its cash on hand will be adequate to finance its operations
through fiscal 1997.
4
<PAGE> 5
For the balance of fiscal 1997, management has developed and is
implementing a business strategy which seeks, among other things, to achieve
higher gross margins than in fiscal 1996 and a return to profitability. The
key elements of this strategy are more close-out buying, higher initial
mark-ups, less promotional pricing, new "hardlines" categories, elimination of
certain "softline" categories subject to high mark-downs and shrink, extensive
programs to reduce and control shrink generally and a reduced expense
structure. Although management believes that it has developed an appropriate
plan for the Company in its current environment, no assurance can be given that
the Company will be successful in its efforts to improve operations and reverse
recent operating trends. If the Company's plans to improve operations are not
successful, and absent a positive resolution of its lawsuits (see below), a
capital infusion or additional concessions from landlords or lenders,
management will consider, among other alternatives, strategic or financial
alliances with third parties (including wholesalers or manufacturers), and the
merger or sale of all or a part of the Company.
As discussed in Note 9 of Notes to Consolidated Financial Statements, the
Company has filed lawsuits related to certain parties' breach of contractual
obligations to purchase 1,500,000 shares of the Company's Common Stock and
actions in misappropriating and removing these shares from an escrow account
prior to payment for such shares. The Company intends to vigorously prosecute
this matter and to pursue all available avenues to effect either the receipt of
payment for such shares or the return of the shares themselves, plus actual and
punitive damages. The Company, based upon advice of counsel, believes that it
will obtain a judgment against one or more defendants in these cases; however,
the collectibility of any such judgment is uncertain at this time.
5
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD/BUSINESS EXPERIENCE
- ---- --- ------------------------------------
<S> <C> <C>
Charles J. Fuhrmann II 51 Director, President and Chief Executive and
Financial Officer. Served as President, Chief
Executive and Financial Officer since May 1996 and
as a director of the Company since October 1994.
Since May 1991, has been a private investor and
independent, strategic and financial consultant to
private and public companies. See "Certain
Relationships and Related Transactions." From
1978 through May 1991, was Vice President and
Managing Director, Investment Banking of Merrill
Lynch & Co., Inc., New York City, New York.
Joseph Lehrman 71 Secretary, Treasurer and Director. A co-founder
of the Company and has served as Treasurer of the
Company since January 1976, as Secretary since
September 1982, and as a director since March
1975. Engaged in various executive capacities in
the retail discount industry for over 40 years.
Allen Fields 38 Senior Vice-President - Operations. Served as
Senior Vice President - Operations since May 1996
and as Vice-President - Store Operations since
January 1995. Joined the company from Hill
Department Stores where he served as a District
Manager since January 1994. Served as a District
Manager with McCrory Stores from May 1989 to
December 1993, and from February 1987 until April
1989 served as a Store Manager with Jamesway Corp.
Joe Goldstein 49 Senior Vice-President - Merchandise. Served as
Senior Vice President - Merchandise since May 1996
and as Vice-President - Division Merchandise
Manager (Softlines) since September 1993. Served
as Merchandise Manager for Value City from
November 1992 to September 1993 and from April
1987 to November 1992, served as Vice President -
General Merchandise Manager for Alden's. Has
over 20 years of retail experience, primarily in
buying and general merchandising capacities.
Richard Kelly 45 Vice-President - Distribution and Transportation.
Served as Vice-President - Distribution and
Transportation since November 1994. Joined the
Company from Grossman's where he served as
Logistics Facility Manager since January 1994.
Served as a management consultant for Center City
Consolidators from January 1993 to December 1993.
Served as Assistant Vice President, Distribution
Services for T.J. Maxx, Inc. from October 1992 to
December 1992. Served as Director, Logistics
Operations for Rent-A-Center Inc. from March 1991
to September 1992 and as General Manager of
southwestern/western regional distribution from
September 1988 to February 1991.
James G. Scogin 35 Vice-President - Controller, Chief Accounting
Officer and Assistant Secretary. Served as
Vice-President - Controller, Chief Accounting
Officer and Assistant Secretary since May 1996 and
as Controller - Chief Accounting Officer since
February 1995. Served as Controller since June
1992. A Certified Public Accountant, was employed
by Deloitte & Touche LLP from August 1982 to June
1992.
