SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 28, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the
transition period From _______________ To ________________
Commission File Number: 0-8550
PCA INTERNATIONAL, INC.
--------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0888429
--------------------------- ---------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
(Address of principal executive offices)
(Zip Code)
(704) 847-8011
--------------------------------------------------------
(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 (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $0.20 par value 7,461,329
- - -----------------------------------
--------------------------------
Class Outstanding at May 31, 1996
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: PAGE NO.
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets - April 28, 1996 and
January 28, 1996................................... 1
Consolidated Statements of Income - Three Months Ended April 28,
1996 and April 30, 1995........................................ 2
Consolidated Statement of Changes in Shareholders' Equity - Three
Months Ended April 28, 1996..................................... 3
Consolidated Statements of Cash Flows - Three Months Ended
April 28, 1996 and April 30, 1995........................... 4
Condensed Notes to Consolidated Financial Statements............ 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................... 7-9
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to Vote of Security Holders............... 10
Item 6. Exhibits and Reports on Form 8-K................................ 11
Signatures ................................................................ 12
Exhibit Index ................................................................ 13
</TABLE>
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 28, January 28,
ASSETS 1996 1996
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................... $ 839,587 $ 3,914,513
Accounts receivable (net of allowance for
doubtful accounts of $1,397,319 and $1,011,350):
Due from licensor stores and customers........
10,308,689 7,342,232
Other, including employee advances............ 775,547 677,334
Inventories....................................... 2,979,414 2,488,964
Deferred income taxes............................. 2,269,563 2,167,152
Prepaid expenses.................................. 431,287 513,685
--------------- ---------------
Total Current Assets.......................... 17,604,087 17,103,880
--------------- ---------------
Property:
Land and improvements............................. 1,177,805 1,177,805
Building and improvements......................... 7,768,461 7,730,952
Photographic and sales equipment.................. 44,190,087 44,183,975
Photographic finishing equipment.................. 12,506,743 12,501,537
Furniture and equipment........................... 10,035,517 10,010,818
Transportation equipment.......................... 208,795 208,795
Leasehold improvements............................ 11,246,597 11,508,810
Construction in progress.......................... 1,908,298 946,478
--------------- ---------------
Total......................................... 89,042,303 88,269,170
Less: Accumulated depreciation and amortization.. 47,046,827 45,516,802
--------------- ---------------
Property, net................................. 41,995,476 42,752,368
--------------- ---------------
Other Assets......................................... 1,218,346 28,228
--------------- ---------------
Total Assets......................................... $ 60,817,909 $ 59,884,476
=============== ===============
April 28, January 28,
1996 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade................................. $9,798,009 $ 9,178,213
Accrued insurance...................................... 3,186,590 2,247,693
Accrued income taxes................................... 1,053,724 2,317,974
Accrued compensation................................... 4,514,444 3,779,849
Other accrued liabilities.............................. 3,832,870 3,457,973
---------------- -----------------
Total Current Liabilities.......................... 22,385,637 20,981,702
---------------- -----------------
Deferred Income Taxes..................................... 4,750,254 4,562,570
---------------- -----------------
Other Liabilities......................................... 3,098,409 3,105,595
---------------- -----------------
Shareholders' Equity:
Preferred stock, $10.00 par value
(authorized-2,000,000 shares; outstanding-none)....... -- --
Common Stock, $0.20 par value (authorized-20,000,000
shares; issued-7,444,071 shares and 7,482,071 shares). 1,488,815 1,496,415
Additional paid-in capital............................. 3,587,673 5,045,578
Retained earnings...................................... 25,533,742 24,918,709
Cumulative foreign currency translation adjustments.... (26,621) (226,093)
---------------- -----------------
Total Shareholders' Equity......................... 30,583,609 31,234,609
---------------- -----------------
Total Liabilities and Shareholders' Equity................ $ 60,817,909 $ 59,884,476
================ =================
</TABLE>
See Condensed Notes to Consolidated Financial Statements
1
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
April 28, April 30,
1996 1995
-------------- --------------
<S> <C> <C>
SALES $36,087,986 $32,608,631
-------------- --------------
COSTS AND EXPENSES:
Advertising and promotional costs.......................... 3,633,789 3,631,529
Costs of photographic sales................................ 11,904,402 10,765,755
Store commissions and selling costs........................ 11,747,366 10,375,239
General and administrative expenses........................ 6,791,240 6,317,963
-------------- --------------
Total costs and expenses................................ 34,076,797 31,090,486
-------------- --------------
INCOME FROM OPERATIONS........................................ 2,011,189 1,518,145
Interest expense, net...................................... 18,547 53,961
-------------- --------------
INCOME BEFORE INCOME TAXES.................................... 1,992,642 1,464,184
INCOME TAX PROVISION.......................................... 853,864 613,183
-------------- --------------
NET INCOME.................................................... $ 1,138,778 $ 851,001
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Primary.................................................... 7,868,479 8,480,862
============== ==============
Fully Diluted.............................................. 8,032,229 8,523,329
============== ==============
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE:
Net Income................................................. $0.14 $0.10
============== ==============
CASH DIVIDENDS PER COMMON SHARE............................... $0.07 $0.07
============== ==============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
2
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 28, 1996 (Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Stock Paid-In Retained Translation
----------------------------
Shares Amount Capital Earnings Adjustments
----------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 28, 1996:............ 7,482,071 $1,496,415 $ 5,045,578 $24,918,709 $(226,093)
Net income............................ 1,138,778
Exercise of stock options............. 160,300 32,060 807,045
Dividends............................. (523,745)
Acquisition of Company stock.......... (198,300) (39,660) (2,264,950)
Foreign currency translation
adjustment......................... 199,472
----------- ------------- -------------- -------------- ---------------
BALANCE, APRIL 28, 1996:.............. 7,444,071 $1,488,815 $ 3,587,673 $25,533,742 $ (26,621)
=========== ============= ============== ============== ===============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
3
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
April 28, April 30,
1996 1995
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................... $ 1,138,778 $ 851,001
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation......................................................... 2,265,217 2,041,434
Increase in allowance for doubtful accounts.......................... 385,483 619,173
Provision for deferred income taxes.................................. 85,273 104,191
Loss on disposal of property......................................... 207,374 48,012
Compensatory stock option expense.................................... -- 12,550
(Decrease) increase in other liabilities............................. (7,186) 50,719
Increase in other noncurrent assets.................................. (14,686) --
Changes in operating assets and liabilities:
Increase in accounts receivable.................................... (3,449,141) (5,040,981)
(Increase) decrease in inventories................................. (489,551) 45,960
Decrease in prepaid expenses....................................... 82,477 36,436
Increase (decrease) in accounts payable............................ 616,932 (1,079,168)
Increase in accrued expenses....................................... 775,489 1,293,448
--------------- ---------------
NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES.................... 1,596,459 (1,017,225)
--------------- ---------------
INVESTING ACTIVITIES:
Purchase of property..................................................... (1,703,118) (740,044)
Purchase of certain assets from two Canadian companies................... (1,169,078) --
Proceeds from sale of fixed assets....................................... 3,619 7,223
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES.................................... (2,868,577) (732,821)
--------------- ---------------
FINANCING ACTIVITIES:
Increase in short-term borrowings........................................ -- 3,358,275
Exercise of stock options................................................ 839,105 171,174
Acquisition of company stock............................................. (2,304,610) (1,246,177)
Cash dividends........................................................... (523,745) (572,604)
--------------- ---------------
NET CASH (USED IN) PROVIDED FROM FINANCING ACTIVITIES.................... (1,989,250) 1,710,668
--------------- ---------------
Effect of exchange rate changes on cash.................................. 186,442 26,476
--------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS.................................... (3,074,926) (12,902)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................ 3,914,513 311,759
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................. $ 839,587 $ 298,857
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Flow Data:
Interest paid.......................................................... $ 45,196 $ 17,027
=============== ===============
Income taxes paid...................................................... $ 1,529,895 $ 1,342,384
=============== ===============
Schedule of Non-cash Financial Activities:
Stock options canceled and unearned compensation credited.............. $ -- $ 6,682
=============== ===============
Acquisition of Common Stock not paid................................... $ -- $ 6,467,775
=============== ===============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
4
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
With respect to the significant accounting policies of PCA
International, Inc., and its subsidiaries (the "Company"), which are
wholly-owned, reference is made to note 1 of the financial statements in the
Company's Form 10-K filed for the fiscal year ended January 28, 1996. The
interim financial statements reflect all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented.
2. ACQUISITION:
On April 15, 1996, the Company's Canadian subsidiary purchased certain
assets of two related Canadian portrait businesses, Portrait Works, Inc., and
Portrait Experience of Canada, Ltd. for $1.2 million. The Company is amortizing
over fifteen years the excess of the purchase price over the value assigned to
the purchased assets.
3. STOCK OPTIONS:
On March 6, 1996, the Board of Directors adopted the 1996 Omnibus
Long-Term Compensation Plan (the "Plan") providing for the issuance of up to
811,550 shares (the same number that had been available for issuance under the
1990 and 1992 Plans) of the Company's common stock. The Plan is designed to give
the Board of Directors flexibility to adapt the long-term incentive compensation
of key employees to changing business conditions through a variety of long-term
incentive awards and was approved by the Company's shareholders at the 1996
Annual Meeting on May 22, 1996. Under the Plan, the Stock Option Plan
Administration Committee may approve the grant of employee Stock Options, Stock
Appreciation Rights (SARs), Performance Restricted Stock Awards, Performance
Awards, and Performance Units ("Awards") to senior level employees of the
Company and to nonemployee directors upon their election to the Board and allows
nonemployee directors to elect to take their compensation as directors in the
form of options. The exercise price for stock options and stock Awards may not
be less than the fair market value of the common stock on the date of grant. No
grants have been made from the Plan. The Plan replaced and superseded the PCA
International, Inc. 1990 Non-Qualified Stock Option Plan and the 1992
Non-Qualified Stock Option Plan, except with respect to options and shares of
common stock issued and outstanding under the 1990 and 1992 plans which will
continue to be governed by the terms of such plans.
The Company's 1990 Non-Qualified Stock Option Plan (the "1990 Plan")
provides for the grant of up to 1,425,000 non-qualified stock options to key
employees and nonemployee directors. As of April 28, 1996, options for
approximately 370,750 shares were exercisable and in-the-money; options for
214,400 shares were exercisable and out-of-the-money. As of April 30, 1995,
options for 457,950 shares were exercisable and in-the-money, and options for
170,500 shares were exercisable and out-of-the-money.