Doug Sims 47 Vice-President - Loss Prevention and Internal
Audit. Served as Vice-President - Loss Prevention
and Internal Audit since March 1994 and Director
of Loss Prevention since June 1990. Self-employed
in polygraph/investigations for numerous retail
corporations from July 1980 to June 1990.
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C>
Roy E. Springer 47 Vice-President - Human Resources. Served as
Vice-President-Human Resources since July 1993 and
Director of Human Resources since 1989. Served as
District Store Manager of the Company from 1988 until
1989. Held various multiunit management positions for
other retail organizations for 10 years prior to
joining the Company.
Anthony Tramontano 62 Vice-President - Inventory Control. Served as
Vice-President - Inventory Control since February
1995. Served as Vice-President - Hardlines
Merchandise since September 1983 and as merchandise
manager for hardlines, linens and domestics since June
1979. Served as buyer of all hardlines, linens and
domestics from 1975 to June 1979. Has over 35 years
of retail experience, primarily in buying and general
merchandising capacities.
James M. Raines 56 Director. Served as a director of the Company since
March 1991. Since September 1988, has been actively
involved in investments in both private and public
companies through his own investment firm, James M.
Raines & Company. See "Certain Relationships and
Related Transactions." From 1985 through 1988, was
Senior Vice President of Lovett, Mitchell Webb &
Garrison, an investment banking firm in Houston,
Texas.
Cecil Schenker 53 Director. Served as a director since July 1991.
Previously served as a director from October 1983
until July 1986. A corporate securities attorney and
the managing partner of the San Antonio, Texas office
of the law firm of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. of which he has been a partner, through his
professional corporation, for more than 10 years.
Akin, Gump, Strauss, Hauer & Feld, L.L.P. has
regularly performed legal services for the Company.
See "Certain Relationships and Related Transactions."
Serves as a director of Taco Cabana, Inc. (a Mexican
patio cafe chain).
</TABLE>
Effective July 8, 1996, Richard Sherman resigned as a director of the Company.
In May 1996, Charles M. Siegel resigned from his positions as President, Chief
Executive Officer and a Director of the Company. In November 1995, Dennis
Barringer's position as Executive Vice-President was eliminated.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires each director and executive officer of the Company,
and each person who owns more than 10% of the Company's Common Stock to file by
specific dates with the Securities and Exchange Commission (the "SEC") initial
reports of ownership and reports of change in ownership of Common Stock.
Officers, directors and 10% stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. The
Company is required to report in this report any failure of its directors,
executive officers and 10% stockholders to file by the relevant due date any of
these reports during the Company's fiscal year.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, all Section 16(a) filing requirements
applicable to the Company's officers, directors and 10% stockholders were
complied with for the fiscal year ended February 2, 1996.
7
<PAGE> 8
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation earned during the Company's last three fiscal years by the
Company's Chief Executive Officer and Executive Vice-President, the only
executive officers earning compensation in excess of $100,000 in fiscal 1996
(collectively the "named executive officers").
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Annual compensation Long-Term Compensation
------------------- --------------------------------
Awards Payouts
--------------------------------
Long-Term
Restricted Incentive
stock Plan All other
Name and Principal Fiscal Salary Bonus award(s) Options payouts compensation
Position Year ($) ($) ($) (#) ($) ($) (1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles M. Siegel 1996 203,846 - - 50,000 - -
Chairman, President and CEO 1995 250,000 - - - - 308
1994 250,000 - - - - 1,444
Dennis Barringer 1996(2) 100,820 - - - - -
Executive Vice President 1995 120,774 - - 40,000 - -
1994 102,885 5,592 - 20,000 - -
</TABLE>
(1) Represents company matching contributions under the Company's Profit
Sharing Plan and Trust.
(2) Represents partial year compensation.
Perquisites and other personal benefits did not exceed the lesser of
either $50,000 or 10% of the total of annual salary and bonus reported for any
named executive officer.