The Company's 1992 Non-Qualified Stock Option Plan (the "1992 Plan")
provides for the grant of 1,725,000 non-qualified stock options to key employees
and nonemployee directors of the Company. As of April 28, 1996, options for
220,600 shares were exercisable and in-the-money; options for 201,500 shares
were exercisable and out-of-the-money. As of April 30, 1995, options for 107,300
shares were exercisable and in-the-money, and options for 201,500 shares were
exercisable and out-of-the-money.
5
<PAGE>
The following table summarizes all stock option activity for the three
months ended April 28, 1996:
Number of Option
Shares Price
----------------- -----------------
Options outstanding
January 28, 1996....... 1,904,450 $ 1.67-$17.00
Exercised........... (160,300) $ 1.67-$10.25
=================
Options outstanding
April 28, 1996......... 1,744,150 $ 1.67-$17.00
=================
The following table summarizes all stock option activity for the three
months ended April 30, 1995:
Number of Option
Shares Price
----------------- -----------------
Options outstanding
January 29, 1995....... 1,880,550 $ 1.67-$17.00
Exercised........... (31,700) $ 1.67-$9.67
Canceled............ (69,700) $ 1.67-$16.33
Granted............. 42,000 $10.13
-----------------
Options outstanding
April 30, 1995......... 1,821,150 $ 1.67-$17.00
=================
4. COMMON STOCK:
On March 20, 1996, the Company's Board of Directors increased the
number of shares authorized for repurchase by 744,300, bringing the total number
of shares authorized for repurchase to 1,000,000. During the first quarter, the
Company purchased, in various transactions, 198,300 shares.
The average purchase price per share was $11.62.
6
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company, through its subsidiaries, provides portrait photography
services, primarily in permanent studios operated in Kmart stores throughout the
United States, Puerto Rico, and the Virgin Islands and in PETsMART stores in the
United States. In Canada, the Company provides portrait photography services in
Wal-Mart stores. The Company operates portrait studios in 1,392 Kmart stores, 44
Wal-Mart stores, and 22 PETsMART stores as of April 28, 1996. In its
Institutional Division, the Company also provides portrait services to church
congregations through traveling promotions. Sales in Kmart stores accounted for
approximately 93% of sales during the first quarter of fiscal 1996. On May 10,
1996, the Company and Kmart Corporation entered into a five-year, non-exclusive
license agreement pursuant to which the Company will operate permanent studios
in Kmart stores in the United States.
In April 1996, the Company closed 107 Canadian Kmart portrait studios
and 4 Mexican Kmart studios and ceased operations in those locations. In the
United States, the Company opened 11 new Kmart portrait studios and closed 16
studios for a net decrease of 5 studios in the first fiscal quarter. The Company
currently operates portrait studios in 1,392 of Kmart's approximately 2,150
discount stores operating in the United States. The Company is not aware of any
plans by Kmart to close a significant number of additional stores in the United
States. The closing of a significant number of additional stores by Kmart could
have a material impact on the Company's revenues and could result in a write-off
of leasehold improvements and furniture and equipment in the affected locations.
No estimate can be made of the impact to earnings if Kmart should close a
significant number of locations.
During the first quarter of fiscal 1996, the Company's Canadian
subsidiary purchased certain assets of two related Canadian portrait businesses,
Portrait Works, Inc., and Portrait Experience of Canada, Ltd. In connection with
the purchase, PCA's Canadian subsidiary entered into a long-term license
agreement with Wal-Mart's Canadian subsidiary to operate permanent studios in
Wal-Mart's Canadian stores. The Company opened 44 portrait studios in Wal-Mart
stores in Canada in April 1996. Wal-Mart currently operates approximately 130
stores in Canada.
The Company operated a test in 14 PETsMART stores in 1995,
photographing pets and pets with their owners. During the first quarter of
fiscal 1996, the Company added 8 portrait studios in PETsMART and currently
plans to open portrait studios in approximately 118 additional PETsMART stores
by the end of fiscal 1996. PETsMART currently operates over 290 superstores
specializing in products and services for pets.
The Company utilizes a proprietary digital imaging system in all of its
portrait studios. The system was designed and engineered in-house by the
Company's technology and manufacturing staff, ensuring complete control of all
aspects of the system. The system allows customers to instantly view digital
proofs of each pose on a color monitor as they are photographed and select only
the highest quality and most pleasing poses for further consideration. Following
photography, the customer chooses the exact poses to be produced in the specific
portrait sizes and quantities desired. The digital imaging system is integrated
with the Company's automated production facility. With the digital imaging
system, the Company has benefited from higher average sales and lower production
costs, primarily through the elimination of waste from speculative portrait
production.
The foregoing discussion contains certain forward-looking statements
regarding expected store openings. These statements are based on the Company's
belief and assumptions, as well as information currently available to the
Company's management. Although the Company believes that the expectations
7
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. In particular,
expected store openings will depend on the economy generally, the operations of
Kmart and other companies in which the Company operates studios, the performance
of the portrait studio industry generally and of the Company, and other factors.
Seasonality
The Company's portrait photography business is seasonal, with the
greatest sales volume occurring in the fourth fiscal quarter during the
Thanksgiving and Christmas holiday seasons. The fourth quarters of fiscal 1995
and 1994 contributed approximately 32% and 31%, respectively, of annual sales
and 64% and 79%, respectively, of earnings for such years. The Company's
operations can also be adversely affected by inclement weather.
Results of Operations
The following table presents the percentage of sales represented by the
following line items from the Company's statements of income for the periods
indicated:
Three Months Ended
----------------------------
April 28, April 30,
1996 1995
------------ -----------
Sales............................ 100.0% 100.0%
Costs and expenses............... 94.4 95.3
------------ -----------
Income from operations........... 5.6 4.7
Interest expense................. 0.1 0.2
------------ -----------
Income before income taxes....... 5.5 4.5
Income tax provision............. 2.3 1.9
============ ===========
Net income....................... 3.2% 2.6%
============ ===========
The Company's sales for the first quarter were $36.1 million, an
increase of 11% as compared with sales of $32.6 million in the first quarter of
1995. Sales in Kmart stores in the U.S. were up 11% in the first quarter when
compared with the same period in 1995. The increase in sales in U.S. Kmarts was
attributable to a 17% increase in customers photographed. The Company believes
the superior features and flexibility of its digital imaging system are
responsible for the increase in customers. The Company operated portrait studios
in 1,392 Kmarts in the U.S. at the end of the first quarter of 1996, an increase
of 40 locations from April 30, 1995 and a net decline of 5 locations from
January 28, 1996. Sales in Institutional operations were $1.9 million, an
increase of 9%. Sales in PETsMART stores totaled $0.4 million in the first
quarter of 1996. Eight portrait studios were added in PETsMART stores in the
first quarter, bringing to 22 the number of portrait studios operated by the
Company at the end of the quarter. The Company expects to operate portrait
studios in approximately 140 PETsMART stores by the end of fiscal 1996.
During the first quarter, the Company's Canadian subsidiary purchased
certain assets of two related Canadian portrait businesses and entered into a
long-term license agreement with Wal-Mart's Canadian subsidiary to operate
permanent studios. In April 1996, the Company terminated its license agreement
with Kmart to operate portrait studios in Canada and Mexico and closed 107
studios and 4
8
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
studios, respectively. The Company opened 44 portrait studios in
Wal-Mart stores in Canada in April. Sales in Canada and Mexico totaled $1.1
million in the quarter, a decrease of $0.2 million from the comparable period in
fiscal 1995.
Income from operations, as a percentage of sales, increased to 5.6%
from 4.7% in the first quarter. The improvement in the operating margin was
principally attributable to the increase in average sales per studio in U.S.
Kmart stores. Operating losses were incurred in PETsMART, as planned, in the
quarter. Expenses related to the closing of the Mexican Kmart studios and
the transition to and start-up of Canandian Wal-Mart stores were also
recorded in the first quarter.
The income tax provision for the first quarter of 1996 was $0.9
million. This resulted in an effective tax rate of 42.9% versus 41.9% in the
first quarter of fiscal 1995. The increase in the effective tax rate is
attributable to the loss incurred by our foreign subsidiary.
Net income increased by $0.3 million, 34%, to $1.1 million, in the
first quarter of 1996 as compared with the first quarter of 1995. Earnings per
share increased by 40% to $0.14 per share.
Liquidity and Capital Resources
The Company's principal sources of working capital are cash from
operations and the Company's revolving line of credit. On April 28, 1996, the
Company had $0.8 million in cash and cash equivalents and no short-term debt
outstanding. The Company has a $16.0 million revolving line of credit with
NationsBank of North Carolina, N.A., ("NationsBank") to meet seasonal capital
requirements. On June 3, 1996, the Company entered into an amendment of its loan
agreement with NationsBank to allow the Company to repurchase up to an
additional $2 million of its shares.
During February, March, and April of 1996 (the first quarter of fiscal
1996), the Company had property additions of $1.7 million, principally for
materials and equipment for the PETsMART and Wal-Mart permanent studios. The
Company expects to enlarge portrait studios in approximately 75 Super Kmarts,
open approximately 118 portrait studios in PETsMART stores, and open 25 to 50
new studios in Wal-Mart stores in Canada during the remainder of fiscal 1996.
Currently, the Company estimates capital expenditures for fiscal 1996 will
approximate $12 million. Operating activities provided $1.6 million in cash for
the quarter.
Shareholders' equity decreased by $0.7 million to $30.6 million,
principally due to the repurchase of 198,300 shares of the Company's common
stock for $2.3 million, or 2.7% of the shares outstanding at the beginning of
the quarter. Options exercised in the first quarter increased shareholders'
equity by $0.8 million. Net income for the quarter was $1.1 million. Dividends
paid in the quarter totaled $0.5 million.
The Company believes, based on its short- and long-term business plans,
that it has the ability to adequately fund its operating and capital expenditure
needs for fiscal 1996 from operations, augmented by borrowings under its line of
credit for seasonal credit needs.
9
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
(a) The Annual Meeting was held on May 22, 1996.
(b) Pursuant to Instruction 3 to Item 4, this paragraph need not be
answered.