Employment Arrangements
The Company had an amended employment agreement (the "Agreement") with
Charles Siegel, which expired on June 15, 1996. Upon Mr. Siegel's resignation
from his positions as President and Chief Executive Officer, the Agreement was
terminated and a severance agreement was entered into with Mr. Siegel who
received $50,000 severance immediately and severance pay of $250,000 payable in
equal monthly payments over a two year period.
In May 1996, Charles J. Fuhrmann II became President, Chief Executive and
Financial Officer of the Company. The Company does not have an employment
agreement with Mr. Fuhrmann, but Mr. Fuhrmann receives a base salary of
$200,000 and was granted on May 20, 1996, 400,000 options exercisable at $1.00
per share, of which 100,000 options vested immediately, with the remaining
300,000 options vesting in whole or in part, upon the Company's achieving
certain minimum net income requirements or achieving certain valuations upon
any change of control of the Company.
Compensation of Directors
Prior to May 1, 1995, each outside director received $700 per Board
meeting attended and, if serving on the Executive Committee, $1,000 per
Executive Committee meeting attended (and $500 per telephone meeting in excess
of two hours in duration). Commencing May 1, 1995, each outside director
receives $750 per Board meeting attended (and $500 per telephone meeting in
excess of two hours duration). In addition, each outside director receives
$750 per meeting for services as members of, or $1,000 per meeting for
chairing, the Audit and Compensation Committees. Outside members of the
Executive Committee receive $1,000 per meeting attended, the Chairman $1,500,
(and $500 per telephone meeting in excess of two hours duration). Each outside
director also receives stock option grants. See "Stock Option Plan."
Stock Option Plan
Under the Company's Stock Option Plan (the "Option Plan"), stock options
to purchase up to 3,000,000 shares of Common Stock may be granted to full-time
employees, directors, advisors and outside consultants of the Company. Shares
that by reason of the expiration of an option (other than by reason of exercise)
or which are no longer subject to purchase pursuant to an option granted under
the Option Plan may be reoptioned thereunder. The Company's Compensation
Committee (the "Committee") sets specific terms and conditions of options
granted under the Option Plan and administers the Option Plan, as well as the
Company's other employee benefit plans which may be in effect from time to time.
8
<PAGE> 9
Employees of the Company are eligible to receive either incentive stock
options or nonqualified stock options or a combination of both, as the
Committee determines. Non-employee participants may be granted only
nonqualified stock options. Stock options may be granted for a term not to
exceed ten years (five years with respect to a holder of 10% or more of the
Company's shares in the case of an incentive stock option) and are not
transferable other than by will or the laws of descent and distribution. Each
option may be exercised within the term of the option pursuant to which it is
granted, or within thirty days after the termination of employment of the
optionee, or within one year after termination in case of termination because
of death or disability, in each case to the extent the option was then
exercisable.
The exercise price of all incentive stock options must be at least equal
to the fair market value of the Common Stock on the date of grant, or 110% of
fair market value with respect to any incentive stock option issued to a holder
of 10% or more of the Company's shares. Any nonqualified stock option to be
issued pursuant to the Option Plan must be at an exercise price equal to at
least 85% of the fair market value of the Company's Common Stock. Stock
options may be exercised by payment in cash of the exercise price with respect
to each share to be purchased, by delivering Common Stock of the Company
already owned by such optionee with a market value equal to the exercise price,
or by methods in which a concurrent sale of the acquired stock is arranged with
the exercise price payable in cash from such sale proceeds, or by a combination
of the foregoing methods.
In accordance with the terms of the Option Plan, all current outside
directors and Mr. Fuhrmann, who was an outside director upon appointment to the
Board, received initial grants of options for 75,000 shares each. Subject to
availability of shares allocated to the Option Plan and not already reserved
for other outstanding stock options, outside directors who join the Board in
the future will receive an initial grant of options for 75,000 shares,
effective upon their appointment or election to the Board. Such options vest
ratably in five equal annual installments, with the first such installment
vesting on the date of grant and become exercisable in five equal annual
installments commencing with the first anniversary following the date of grant
through the sixth anniversary following the date of grant. Options, once
granted and to the extent vested and exercisable, remain exercisable throughout
their term, regardless of whether the holder continues as a director. The
exercise price of the options is equal to 100% of the fair market value of the
covered shares of Common Stock at the time of grant.