(c) At the Annual Meeting of Shareholders held on May 22, 1996, the
following three matters were voted upon and passed. The
tabulation of votes was:
(1) The election of eight directors to serve until the 1997
Annual Meeting of Shareholders:
VOTES IN FAVOR WITHHOLD AUTHORITY
--------------------------- ---------------------------
IN PERSON AS PROXY IN PERSON AS PROXY
-------------- ------------ -------------- ------------
R. Stuart Dickson 6,452,492 8,495
-------------- ------------ -------------- ------------
Peter B. Foreman 6,452,792 8,195
-------------- ------------ -------------- ------------
George Friedman 6,452,792 8,195
-------------- ------------ -------------- ------------
John Grosso 6,452,592 8,395
-------------- ------------ -------------- ------------
Charlotte H. Mason 6,452,592 8,395
-------------- ------------ -------------- ------------
Joseph H. Reich 6,452,592 8,395
-------------- ------------ -------------- ------------
Albert F. Sloan 6,452,192 8,795
-------------- ------------ -------------- ------------
Stanley Tulchin 6,452,127 8,860
-------------- ------------ -------------- ------------
10
<PAGE>
(2) To approve the Company's 1996 Omnibus Long-Term Compensation
Plan:
VOTES IN FAVOR VOTES AGAINST ABSTENTIONS
----------------------- ----------------------- -----------------------
IN PERSON AS PROXY IN PERSON AS PROXY IN PERSON AS PROXY
---------- ------------ ----------- ---------- ----------- -----------
4,608,296 486,608 80,205
---------- ------------ ----------- ---------- ----------- -----------
(3) Ratification of the proposal to select KPMG Peat Marwick LLP
to continue as Independent Auditors for the 1996 fiscal year:
VOTES IN FAVOR VOTES AGAINST ABSTENTIONS
----------------------- --------------------- ------------------------
IN PERSON AS PROXY IN PERSON AS PROXY IN PERSON AS PROXY
---------- ------------ ---------- ---------- ------------ -----------
6,437,048 21,526 2,413
---------- ------------ ---------- ---------- ------------ -----------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Primary and Fully Diluted Earnings Per
Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PCA INTERNATIONAL, INC.
----------------------------------
(Registrant)
Date: June 11, 1996 /s/ John Grosso
----------------------------------
John Grosso
President
(Principal Executive Officer)
Date: June 11, 1996 /s/ Bruce A. Fisher
----------------------------------
Bruce A. Fisher
Senior Vice President
(Principal Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Index Page
No. Description No.
<S> <C> <C>
3(a) Restated Charter, as amended to date.
3(b) Bylaws of PCA International, Inc., as amended to date, incorporated
by reference to Exhibit 3.4 to the Company's Quarterly Report on
Form 10-Q, Commission File No. 0-8550, for the quarter ended May 3,
1992.
4 Instruments defining the rights of security holders, incorporated by
reference to Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the quarter ended May 3, 1992.
10(a) Amendment dated as of June 1, 1994, to Loan Agreement between PCA
International, Inc., Photo Corporation of America, PCA National,
Inc., and PCA Photo Corporation of Canada, Inc., PCA Mexico, S.A.
de C.V. and NationsBank of North Carolina, N.A., incorporated by
reference to Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994.
10(b) License Agreement dated May 10, 1996, between Kmart Corporation and
PCA International, Inc.
10(c) New Sales Contract dated August 11, 1994, between PCA
International, Inc., and Agfa Division of Miles, Inc., incorporated
by reference to Exhibit 10(c) to the Company's Amendment No. 1 on
Form 10-Q/A to its Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.
10(d)* The 1990 Non-Qualified Stock Option Plan, incorporated by reference
to Exhibit 4 to the Company's Registration Statement on Form S-8
(Registration No. 33-36793).
10(e)* The 1992 Non-Qualified Stock Option Plan, as amended, incorporated
by reference to Exhibit 4 to the Company's Registration Statement
on Form S-8 (Registration No. 33-51458).
10(f) Loan Agreement dated September 8, 1992, between PCA International,
Inc., Photo Corporation of America, PCA National, Inc., and PCA
Photo Corporation of Canada, Inc., and NationsBank of North
Carolina, N.A., incorporated by reference to Exhibit 10(o) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 2, 1992 (Commission File No. 0-8550).
10(g) Amendment dated as of September 14, 1993, to Loan Agreement between
PCA International, Inc., Photo Corporation of America, PCA
National, Inc., PCA Photo Corporation of Canada, Inc., and
NationsBank of North Carolina, N.A., incorporated by reference to
Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1994.
10(h) Amendment dated as of March 31, 1995, to Loan Agreement between PCA
International, Inc., Photo Corporation of America, PCA National,
Inc., PCA Photo Corporation of Canada, Inc., and PCA Mexico, S.A.
de C.V. and NationsBank of North Carolina, N.A., incorporated by
reference to Exhibit 10(h) to the Company's Annual Report on Form
10-K for the year ended January 29, 1995.
10(i) Amendment dated June 3, 1996 to Loan Agreement between PCA
International, Inc., Photo Corporation of America, PCA National,
Inc., PCA Corporation of Canada, Inc., and PCA Specialty Photo
Retail Corporation, and NationsBank of North Carolina, N.A.
10(j)* 1996 Omnibus Long-Term Compensation Plan.
11 Computation of Primary and Fully Diluted Earnings per Common Share.
27 Financial Data Schedule.
</TABLE>
*Management contract or compensatory plan or arrangement required
to be filed as an exhibit.
13
EXHIBIT 10(b)*
* Certain information has been omitted pursuant to a request
for confidential treatment submitted to the Securities and
Exchange Commission.
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT made as of this 10th day of May, 1996, between KMART
CORPORATION, a Michigan corporation, located at 3100 West Big Beaver Road, Troy,
Michigan 48084 (hereinafter "Kmart"); and PCA INTERNATIONAL, INC., a North
Carolina corporation, located at 815 Matthews-Mint Hill Road, Matthews, North
Carolina 28105 (hereinafter "PCA").
W I T N E S E T H
WHEREAS, Kmart is the owner and operator of certain retail
stores in the United States and certain of its territories; and
WHEREAS, PCA is in the portrait studio business; and
WHEREAS, PCA and Kmart have entered into a License Agreement dated as
of July 1, 1994 (the "July 1994 Agreement"), pursuant to which Kmart has granted
to PCA the exclusive license to operate studios in Kmart stores in the United
States and certain of its territories through January 31, 1997; and
WHEREAS, the parties desire to enter into a new License Agreement, to
take effect on the date hereof, pursuant to which PCA or its affiliates will
continue to conduct portrait studio business in Kmart stores in the United
States and certain of its territories as more particularly described below;
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
1. Grant
Kmart hereby grants to PCA a non-exclusive license to operate permanent
portrait studios, including recessed studios and transitional studios
("Studios") under the Kmart trademarks and service marks ("the marks") in each
Kmart store in the United States and its territories listed in Appendix A, as
amended by the written agreement of the parties from time to time during the
Term (as hereinafter defined) of this Agreement, as the Term applies to each
Studio. The parties agree to execute amendments to Appendix A from time to time
to reflect the termination of this Agreement with respect to any Studio and the
addition of any New Studio (as hereinafter defined).
2. Obligations of PCA
(a) PCA agrees to provide Kmart with detailed architectural
drawings and written construction specifications for all Studios
<PAGE>
within Kmart stores in which it is mutually agreed that PCA will do business as
a Studio. Subject to approval of such specifications by Kmart and the
appropriate building and governmental authorities, PCA agrees that Kmart shall
construct and install such Studios (the "Construction") within its stores for a
predetermined and agreed upon cost. Kmart agrees to consult with PCA regarding
the location of such Studios (including both recessed and transitional studios)
within Kmart stores. Construction shall include, but is not limited to,
sheetrock walls, vinyl floor tile, acoustical ceiling, lighting, mechanical,
sprinkler, electrical, painting, telephone, telephone line installation, studio
entrance signage and installation of cash register(s). PCA agrees to fully
reimburse Kmart for the aforementioned construction costs within thirty (30)
days after receipt of invoice from Kmart. Following completion of the
construction in each store, PCA agrees, at its sole expense, to provide and
install all Studio related furnishings, fixtures and equipment necessary and
reasonable to conduct a Studio, said installation to be carefully coordinated
with Kmart personnel at each location prior to the store opening or re-opening.
(b) Commencing with the occupancy by PCA of any Studio, and for the
remainder of the Term hereof, as the Term applies to each Studio, PCA shall make
all repairs and replacements to each Studio as shall be necessary to keep and
maintain same in good, safe and attractive operating condition and appearance;
provided, however, for a period of five (5) years from the original installation
date of any Studio, Kmart agrees to reimburse PCA for the costs of any
replacement or relocation of any Studio to the extent such replacement or
relocation is caused by Kmart's replacement, remodeling or relocation of any
store in which such Studio is located.
(c) Except as provided herein and excluding any cash register(s)
installed by Kmart, which shall be the property of Kmart, all furniture,
fixtures and equipment installed, furnished or utilized by PCA in the Studios
shall be the sole and exclusive property of PCA at all times. PCA shall have
sole responsibility for insuring such property against damage or loss from any
cause, and Kmart shall have no obligations in this regard. Risk of loss of any
materials, inventory, furniture, fixtures and equipment or anything not
mentioned but provided by PCA shall remain with PCA. PCA, in its discretion, may
affix such labels to any such furniture, fixtures and equipment as PCA shall
reasonably deem necessary or appropriate to provide notice of its ownership of
such furniture, fixtures and equipment. At PCA's request, Kmart will confirm to
any third party PCA's ownership of such furniture, fixtures and equipment, and
cooperate with PCA in establishing or verifying PCA's ownership thereof.
(d) PCA shall be responsible for all aspects of employment of
personnel for the Studios, including but not limited to, hiring,
training, supervision, termination and payment of employees of the
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<PAGE>
Studios. PCA agrees to employ capable employees who will maintain and
efficiently operate the Studios during time schedules determined by PCA and
approved by Kmart, which approval shall not be unreasonably withheld. PCA shall
require that its employees conform to the Rules and Regulations of Kmart stores,
a copy of which is attached hereto. PCA further agrees that it shall be solely
responsible for the payment of all wages, salaries or other remuneration of its
employees and for the payment of any payroll taxes, contributions for
unemployment, workers compensation and other insurance, social security,
pensions or annuities which are imposed as a result of PCA's employment of its
employees. Further, PCA shall be responsible to Kmart for any and all acts and
omissions of PCA's employees and agents, including but not limited to acts of
theft and dishonesty. PCA will cooperate with Kmart in investigating any alleged
employee dishonesty by PCA employees. PCA shall be responsible for and
represents that it shall comply with all local, state and federal laws, rules
and regulations applicable to this Agreement, the performance hereof, the
Studios or the operation thereof. The agreements and obligations set forth
herein are made solely for the benefit of PCA and Kmart, and their successors
and assigns; no third party shall have any right or claim with respect hereto;
and nothing herein is intended to make any person a third-party beneficiary of
this agreement.
(e) PCA shall be responsible for and shall bear the cost of all other
aspects of administering, operating and promoting the Studios unless otherwise
expressly provided for herein. PCA further agrees to purchase, in its own name,
all inventory necessary to operate full service portrait studios. Subject to
prior review and written approval by Kmart as provided herein, PCA shall arrange
for the preparation and placement of all merchandising, point of sale,
advertising and direct mail programs related to the Studios and PCA's services
in connection therewith.
(f) As a license fee, PCA shall pay and Kmart shall receive:
(i) from and after the date hereof and for the Term of this
Agreement, as the Term applies to each Studio, XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
(XXXX%) of the "XXXXXXXXXXXXXX," as hereinafter defined, for all operations in,
and sales of products or services from, XXXXXXXXXXX. Upon request, Kmart may
review the books and records of PCA during normal business hours at any time.
For purposes of this Agreement, the term "gross receipts" shall include
the entire pretax amount of the actual sales price for services and merchandise
and other receipts whatsoever of any and all business conducted by PCA in the
Studios; each sale upon installment or credit shall be treated as a sale for the
full price in the month during which such sale is made irrespective of the time
when or if PCA shall receive actual payment therefor.
-3-
<PAGE>
(g) PCA agrees to provide Kmart with copies of all financial or other
material documents filed with the United States Securities and Exchange
Commission by PCA promptly following such filing.
(h) PCA agrees to pay any fees, taxes (excluding all state sales taxes)
or licenses levied against or in connection with the Studios, their operation or
receipts therefrom by any taxing authority, it being the intention of this
Agreement that the percentage of gross receipts set forth in paragraph (f) shall
not be reduced by said amount, provided, nothing contained in this Agreement is
intended for PCA to be responsible for any taxes imposed upon Kmart's income.
(i) PCA agrees at its sole and exclusive expense to defend, indemnify,
reimburse and hold harmless Kmart, its subsidiaries, affiliates and its and
their officers and employees, as well as any landlord of a Kmart store in which
a Studio is located and its officers and directors, from and against all
damages, expenses, liabilities and claims arising out of the furnishing,
maintenance, existence, operation, repair or removal of the Studios, including
but not limited to: (i) any claim of any PCA employee or agent whether for
personal injury, death, payroll, wages, taxes required to be withheld from
wages, unemployment and workers compensation, social security, etc. and whether
arising on the Studio premises, the store premises or during ingress and egress
of either; and (ii) any claim of bodily injury and/or property damage by any
other party; provided, however, that PCA shall have no obligation pursuant to
this paragraph with respect to any damages, expenses, liabilities or claims to
the extent that same resulted from Kmart's construction of Studios. PCA further
agrees to furnish Kmart with copies of insurance policies covering PCA's
obligations and the activities and operations conducted hereunder and naming
Kmart as a named insured, in the following amounts: comprehensive public
liability and property damage insurance of at least XXXXXXXXXX for injury to one
person and XXXXXXXX for property damage resulting from one occurrence. PCA also
will maintain employee fidelity coverage to satisfy its obligations under this
Agreement in an amount and form determined by PCA and approved by Kmart, such
approval not to be unreasonably withheld.
(j) PCA also agrees at its sole and exclusive expense to defend,
indemnify, reimburse and hold harmless Kmart and its subsidiaries, affiliates
and its and their officers and employees as well as any landlord of a Kmart
store in which a Studio is located and its officers and employees from and
against any damages, expenses, liabilities, penalties and claims of any
regulator arising out of the manufacture, purchase, use, sale or advertising of
PCA photographic portraits or the existence or operation of any Studio or the
violation of any federal, state or local law, rule or regulation.
-4-
<PAGE>
(k) With respect to any and all actual or potential claim(s) demand(s)
or legal action(s) against or concerning Kmart or any of its subsidiaries or
affiliates which PCA receives notice of, other than routine complaints from PCA
customers which are received in the normal course of business and not filed with
a governmental regulatory or voluntary agency, PCA shall notify Kmart in writing
immediately upon receipt of any such notice. PCA shall be solely responsible for
the content of advertisements and any other promotional material generated by
PCA which makes reference to Kmart, even if reviewed by Kmart.
(l) PCA agrees that it shall conduct its Studio sales and services on
the store premises, solely under the name of Kmart, subject to PCA's right to
post labels with respect to its ownership of furniture, fixtures or equipment as
set forth in paragraph (c) above. PCA understands and acknowledges that Kmart
Properties, Inc. ("KPI") is the owner of the marks and that Kmart Corporation is
the licensee of the marks with the exclusive right to sublicense the marks,
subject to approval by KPI. Kmart hereby represents to PCA that KPI has approved
this Agreement. Except as provided herein, PCA has no rights in the marks or any
confusingly similar marks. All uses of the marks by PCA shall be subject to
review and written approval by KPI.
PCA agrees at its sole and exclusive expense to defend, indemnify,
reimburse and hold harmless Kmart, its subsidiaries and affiliates and its and
their officers and employees from and against all damages, expenses, liabilities
and claims of infringement of patents, copyrights, trademarks, unfair
competition or other contractual and proprietary interests arising out of the
existence or operation or in connection with the Studios. It is agreed that all
copyrights to the photographic products created by PCA are and shall remain the
property of PCA.
(m) PCA acknowledges and understands that the Studios are located in
Kmart stores and operate under the Kmart service mark and, accordingly, the
general public will associate PCA's operation with those of Kmart. Therefore,
PCA agrees to conduct first class photographic facilities with the
professionalism, dignity and character which are consistent with Kmart's
corporate philosophies, and PCA shall use its best efforts immediately to alter
or correct such matters consistent with Kmart's direction. In addition, PCA
agrees that its Studios' operations in Kmart stores shall be conducted in a
manner which shall enhance, and not harm nor potentially harm, the reputation of
Kmart. It is not intended by these provisions that Kmart shall have the ability
to govern or interfere with the day to day operations of PCA, but it is intended
that PCA shall adhere to Kmart's desires regarding policy matters affecting
atmosphere, ambience, fair dealing and character of Studio operations which may
impact in any way on the reputation of Kmart.
-5-
<PAGE>
3. Obligations of Kmart
With respect to the Studios:
(a) Kmart agrees to provide, at its sole and exclusive expense, cash
register(s), light, heat, power and janitorial service, but shall in no event be
liable for damages for any failure to supply such services.
(b) All monies (including cash, checks, money orders and credit card
receipts) taken in by either Kmart or PCA for services rendered by PCA shall be
deposited in cash register(s) provided by Kmart and shall be removed therefrom
by Kmart only and Kmart shall, on behalf of PCA, handle such funds in the
following manner: (i) make and keep a record of the gross receipts as herein
defined; (ii) segregate and pay all state sales tax; (iii) retain its license
fee from the gross receipts, and; (iv) at weekly intervals, remit in the usual
course of business the balance owed to PCA and for the seasonal period only,
beginning the first Friday before Thanksgiving and ending on the first Friday
after Christmas, remit to PCA by wire transfer on each Friday the balance owed
to PCA for each Studio through the close of business on the immediately
preceding Wednesday.
(c) Upon request of PCA, Kmart shall periodically provide PCA with a
list of all store locations where it believes Studios would be appropriate,
although nothing contained in this Agreement requires PCA to operate a Studio in
any Kmart store.
(d) Kmart may establish, modify, amend or revise the uniform Rules and
Regulations for operation of its stores. Kmart shall provide PCA with a written
copy of such Rules and Regulations and PCA agrees that its employees shall
comply with same.
4. Term and Termination
(a) This Agreement shall become effective on the date hereof, and
remain in effect for the period commencing on the date hereof and expiring May
9, 2001 (the "Term"); provided, however, that in the event Appendix A stipulates
a commencement date other than the date hereof for a Studio not in operation on
the date hereof (a "New Studio"), the Term with respect to each such New Studio
shall commence on the commencement date set forth in Appendix A for such New
Studio, and shall expire five years thereafter. Immediately upon the effective
date, this Agreement shall supersede and replace the July 1994 License Agreement
between the parties. Either party may terminate this Agreement, with respect to
any individual or all Studios, at any time during the Term of this Agreement, as
the Term applies to each Studio, with or without cause by either party giving
the other party one hundred eighty (180) days' prior written notice of intent to
terminate. If Kmart shall terminate this Agreement as to any Studio, for any
reason other than a termination
-6-
<PAGE>
for cause pursuant to Paragraph 4(b) hereof or as the result of a permanent
store closing by Kmart, then Kmart shall reimburse PCA, within 30 days of
receipt from PCA of a statement therefor, for PCA's full unamortized cost
(determined in accordance with PCA's depreciation and amortization methods then
in use with respect to PCA's audited financial statements) of all costs of
construction and leasehold improvements with respect to all such Studios (other
than transitional Studios) that have been reimbursed to Kmart pursuant to
Paragraph 2(a) hereof or otherwise paid for by PCA. Kmart shall have the right
at any time and from time to time to consult with PCA's independent auditors to
confirm the amount of such unamortized costs of construction and leasehold
improvements. In the event either party shall terminate this Agreement without
cause as set forth herein, the other party shall not be entitled to recover any
damages or amounts other than as set forth in this paragraph or otherwise
specifically set forth in this Agreement.
Upon termination or expiration of this Agreement as it applies to any
Studio, PCA shall remove all fixtures, furnishings, equipment or other property
belonging to PCA from the premises of the store in which that Studio is located,
restoring said premises to the same condition as received, ordinary wear and
tear excepted. Any PCA property remaining at such store premises thirty (30)
days after termination or expiration shall become the property of Kmart.
(b) During the term, subject to the provisions of paragraph 5 below and
in addition to the right to terminate at any time as provided in subparagraph
4(a), this Agreement may be terminated for:
(i) a material breach hereof by the other party;
(ii) in the event that a governmental unit having
authority over the store premises in which a Studio
is operated enacts an ordinance or otherwise
prohibits or restricts the operation thereof;
(iii) a material failure of any covenant, representation
or warranty of the other party set forth herein;
(iv) in the event that a bankruptcy, assignment of
creditors or a similar proceeding is commenced by
or against the other party; or
(v) in the event that either party, after due inquiry,
concludes that the other party is financially unable
to meet its obligations hereunder and such other
party fails to provide reasonable assurances of such
ability.