If following five years of service as an outside director of the Company
the director continues as such, then for each of the next five years for which
such director serves he will be automatically granted in such year nonqualified
stock options for an additional 15,000 shares. Such additional nonqualified
options will be granted to each outside director on the business day following
the next annual meeting of stockholders at which such a director is reelected
following the expiration of the five-year period from the date of initial
option grant. Such options will be granted at an exercise price equal to the
then prevailing fair market value of the Company's common stock. Each such
option will vest in full immediately and become exercisable on the first
anniversary date following its grant, and will continue to be exercisable in
whole or in part until the third anniversary of the grant date.
The Option Plan terminates on August 28, 2000. The Board of Directors
may, however, terminate the Option Plan at any time prior to such date.
Termination of the Option Plan will not alter or impair, without the consent of
the optionee, any of the rights or obligations pursuant to any option granted
under the Option Plan.
The Company repriced employee stock options (excluding executive officer,
director, advisor and outside consultant options), at $4.125 per share
effective December 5, 1994.
As of July 15, 1996 stock options covering an aggregate of 1,477,112
shares of common stock were outstanding with a weighted average exercise price
of $3.19 per share and 993,888 additional shares were available for issuance
upon exercise of options which may be granted in the future.
9
<PAGE> 10
Option Grants In Last Fiscal Year
The following table sets forth certain information concerning options
granted to the named executive officers during the Company's fiscal year ended
February 2, 1996:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Option Grants in Fiscal 1996
- ----------------------------------------------------------------------------------------------------------------------
Potential realizable value at assumed annual
rates of stock price appreciation for option
term (3)
-------------------------------------------
% of Total
Options
Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in Fiscal 1996 (2) ($/sh) Date 5% 10%
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles Siegel 50,000 - $1.94 7-12-2000 27,000 59,000
Dennis Barringer 10,000(1) 15% $1.94 7-12-2000 - -
</TABLE>
(1) Mr. Barringer's options were canceled thirty days after elimination
of position in November 1995.
(2) In fiscal 1996, options for an aggregate 95,000 were granted to
executive officers, as a group; and options for an aggregate 152,015
shares were granted to employees and outside consultants, other than
executive officers, as a group.
(3) The dollar amounts under these columns use the 5% and 10% rates
of appreciation prescribed by the Securities and Exchange Commission.
The 5% rate of appreciation would result in a per share price of
$2.48. The 10% rate of appreciation would result in a per share
price of $3.12. This presentation is not intended to forecast
possible future appreciation of the Company's stock.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information concerning the value of
unexercised options held by the named executive officers at February 2, 1996
(no options were exercised by such officers during the fiscal year ended on
such date):
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($) (1)
--------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles M. Siegel 160,000 80,000 - -
Dennis Barringer - - - -
</TABLE>
(1) Values stated are based on the $1.125 closing price of the
Company's Common Stock as reported on the NASDAQ national market
system on February 2, 1996 and equal the aggregate amount by which
the market value of the option shares exceeds the exercise price of
such options at the end of the fiscal year.
Profit Sharing Plan and Trust
The Company's Profit Sharing Plan and Trust (the "Profit Sharing Plan")
was adopted effective April 1, 1990, and is intended to constitute a qualified
cash or deferred profit sharing plan within the meaning of Section 401(a) and
401(k) of the Internal Revenue Code of 1986. The Profit Sharing Plan is
subject to the Employee Retirement Income Security Act of 1974. All employees
of the Company who have attained the age of 21, and, with respect to employees
hired on or after April 1, 1990, who have also completed at least 1,000 hours of
service in a 12-month period (a "year of service"), are eligible to participate.
Each eligible employee is allowed to contribute up to 15% of his earnings as
shown on the employee's W-2 form. Through February 1995, the Company matched 25%
of the participating employees' contributions up to a maximum of 6% of the
employees' earnings, and will determine any future matching after the financial
results are known each year.