-7-
<PAGE>
5. Default
If either party shall default in its performance hereof (the
"Defaulting Party") as provided in subparagraph 4(b), the other party (the
"Non-Defaulting Party") may give the Defaulting Party notice in writing to be
sent by U.S. registered or certified mail, return receipt requested, of said
breach or default, and the Defaulting Party shall have thirty (30) days after
said notice is received within which to cure and rectify such breach or default.
In the event the Defaulting Party does not cure and rectify such breach or
default within thirty (30) days, then the Non-Defaulting Party shall have the
right, without further notice and at its sole option, either to cure the default
at the Defaulting Party's expense or to declare this Agreement terminated.
6. No Assignment
Recognizing that Kmart is entering into this Agreement on the basis of
PCA's representations that it can perform all of its obligations under this
Agreement utilizing its own employees and without utilizing subcontractors, PCA
expressly agrees not to subcontract, assign or transfer its obligations under
this Agreement without the prior written approval of Kmart; provided, however,
that PCA may assign its rights and responsibilities hereunder, or grant a
sublicense with respect to this License Agreement, to any subsidiary of PCA that
is, directly or indirectly, wholly owned by PCA, provided that no such
assignment or sublicense shall release PCA from its obligations to Kmart
hereunder. PCA has advised Kmart that it intends to assign its rights and
responsibilities under this Agreement to its subsidiary PCA National, Inc. Kmart
and KPI each represent that they may grant this License to PCA without violation
of law or contract. PCA represents that it may enter into this Agreement without
violation of its bylaws, articles of incorporation, any contract or any law.
7. No Partnership, Agency, or Joint Venture
PCA is and at all times shall remain an independent contractor, and
nothing contained in this Agreement shall be construed to create or constitute a
joint venture, partnership, agency, franchise, lease or any other arrangement
other than the license expressly granted herein. PCA may not pledge the credit,
incur any obligation or liability, hire any employee, nor purchase any
merchandise or services in the name of Kmart or any subsidiary or affiliate
thereof, it being agreed that neither party to this Agreement shall act as the
agent, servant, employee or employer of the other party.
-8-
<PAGE>
8. Damages
Except as provided in such paragraphs 2(i), 2 (j) and 2(l), neither
party shall be liable to the other party for incidental, consequential, punitive
or exemplary damages arising in connection with this Agreement or the
performance, omission of performance or termination hereof, even if the other
party has been advised of the possibility of such damages and without regard to
the nature of the claim or the underlying theory or cause of action whether in
contract, tort or otherwise.
9. Confidentiality
(a) In connection with this Agreement, each of Kmart and PCA may from
time to time provide to the other certain information with respect to portrait
studio traffic, store traffic, studio sales, store replacement, store openings
and closings, or renovation of stores and related business information, which
information is proprietary and highly confidential to Kmart and to PCA
respectively (the "Information"). Each party will use the Information provided
by the other solely for the purposes of planning and conducting the Studios and
Kmart's licensing thereof pursuant to this Agreement. Each party agrees that it
shall not use the Information in any way for the purpose of, or in connection
with, buying, selling, or trading in any securities of the other party.
(b) At all times, neither Kmart nor PCA, nor their agents, shall
disclose or communicate the Information to any third party, and each party shall
use its best efforts to prevent inadvertent disclosure or communication of the
Information.
(c) Neither Kmart nor PCA shall use the Information nor circulate it
within its own organization except on a "need-to-know" basis and to the extent
necessary for the planning and conduct of the portrait business and the
licensing thereof.
(d) The confidentiality obligations stated above shall not apply to any
information that was available to the public prior to disclosure of the
Information by the disclosing party to the receiving party or that becomes
available to the receiving party or to the public other than as a result of
disclosure by the disclosing party pursuant to this Agreement or as a result of
a violation of this Agreement.
(e) This Agreement states the entire understanding between Kmart and
PCA and may not be modified, waived, or terminated in whole or in part except as
set forth in a written document signed by both parties.
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<PAGE>
10. Notice
All notices under this Agreement shall be in writing and shall be
personally delivered or mailed to the other party by certified mail, return
receipt requested, to the address listed above.
11. Authority to Sign
Each person signing this Agreement warrants, and represents that s/he
has full power and authority to execute this Agreement for and on behalf of the
party s/he represents.
12. Integration
This Agreement shall be the final, complete and exclusive agreement
between the parties with respect to the subject matter hereof. This Agreement
shall supersede all prior understandings, agreements, contracts or arrangements
between the parties, whether oral or written. No agreement or other
understanding purporting to add to or to modify or to waive the terms and
conditions hereof shall be binding unless agreed to by authorized
representatives of the parties in writing. Any terms or conditions in any forms
of the parties used in the performance of this Agreement which are in conflict
with the terms and conditions hereof shall be void.
13. Consent to Jurisdiction
This Agreement shall be deemed to have been executed and delivered in
Troy, Michigan, and shall be construed, interpreted and enforced under and in
accordance with the internal laws of the state of Michigan. PCA agrees to
exercise any right or remedy in connection with this Agreement exclusively in,
and hereby submits to the jurisdiction of, the state of Michigan Courts of
Oakland County, or the United States District Court in Detroit, Michigan.
14. Headings
The headings in this Agreement are provided solely for the convenience
of the parties and shall not be considered relevant in any construction of this
Agreement or be interpreted to define expand or limit the provisions of this
Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, in
duplicate, the last day and year below written.
PCA INTERNATIONAL, INC. KMART CORPORATION
By: ________________________ By: __________________________
Its: _______________________ Its: __________________________
Date Signed: _______________ Date Signed: __________________
-11-
<PAGE>
EXHIBIT 10(i)
<PAGE>
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT, dated as of the 3rd day of
June, 1996 (the "Fourth Amendment"), is by and between PCA INTERNATIONAL, INC.,
a North Carolina corporation with its offices in Matthews, North Carolina, PHOTO
CORPORATION OF AMERICA, a North Carolina corporation with its offices in
Matthews, North Carolina, PCA NATIONAL, INC., a North Carolina corporation with
its offices in Matthews, North Carolina, PCA PHOTO CORPORATION OF CANADA, INC.,
a North Carolina corporation with its offices in Matthews, North Carolina, PCA
SPECIALTY RETAIL PHOTO CORPORATION, INC., a North Carolina corporation with its
offices in Matthews, North Carolina and PCA MEXICO, S.A. de C.V., a Mexican
limited liability company (collectively referred to as "Borrowers" and
individually as a "Borrower"); and NATIONSBANK, N.A. (formerly NationsBank N.A.
(CAROLINAS)), a national banking association with its principal offices in
Charlotte, North Carolina (the "Lender").
Recitals
A. Borrowers and Lender have entered into a Loan Agreement dated as of
the 8th day of September, 1992, as amended by the First Amendment to Loan
Agreement dated September 14, 1993, by the Second Amendment to Loan Agreement
dated June 1, 1994 and by the Third Amendment to Loan Agreement dated March 31,
1995 (as further amended, modified, restated or supplemented from time to time,
the "Loan Agreement").
B. Borrowers and Lender have mutually agreed to amend the Loan
Agreement, as more particularly set forth in this Fourth Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Effect of Fourth Amendment. Except as expressly amended hereby, the
Loan Agreement shall be and remain in full force and effect.
2. Capitalized Terms. All capitalized undefined terms used in this
Fourth Amendment shall have the meanings assigned thereto in the Loan Agreement.
3. Modification of Loan Agreement. The Loan Agreement is hereby
modified as follows:
(a) Section 7.18 is hereby amended and restated as follows:
7.18 Permitted Common Stock Repurchases. From and after
January 1, 1995, purchase, repurchase, redeem, retire, own, invest in
or otherwise acquire, directly or indirectly, any shares (including
without limitation the purchase,
<PAGE>
redemption, retirement or other acquisition of any right or option to
acquire any such shares) of its common stock; provided that, so long as
no Event of Default has occurred and is continuing or would occur after
giving effect thereto, and so long as the total amount of outstanding
loans under the Revolving Line of Credit does not exceed $10,000,000,
PCA International, Inc. may repurchase shares of its common stock
having an aggregate fair market value at the time of such purchase not
in excess of $12,000,000.
4. Conditions Precedent. The effectiveness of the amendments set forth
herein shall be conditioned upon delivery to the Lender of the following items:
(a) Certificate of the Borrowers. A certificate dated as of
the date hereof from the President of each of the Borrowers, in form and
substance satisfactory to the Lender, to the effect that all representations and
warranties of the Borrowers contained in the Loan Agreement and the other Loan
Documents, are true, correct and complete in all material respects; that the
Borrowers are not in violation of any of the covenants contained in the Loan
Agreement and the other Loan Documents; that, after giving effect to the
transactions contemplated by this Fourth Amendment, no Event of Default has
occurred and is continuing; and that the Borrowers have satisfied each of the
conditions set forth in this Section 4.
5. Conditions Subsequent. The Borrowers hereby covenant and agree to
deliver to the Lender, within sixty (60) days after the date of this Fourth
Amendment, the following items:
(a) Certificate of the Secretary of the Borrowers. A
certificate dated as of the date hereof of the secretary or assistant secretary
of each of the Borrowers certifying that attached thereto is a true and complete
copy of the articles of incorporation of such Borrower and all amendments
thereto, certified as of a recent date by the appropriate governmental authority
in its jurisdiction of incorporation; that attached thereto is a true and
complete copy of the bylaws of such Borrower as in effect on the date of such
certification; that attached thereto is a true and complete copy of resolutions
duly adopted by the Board of Directors of such Borrower authorizing the
transactions contemplated hereunder and the execution, delivery and performance
of this Fourth Amendment; and as to the incumbency and genuineness of the
signature of each officer of such Borrower executing this Fourth Amendment.
(b) Certificates of Good Standing. Long-form certificates as
of a recent date of the good standing of each of the Borrowers under the laws of
its jurisdiction of organization.
(c) Opinion of Counsel. A favorable opinion of the law firm of
Robinson, Bradshaw & Hinson, P.A., counsel to the Borrowers, dated as of the
date hereof and addressed to the Lender, in form and substance satisfactory to
the Lender.
6. Cross-References. All references in the Loan Agreement, or in any
agreement, document or instrument delivered pursuant thereto or in connection
therewith (collectively, together with the Loan Agreement, the "Loan
Documents"), to the Loan Agreement shall be
2
<PAGE>
deemed to refer to the Loan Agreement as modified by this Fourth Amendment. In
addition, all notices, requests, certificates and other instruments executed and
delivered after the execution and delivery of this Fourth Amendment may refer to
the Loan Agreement without making specific reference to this Fourth Amendment,
but nevertheless all such references shall include this Fourth Amendment unless
the context otherwise requires.
7. Representations and Warranties/No Default. By their execution
hereof, the Borrowers hereby certify that each of the representations and
warranties set forth in the Loan Agreement and the other Loan Documents is true
and correct as of the date hereof as if fully set forth herein and that as of
the date hereof no Event of Default has occurred and is continuing.
8. Expenses. The Borrowers shall pay all reasonable out-of-pocket
expenses of the Lender in connection with the preparation, execution and
delivery of this Fourth Amendment, including without limitation, the reasonable
fees and disbursements of counsel for the Lender.
9. Governing Law. This Fourth Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
10. Counterparts. This Fourth Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed as of the date and year first above written.
BORROWERS:
[CORPORATE SEAL] PCA INTERNATIONAL, INC.
By:
Name:
Title:
3
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[CORPORATE SEAL] PHOTO CORPORATION OF AMERICA
By:
Name:
Title:
[CORPORATE SEAL] PCA NATIONAL, INC.
By:
Name:
Title:
[CORPORATE SEAL] PCA PHOTO CORPORATION OF CANADA, INC.
By:
Name:
Title:
[CORPORATE SEAL] PCA SPECIALTY RETAIL PHOTO
CORPORATION, INC.
By:
Name:
Title:
4
<PAGE>
[CORPORATE SEAL] PCA MEXICO S.A. de C.V.
By:
Name:
Title:
5
<PAGE>
LENDER:
[CORPORATE SEAL] NATIONSBANK, N.A.
By:
Name:
Title:
6
<PAGE>
EXHIBIT 10(j)
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PCA INTERNATIONAL, INC.
1996 OMNIBUS LONG-TERM COMPENSATION PLAN
ARTICLE 1 - PURPOSE AND TERM OF PLAN
1.1 Purpose. The purposes of the Plan are to aid PCA International, Inc. ("PCA
International") and its Subsidiaries (PCA International, Inc. and its
Subsidiaries collectively being referred to herein as the "Company") in
attracting and retaining Key Employees through a competitive compensation
package, to stimulate the efforts of such Key Employees and to strengthen their
desire to remain with the Company, to aid the Company in attracting superior
individuals to serve as Nonemployee Directors and to provide appropriate
compensation to such Nonemployee Directors for their Service. Toward these
objectives, the Committee may grant Employee Stock Options, stock appreciation
rights, Performance Restricted Stock Awards, Performance Awards payable in
Common Stock or cash, performance units, and other incentive Awards to Key
Employees on the terms and subject to the conditions set forth in the Plan. In
addition, the Plan provides for the grant of options to Nonemployee Directors
upon their initial election or appointment as a Director and that each
Nonemployee Director may elect to take all or part of his or her compensation as
Director in the form of options.
1.2 Term. The Plan replaces and supersedes the PCA International, Inc. 1990
Non-Qualified Stock Option Plan and 1992 Non-Qualified Stock Option Plan, except
with respect to options and shares of Common Stock issued and outstanding under
such 1990 Non-Qualified Stock Option Plan and 1992 Non-Qualified Stock Option
Plan which will continue to be governed by the terms of such plans. The Plan
shall become effective as of March 6, 1996, subject to its approval by the
shareholders of PCA International at the 1996 Annual Meeting of the
shareholders. No Awards shall be exercisable or payable before approval of the
Plan has been obtained from PCA International's shareholders. Awards shall not
be granted pursuant to Articles 7, 8, 9, 10 or 11 of the Plan after May 21,
2001; except that the Committee may grant Awards after such date in recognition
of performance for Performance Cycles and Performance Periods commencing prior
to such date.
ARTICLE 2 - DEFINITIONS
2.1 Approved Reason. "Approved Reason" means a reason for terminating employment
with the Company that, in the opinion of the Committee, is in the best interests
of the Company, as determined by the Committee on a case-by-case basis in its
sole discretion.
2.2 Award. "Award" means any form of stock option, stock appreciation right,
performance unit, Performance Award payable in cash or shares of Common Stock,
shares of Performance Restricted Stock under the Performance Restricted Stock
Program, or other incentive Award granted under the Plan, whether singly, in
combination, or in tandem, to a Participant by the Committee pursuant to such
terms, conditions, restrictions, and limitations, if any, as the
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Committee may establish by the Award Notice or otherwise, and any Formula Option
or Deferral Option.
2.3 Award Notice. "Award Notice" means a written notice from the Company to a
Participant that establishes the terms, conditions, restrictions, and
limitations applicable to an Award in addition to those established by this Plan
and by the Committee's exercise of its administrative powers.
2.4 Award Payment Date. "Award Payment Date" means, for a Performance Cycle or
Performance Period, the date the Awards for such Performance Cycle or
Performance Period shall be paid to Participants. The Award Payment Date for a
Performance Cycle or Performance Period shall occur as soon as administratively
possible following the completion of the certifications required pursuant to
Subsection 9.5.3, in the case of a Performance Cycle, and Subsection 10.5.3, in
the case of a Performance Period.
2.5 Board. "Board" means the Board of Directors of PCA International.
2.6 Cause. "Cause," in the case of a Key Employee, means (a) the willful and
continued failure by an Employee to substantially perform his or her duties with
his or her employer after written warnings identifying the lack of substantial
performance are delivered to the Employee by his or her employer to specifically
identify the manner in which the employer believes that the Employee has not
substantially performed his or her duties, or (b) the willful engaging by an
Employee in illegal conduct that is materially and demonstrably injurious to PCA
International or a Subsidiary.
"Cause" means, in the case of a Nonemployee Director, termination of such
Nonemployee Director's Service by PCA International's shareholders for cause
pursuant to the Bylaws of PCA International.
2.7 CEO. "CEO" means the Chief Executive Officer of PCA International.
2.8 Change In Control. "Change In Control" means, (i) as the result of a tender
offer, merger, consolidation, sale of assets, or any combination of such
transactions, the persons who were members of the Board immediately before the
transaction cease to constitute at least a majority thereof, and (ii) such
occurrence would be a change of control of the Company of a nature that such
event would be required to be reported in response to Item 1(a) of the Current
Report on Form 8-k, as in effect on the date hereof, promulgated pursuant to
Section 13 of the Exchange Act (whether or not the Company is required to file
such a report).
2.9 Change In Control Price. "Change In Control Price" means the merger or
tender price paid for a share of Common Stock upon a Change of Control.
2.10 Change In Ownership. "Change In Ownership" means a Change In Control that
results directly or indirectly in the Common Stock ceasing to be actively traded
on the primary
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securities exchange or quotation system on which the Common Stock is traded
immediately prior to such Change in Control.
2.11 Code. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, including regulations thereunder and successor provisions and
regulations thereto.
2.12 Committee. "Committee" means the Compensation Committee of the Board,
unless and until its members are not qualified to serve on the Committee
pursuant to the provisions of the Plan, in which case the Board will designate
the members of the Committee; provided that the Committee shall at all times
consist of two or more Directors, each of whom is both a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act and an "outside
director" within the meaning of the definition of such term as contained in
Treasury Regulation Section 1.162-27(e)(3), or any successor definition;
provided further that no Director shall be appointed a member of the Committee
who has received any Award other than an Award under Article 12 in the year
prior to such appointment; provided further that no Committee member may receive
an Award other than pursuant to Article 12.
2.13 Common Stock. "Common Stock" means Common Stock, $.20 par value per share,
of PCA International, which may be newly issued, treasury stock, shares issued
and outstanding or shares owned by a Subsidiary.
2.14 Company. "Company" means PCA International and its Subsidiaries.
2.15 Covered Employee. "Covered Employee" means an Employee who is a "Covered
Employee" within the meaning of Section 162(m) of the Code.
2.16 Deferral Stock Option. "Deferral Stock Option" means an award of stock
options to a Nonemployee Director pursuant to the election of such Nonemployee
Director to receive such stock option in lieu of cash compensation in accordance
with Subsection 12.3 of this Plan.
2.17 Director. "Director" means a director of PCA International.
2.18 Disability. "Disability," in the case of a Key Employee, means a disability
under the terms of the PCA International long-term disability plan maintained by
the Company or any successor plan thereto.
2.19 Disability. "Disability," in the case of a Nonemployee Director, means the
permanent and lasting inability, by reason of physical or mental infirmity, or
both, of an employee to perform his or her duties as Director. Such Disability
shall be determined exclusively by the Board, with or without reference to the
certificate of a qualified physician.
2.20 Effective Date. "Effective Date" means the date an Award is determined to
be effective by the Committee upon its grant of such Award.
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2.21 Employee. "Employee" means either (a) a salaried employee of PCA
International or (b) a salaried employee of a Subsidiary.
2.22 Employee Stock Option. "Employee Stock Option" means an Award granted to a
Key Employee in the form of a stock option pursuant to Article 7.
2.23 Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.
2.24 Formula Option. "Formula Option" means an Option granted to a Nonemployee
Director of the Company pursuant to Section 12.2 of the Plan.
2.25 Good Reason. "Good Reason" means any of the following (without the
Participant's written consent):
(i) the assignment to the Participant by the Company of duties
inconsistent with the Participant's position, duties, responsibilities
and status with the Company immediately prior to a Change in Control, or
a change in the Participant's titles or offices as in effect immediately
prior to Change in Control of the Company, or any removal of the
Participant from or any failure to reelect the Participant to any of
such positions, except in connection with the termination of his
employment because of Disability, Retirement or Cause or as a result of
the Participant's death or by the Participant other than for Good
Reason;
(ii) a reduction by the Company in the Participant's base
salary as in effect immediately prior to the Change in Control;
(iii) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the
Company's profit sharing plan, Group Annuity Contract, group life
insurance plan, senior participant survivor life insurance supplement,
and medical, dental, accident and disability plans) in which the
Participant is participating at the time of a Change in Control (or any
other plans providing the Participant with substantially similar
benefits) (hereinafter referred to as "Benefit Plans"), or the taking of
any action by the Company which would adversely affect the Participant's
participation in or materially reduce the Participant's benefits under
any such Benefit Plan or deprive the Participant of any material fringe
benefit enjoyed by the Participant at the time of a Change in Control;
(iv) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, any annual
incentive compensation plan, long-term performance incentive plan,
long-term incentive bonus plan, as amended, bonus and contingent bonus
arrangements and credits and the right to receive performance awards and
similar incentive compensation benefits) in which the Participant is
participating at the time of a Change in Control (or any other plans or
arrangements providing him with
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substantially similar benefits) hereinafter referred to as "Incentive
Plans") or the taking of any action by the Company which would adversely
affect the Participant's participation in any such Incentive Plan or
reduce the Participant's benefits under any such Incentive Plan,
expressed as a percentage of his base salary, by more than 10 percentage
points in any fiscal year as compared to the immediately preceding
fiscal year.