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All participating employees' contributions to the Profit Sharing Plan are
at all times fully vested and nonforfeitable. Contributions made by the
Company and credited to employees' accounts are vested 20% after two years of
service, 40% after three years of service, 60% after four years of service, 80%
after five years of service and 100% after six years of service, but all such
Company contributions are fully vested and nonforfeitable upon (i) the
employee's reaching the normal retirement age of 65, or (ii) the employee's
death or disability prior to age 65, or (iii) termination of the Profit Sharing
Plan. All forfeitures of non-vested Company contributions are reallocated to
non-forfeiting participants' accounts.
Participating employees may choose among alternative investment vehicles
(Company Stock is not an option). Distributions may be made prior to normal
retirement age upon showing of hardship. The annual benefits payable upon
retirement at normal retirement age cannot be estimated due to the number of
variables which operate under the Profit Sharing Plan. The Company made
aggregate contributions of $33,575 to the Profit Sharing Plan during fiscal
1995 and $67,998 during fiscal 1994. The Company did not make any
contributions during fiscal 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, Cecil Schenker and Richard Sherman served on the
Company's Compensation Committee.
The Company had three real estate leases in force with Spigel Properties,
whose owner, Stanley Spigel, was a director of the Company and a member of the
Company's Compensation Committee through September 1995. The leases for such
store locations cover an aggregate of approximately 70,000 square feet and
expire at February 1999 and December 1999, provide for one five-year renewal
option and an aggregate annual rental of approximately $144,000 in fiscal 1997.
The leases also provide for percentage rental payments which, along with
minimum rentals and the Company's pro-rata share of taxes, insurance and
property maintenance, typically do not exceed 4% of sales. The Company paid an
aggregate of $124,000 in minimum rental and an aggregate of $27,000 in
percentage rental for these locations during fiscal 1996.
During fiscal periods prior to August 1988, and again since February 1991,
the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. has regularly
performed legal services as counsel to the Company. Cecil Schenker, a director
of the Company and a member of the Company's Compensation Committee, is the
sole shareholder of Cecil Schenker, P.C., a partner with Akin, Gump, Strauss,
Hauer & Feld, L.L.P.
The Company believes that the ability of Mr. Schenker to make fair
compensation decisions have not and will not be compromised by the relationship
referred to above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, the beneficial ownership (as defined by
the rules of the Securities of Exchange Commission) of the Common Stock as of
July 15, 1996 by each person known by the Company to be a beneficial owner of
more than 5%, all directors, the named executive officers, and all directors
and executive officers as a group.
<TABLE>
<S> <C> <C>
Number of Shares Percent of
Name Beneficially Owned Class (1)
Charles J. Fuhrmann II 155,000 (2) 1.25
Joseph Lehrman 302,000 (2) 2.5%
James M. Raines 90,000 (2) *
Cecil Schenker 75,000 (2) *
All executive officers and directors
as a group (11 persons) 730,875 5.8%
</TABLE>
* Less than 1%
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(1) This calculation is the quotient of: (a) the number of shares of
Common Stock currently beneficially owned by the named individual or
group, plus the number of shares of Common Stock, if any, for which
options held by such person or group are currently exercisable or
become exercisable within 60 days of July 15, 1996; divided by (b) the
total number of shares of Common Stock outstanding and the number of
shares of Common Stock, if any, for which options held by such person
or group are currently exercisable or become exercisable within 60
days of July 15, 1996.
(2) Includes 150,000 shares in the case of Mr. Fuhrmann, 95,000 shares
in the case of Mr. Lehrman, 75,000 shares in the case of Mr. Schenker,
and 60,000 shares in the case of Mr. Raines which are issuable
pursuant to presently exercisable options (or those exercisable within
60 days of July 15, 1996 ). Excludes 360,000 shares, in the case of
Mr. Fuhrmann, which are issuable pursuant to options which are not
currently exercisable or exercisable within 60 days of July 15, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The investment firm of James M. Raines & Company, the owner of which is a
director of the Company, performed consulting services for a fee in connection
with the Company's Regulation S offering conducted during the fiscal year ended
February 3, 1995.
Charles J. Fuhrmann II, a director of the Company, performed certain
financial and strategic advisory services for the Company and was compensated
$127,500 during the fiscal year ended February 2, 1996. On May 7, 1996, Mr.