(v) any failure by the Company to continue in effect any plan
or arrangement to receive securities of the Company (including, without
limitation, this Plan, and any other plan or arrangement to receive and
exercise stock options, stock appreciation rights, restricted stock or
grants thereof) in which the Participant is participating at the time of
a Change in Control of the Company (or plans or arrangements providing
him with substantially similar benefits) (hereinafter referred to as
"Securities Plans") or the taking of any action by the Company which
would adversely affect the Participant's participation in or materially
reduce the Participant's benefits under any such Securities Plan;
(vi) the Participant's relocation to any place more than thirty
(30) miles from the location at which the Participant performed the
Participant's duties prior to a Change in Control, except for required
travel by the Participant on the Company's business to an extent
substantially consistent with the Participant's business travel
obligations at the time of a Change in Control; or
(vii) any failure by the Company to provide the Participant
with the number of paid vacation days to which the Participant is
entitled at the time of a Change in Control.
2.26 Initial Election Date. "Initial Election Date" means, for each Director,
the later to occur of (i) the date of the 1996 annual meeting of the
shareholders of PCA International or (ii) the date of the Director's initial
election or appointment to the Board.
2.27 Key Employee. "Key Employee" means a senior level Employee who holds a
position of responsibility in a managerial, administrative, or professional
capacity.
2.28 Negative Discretion. "Negative Discretion" means the discretion authorized
by the Plan to be applied by the Committee in determining the size of an Award
for a Performance Period or Performance Cycle if, in the Committee's sole
judgment, such application is appropriate. Negative Discretion may only be used
by the Committee to eliminate or reduce the size of an Award. By way of example
and not by way of limitation, in no event shall any discretionary authority
granted to the Committee by the Plan, including but not limited to Negative
Discretion, be used to: (a) grant Awards for a Performance Period or Performance
Cycle if the Performance Goals for such Performance Period or Performance Cycle
have not been attained; or (b) increase an Award above the maximum amount
payable under Section 7.7, 8.7, 9.10 or 10.7 of the Plan.
2.29 Nonemployee Director. "Nonemployee Director" means a member of the Board
who is not an Employee.
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2.30 Nonemployee Director Option. "Nonemployee Director Option" means a Formula
Option or a Deferral Option.
2.31 Nonemployee Director Option Agreement. "Nonemployee Director Option
Agreement" means an Option Agreement between the Company and the Nonemployee
Director pursuant to which the Nonemployee Director Option is awarded stock
options as set forth in the Plan.
2.32 PCA International. "PCA International" means PCA International, Inc.
2.33 Participant. "Participant" means any Key Employee who has been selected for
a grant of stock options pursuant to Article 7, any Key Employee who has been
selected for a grant of stock appreciation rights pursuant to Article 8, any Key
Employee who for a Performance Cycle has been selected to participate in the
Performance Restricted Stock Program pursuant to Article 9, any Key Employee who
for a Performance Period has been selected to participate in the Performance
Award Program pursuant to Article 10, any Key Employee who has been selected for
a grant of performance units pursuant to Article 11, and any Nonemployee
Director who is eligible to receive a grant of Formula Options pursuant to
Section 12.2, or who elects to receive Deferral Options pursuant to Article 12.
2.34 Performance Awards. "Performance Awards" means the Performance Awards
granted to Key Employees pursuant to Article 10. All Performance Awards are
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code.
2.35 Performance Criteria. "Performance Criteria" means the one or more criteria
that the Committee shall select for purposes of establishing the Performance
Goal(s) for a Performance Period or Performance Cycle. The Performance Criteria
that will be used to establish such Performance Goal(s) shall be limited to the
following: Return On Net Assets ("RONA"), return on shareholders' equity, return
on assets, return on capital, shareholder returns, profit margin, earnings per
share, net earnings, operating earnings, Common Stock price per share, and sales
or market share. To the extent required by Section 162(m) of the Code, the
Committee shall, within the first 90 days of a Performance Period or Performance
Cycle (or, if longer, within the maximum period allowed under Section 162(m) of
the Code), define in an objective fashion the manner of calculating the
Performance Criteria it selects to use for such Performance Period or
Performance Cycle.
2.36 Performance Cycle. "Performance Cycle" means the one or more periods of
time, which may be of varying and overlapping durations, but which shall be at
least one year in length, as the Committee may select, over which the attainment
of one or more Performance Goals will be measured for the purpose of determining
a Participant's right to and the payment of an Award under the Performance
Restricted Stock Program.
2.37 Performance Formula. "Performance Formula" means, for a Performance Period
or Performance Cycle, the one or more objective formulas applied against the
relevant Performance Goals to determine, with regard to the Award of a
particular Participant, whether all, some
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portion but less than all, or none of the Award has been earned for the
Performance Period or Performance Cycle. In the case of an Award under the
Performance Restricted Stock Program, in the event the Performance Goals for a
Performance Cycle are achieved, the Performance Formula shall determine what
percentage of the Participant's Target Award for the Performance Cycle will be
earned.
2.38 Performance Goal. "Performance Goal" means, for a Performance Period or
Performance Cycle, the one or more goals established by the Committee for the
Performance Period or Performance Cycle based upon the Performance Criteria. The
Committee is authorized at any time during the first 90 days of a Performance
Period or Performance Cycle, or at any time thereafter (but only to the extent
the exercise of such authority after the first 90 days of a Performance Period
or Performance Cycle would not cause the Awards granted to the Covered Employees
for the Performance Period or Performance Cycle to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code), in its sole
and absolute discretion, to adjust or modify the calculation of a Performance
Goal for such Performance Period or Performance Cycle in order to prevent the
dilution or enlargement of the rights of Participants, (a) in the event of, or
in anticipation of, any unusual or extraordinary corporate item, transaction,
event or development; (b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the financial
statements of the Company, or in response to, or in anticipation of, changes in
applicable laws, regulations, accounting principles, or business conditions; and
(c) in view of the Committee's assessment of the business strategy of the
Company, performance of comparable organizations, economic and business
conditions and any other circumstances deemed relevant.
2.39 Performance Period. "Performance Period" means the one or more periods of
time, which may be varying and overlapping durations, but which shall be at
least one year in length, as the Committee may select, over which the attainment
of one or more Performance Goals will be measured for the purpose of determining
a Participant's right to and the payment of a Performance Award.
2.40 Performance Restricted Stock. "Performance Restricted Stock" means an Award
of Common Stock subject to the restrictions set forth in Section 9.6 awarded to
a Key Employee pursuant to Article 9.
2.41 Performance Restricted Stock Award. "Performance Restricted Stock Award"
means an Award granted pursuant to Article 9 in the form of shares of
Performance Restricted Stock. All Restricted Stock Awards are intended to
qualify as "performance-based compensation" under Section 162(m) of the Code.
2.42 Performance Restricted Stock Program. "Performance Restricted Stock
Program" means the program established under Article 9 of the Plan pursuant to
which selected Key Employees receive Awards for a Performance Cycle in the form
of shares of Performance Restricted Stock based upon attainment of Performance
Goals for such Performance Cycle. All Awards granted
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to Covered Employees under the Performance Restricted Stock Program are intended
to qualify as "performance-based compensation" under Section 162(m) of the Code.
2.43 Plan. "Plan" means this PCA International, Inc. 1996 Omnibus Long-Term
Compensation Plan, as amended or modified from time to time.
2.44 Retirement. "Retirement" means, in the case of a Key Employee, for all Plan
purposes other than Section 18.12, a termination of employment from the Company
on or after attainment of Normal Retirement Age as defined under the PCA
International, PCA Inc. 401(k) Plan.
"Retirement" means, in the case of a Nonemployee Director, for all Plan purposes
other than Section 18.12, the termination of such Nonemployee Director's Service
on or after age 70, or at any earlier age with the consent of the Board.
2.45 Restriction Period. "Restriction Period" means the period of time beginning
on the Effective Date of the grant of Performance Restricted Stock and ending
three (3) year(s) after such date, or such longer period as the Committee shall
determine in its sole discretion.
2.46 Service. "Service" means service as a Director.
2.47 Subsidiary. "Subsidiary" means a corporation or other business entity in
which PCA International directly or indirectly has an ownership interest of 80
percent or more.
2.48 Target Award. "Target Award" means, for a Performance Cycle, the target
Award amount, expressed as a number of shares of Performance Restricted Stock,
established for each Participant selected by the Committee for the Performance
Cycle. The fact, however, that a Target Award is established for a Participant
shall not in any manner entitle such Participant to receive an Award for such
Performance Cycle.
2.49 Unit. "Unit" means a bookkeeping entry used by the Company to record and
account for the grant of performance units until the performance unit is paid,
cancelled, forfeited or terminated, as the case may be.
ARTICLE 3 - ELIGIBILITY
Only Key Employees are eligible to participate in Awards under Articles 7, 8, 9,
10 and 11 of the Plan. Only Nonemployee Directors shall participate in Awards
under Article 12 of the Plan. For purposes of Articles 7, 8, 9, 10, and 11 of
the Plan, the Committee shall select, from time to time, Participants from those
Key Employees who, in the opinion of the Committee, can further the Plan's
purposes. Once a Participant is so selected, the Committee shall determine the
type or types of Awards to be made to the Participant and shall establish in the
related Award Notices the terms, conditions, restrictions, and limitations, if
any, applicable to the Awards in addition to those set forth in this Plan and
the administrative rules and regulations issued by the Committee.
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ARTICLE 4 - PLAN ADMINISTRATION
4.1 Responsibility. The Committee shall have total and exclusive responsibility
to control, operate, manage, and administer the Plan in accordance with its
terms.