Fuhrmann was appointed President, Chief Executive and Financial Officer of the
Company.
See "Compensation Committee Interlocks and Insider Participation" for
certain additional relationships and related transactions.
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PART IV
ITEM 14. NOTE 9 - COMMON STOCK
In November 1994, the Company received subscriptions for
approximately 1,810,000 shares of Common Stock in a Regulation S
offering to qualified investors. The Company received net proceeds
of approximately $861,000 from the purchase of 310,000 shares and has
purchase agreements for 1,500,000 shares for which proceeds have not
been received.
On February 21, 1995, the Company filed a lawsuit [50-Off Stores,
Inc. v. Banque Paribas (Suisse) S.A. Betafid, S.A., Yanni Koutsoubos,
Andalucian Villas (Forty Eight) Limited, Arnass Limited, Brocimast
Enterprises Ltd., Dennis Morris, Howard White, and Morris &
Associates, Case No. SA-95-CA-0159] in United States District Court
in San Antonio, Texas against Banque Paribas (Suisse) S.A., Betafid
S.A., three purchaser entities allegedly controlled by them and
certain affiliated individuals in connection with the breach by
certain of the defendants of their contractual obligation to purchase
an aggregate of 1,500,000 shares of the Company's common stock at
$3.65 per share. The lawsuit also includes securities fraud,
promissory estoppel, conspiracy and conversion claims. The
conversion claim relates to actions of the defendants in removing the
shares from an escrow account into which they had been issued for
authentication purposes, even though the defendants have never paid
anything for such shares. The Company seeks recovery of actual and
punitive damages, an injunction against the defendant's transfer of
such stock in violation of the Securities Act, pre- and
post-judgment interest, attorneys' fees and such other remedies to
which the Company may show itself entitled.
Dennis Morris has answered the Complaint. Defaults have been sought
and/or entered against Andalucian Villas, Brocimast and Koutsoubos
for failure to appear. Banque Paribas, Betafid and Howard White have
moved to dismiss the action for lack of jurisdiction and forum non
conveniens.
Written discovery has been served on all defendants who have
appeared. The Court referred all pretrial matters to a U.S.
Magistrate who entered an order requiring Paribas and Betafid to make
witnesses available in the United States for depositions. Paribas
appealed that decision.
The Company, based upon advice of counsel, believes that it will
obtain a favorable judgment against one or more of these defendants,
however, the collectibility of any such judgment is uncertain at this
time. Until the matter has been resolved, the Company will treat the
1,500,000 shares of Common Stock as outstanding with no proceeds
recognized from their sale. The related subscription receivable
recorded in the accompanying consolidated balance sheet is based upon
a share price of $2.94, the closing price of the Company's Common
Stock on January 12, 1995 and the date the stock was removed from
escrow. If the Company is unable to collect amounts due and the
shares are not ultimately returned, an extraordinary non-cash charge
to earnings for the uncollected amount of the subscription receivable
will be recorded in the consolidated financial statements. Damages
awarded to the Company or settlement amounts paid to the Company, if
any, in excess of the subscriptions receivable would be credited to
earnings.
On January 9, 1996, the Company filed a lawsuit [50-OFF Stores, Inc.
v. Jefferies & Company, Inc. and Jefferies International, Ltd., Cause
No. 96-CI-00349] in Bexar County District Court in San Antonio, Texas
against the Company's placement agents in the securities offering
referenced in the lawsuit discussed above. The suit alleges that the
defendants breached their contracts with the Company, breached their
fiduciary duties to the Company and were reckless or grossly
negligent in failing to investigate properly the qualifications of
the purchasers they introduced to the Company. The Company seeks to
recover actual and exemplary damages in excess of $10,000,000, pre-
and post-judgment interest, costs and attorney's fees.
Both defendants have answered the Petition and raised the affirmative
defense of contributory negligence. Additionally, Jefferies &
Company filed a cross-claim against Howard White. Discovery is
proceeding.
The Company will continue to prosecute these cases vigorously.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized:
50-OFF STORES, INC.
By: /s/ James G. Scogin
-----------------------------------
James G. Scogin
Vice President, Controller and
Chief Accounting Officer
Date: August 28, 1996
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