4.2 Authority of the Committee. The Committee shall have all the authority that
may be necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the preceding sentence,
the Committee shall have the exclusive right to: (a) interpret the Plan; (b)
determine eligibility for the participation in the Plan; (c) decide all
questions concerning eligibility for and the amount of Awards payable under the
Plan; (d) construe any ambiguous provision of the Plan; (e) correct any default;
(f) supply any omission; (g) reconcile any inconsistency; (h) issue
administrative guidelines as an aid to administer the Plan and make changes in
such guidelines as it from time to time deems proper; (i) make regulations for
carrying out the Plan and make changes in such regulations as it from time to
time deems proper; (j) determine whether Awards should be granted singly, in
combination, or in tandem; (k) to the extent permitted under the Plan, grant
waivers of Plan terms, conditions, restrictions, and limitations; (l) accelerate
the vesting, exercise, or payment of an Award or the Performance Period of an
Award when such action or actions would be in the best interest of the Company;
(m) establish such other types of Awards, besides those specifically enumerated
in Article 5 hereof, that the Committee determines are consistent with the
Plan's purpose; (n) subject to Section 7.2, grant Awards in replacement of
Awards previously granted under this Plan or any other executive compensation
plan of the Company; (o) establish and administer the Performance Goals and
certify whether, and to what extent, they have been attained; and (p) take any
and all other action it deems necessary or advisable for the proper operation or
administration of the Plan; provided that in no event shall the Committee have
the power to determine eligibility for participation under Article 12 or to
determine the number, price, vesting period, or timing of Formula Options
granted under Article 12 (all of which determinations are automatic under the
provisions of the Plan).
4.3 Discretionary Authority. The Committee shall have full discretionary
authority in all matters related to the discharge of its responsibilities and
the exercise of its authority under the Plan, including without limitation its
construction of the terms of the Plan and its determination of eligibility for
participation and Awards under the Plan. It is the intent of the Plan that the
decisions of the Committee and its action with respect to the Plan shall be
final, binding and conclusive upon all persons having or claiming to have any
right or interest in or under the Plan.
4.4 Section 162(m) of the Code. With regard to all Covered Employees, the Plan
shall, for all purposes, be interpreted and construed in accordance with Section
162(m) of the Code.
4.5 Action by the Committee. The Committee may act only by a majority of its
members. Any determination of the Committee may be made, without a meeting, by a
writing or writings signed by all of the members of the Committee. In addition,
the Committee may authorize any one or more of its number to execute and deliver
documents on behalf of the Committee.
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4.6 Delegation of Authority. The Committee may delegate some or all of its
authority under the Plan to any person or persons provided that any such
delegation be in writing; provided, however, that only the Committee may select
and grant Awards to Participants who are subject to Section 16 of the Exchange
Act or are Covered Employees.
ARTICLE 5 - FORMS OF AWARDS
5.1 In General. Awards may, at the Committee's sole discretion, be paid in the
form of stock options pursuant to Article 7, stock appreciation rights pursuant
to Article 8, Performance Restricted Stock Awards pursuant to Article 9,
Performance Awards pursuant to Article 10, performance units pursuant to Article
11, and any form established by the Committee pursuant to Section 4.2(m), or a
combination thereof. Awards may also be paid in the form of Formula Options and
Deferral Options pursuant to Article 12. All Awards shall be subject to the
terms, conditions, restrictions and limitations of the Plan. The Committee may,
in its sole judgment, subject an Award, except Formula Options and Deferral
Options granted pursuant to Article 12, to such other terms, conditions,
restrictions, and limitations (including, but not limited to, the time and
conditions of exercise and restrictions on transferability and vesting),
provided they are not inconsistent with the terms of the Plan. Awards under a
particular Article of the Plan need not be uniform and Awards under two or more
Articles may be combined into a single Award Notice. Any combination of Awards
may be granted at one time and on more than one occasion to the same
Participant. For purposes of the Plan, the value of any Award granted in the
form of Common Stock shall be the closing price at which a share of Common Stock
trades on the date of the grant's Effective Date, or the next preceding trading
day if such date was not a trading date, on the primary securities exchange or
quotation system on which the Common Stock is then traded.
ARTICLE 6 - SHARES SUBJECT TO PLAN
6.1 Available Shares. The maximum number of shares of Common Stock that shall be
available for grant of Awards under the Plan (including incentive stock options)
during its term, shall not exceed 811,550. (Such amount shall be subject to
adjustment as provided in Section 6.2.) Any shares of Common Stock related to
Awards that terminate by expiration, forfeiture, cancellation, or otherwise
without the issuance of such shares shall be available again for grant under the
Plan. Moreover, shares of Common Stock with respect to which a stock
appreciation right has been exercised and paid in cash shall again become
eligible for grant under the Plan; provided that if such shares of Common Stock
subject to Awards are settled in cash in lieu of Common Stock or are exchanged
with the Committee's permission for Awards not involving Common Stock, such
shares shall not be available again for grant under the Plan. The maximum number
of shares available for issuance under the Plan shall not be reduced to reflect
any dividends or dividend equivalents that are reinvested into additional shares
of Common Stock or credited as additional performance shares. The shares of
Common Stock available for issuance under the Plan may be authorized and
unissued shares, treasury shares, shares issued and outstanding or shares owned
by a Subsidiary.
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6.2 Adjustment to Shares.
6.2.1 In General. The provisions of this Subsection 6.2.1 are subject to
the limitation contained in Subsection 6.2.2. If there is any change in
the number of outstanding shares of Common Stock through the declaration
of stock dividends, stock splits or the like, the number of shares
available for Awards, the shares subject to any Award and the option
prices or exercise prices of Awards shall be automatically adjusted. If
there is any change in the number of outstanding shares of Common Stock
through any change in the capital account of PCA International, or
through a merger, consolidation, separation (including a spin-off or
other distribution of stock or property), reorganization (whether or not
such reorganization comes within the meaning of such term in Section
368(a) of the Code) or partial or complete liquidation, the Committee
shall make appropriate adjustments in the maximum number of shares of
Common Stock that may be issued under the Plan and any adjustments
and/or modifications to outstanding Awards as it, in its sole
discretion, deems appropriate. In event of any other change in the
capital structure or in the Common Stock of PCA International, the
Committee shall also be authorized to make such appropriate adjustments
in the maximum number of shares of Common Stock available for issuance
under the Plan and any adjustments and/or modifications to outstanding
Awards as it, in its sole discretion, deems appropriate. The maximum
number of shares available for issuance under the Plan shall be
automatically adjusted to the extent necessary to reflect any dividend
equivalents paid in the form of Common Stock.
6.2.2 Covered Employees. In no event shall the Award of any Participant
who is a Covered Employee be adjusted pursuant to Subsection 6.2(a) to
the extent it would cause such Award to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code.
ARTICLE 7 - EMPLOYEE STOCK OPTION PROGRAM
7.1 In General. Awards may be granted to Key Employees in the form of Employee
Stock Options. These Employee Stock Options may be incentive stock options
within the meaning of Section 422 of the Code or non-qualified stock options
(i.e., stock options that are not incentive stock options), or a combination of
both. All Awards under the Plan issued to Covered Employees in the form of
Employee Stock Options shall qualify as "performance-based compensation" under
Section 162(m) of the Code.
7.2 Terms and Conditions of Stock Options. An Employee Stock Option shall be
exercisable in whole or in such installments and at such times as may be
determined by the Committee. The price at which Common Stock may be purchased
upon exercise of an Employee Stock Option shall be not less than 100% of the
closing price at which a share of Common Stock trades on the date of the grant's
Effective Date, or the next preceding trading day if such date was not a trading
date, on the primary securities exchange or quotation system on which the Common
Stock is then traded. Moreover, all Options shall expire not later than 10 years
from the
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Effective Date of the grant. Employee Stock Options shall not be repriced, i.e.,
there shall be no grant of an Employee Stock Option(s) to a Participant in
exchange for a Participant's agreement to cancellation of a higher-priced
Employee Stock Option(s) that was previously granted to such Participant.
7.3 Restrictions Relating to Incentive Stock Options. Employee Stock Options
issued in the form of incentive stock options shall, in addition to being
subject to the terms and conditions of Section 7.2, comply with Section 422 of
the Code. Accordingly, the aggregate fair-market value (determined at the time
the option was granted) of the Common Stock with respect to which incentive
stock options are exercisable for the first time by a Participant during any
calendar year (under this Plan or any other plan of the Company) shall not
exceed $100,000 (or such other limit as may be required by the Code). The price
at which Common Stock may be purchased upon exercise of an incentive stock
option shall not be less than 100% of the closing price at which a share of
Common Stock trades on the date of the grant's Effective Date, or the next
preceding trading day if such date was not a trading date, on the primary
securities exchange or quotation system on which the Common Stock is then
traded, provided that in the case of an incentive stock option granted to a Key
Employee who at the time of grant owns (as is defined in Section 424(d) of the
Code) stock of the Company or the Subsidiaries possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any of the
Subsidiaries, the price at which Common Stock may be purchased upon exercise of
such incentive stock option shall be not less than 110% of such price, on the
Effective Date of the incentive stock option's grant. In no event may the price
at which Common Stock may be purchased upon exercise of such incentive stock
option be less than the par value of the Common Stock subject to such incentive
stock option. From the maximum number of shares available for issuance under the
Plan under Section 6.1, the number of shares of Common Stock that shall be
available for incentive stock options granted under the Plan is 200,000.
7.4 Additional Terms and Conditions. The Committee may, by way of the Award
Notice or otherwise, establish such other terms, conditions, restrictions, and
limitations, if any, of any Employee Stock Option Award, provided they are not
inconsistent with the Plan.
7.5 Exercise. Upon exercise, the option price of an Employee Stock Option may be
paid in cash, shares of Common Stock, a combination of the foregoing, or such
other consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock, whether restricted or
unrestricted, and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise an Employee Stock Option. Subject to Section
18.9, Employee Stock Options awarded under the Plan may be exercised by way of
any broker-assisted exercise program, provided such program is available at the
time of the Employee Stock Option's exercise. The Committee may permit a
Participant to satisfy any amounts required to be withheld under the applicable
Federal, state and local tax laws, in effect from time to time, by electing to
have the Company withhold a portion of the shares of Common Stock to be
delivered for the payment of such taxes.
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7.6 Nontransferability of Employee Stock Options. No Employee Stock Option
granted pursuant to the Plan shall be transferable otherwise than by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code. During the lifetime of an optionee, the
Employee Stock Option shall be exercisable only by the optionee personally or by
the optionee's legal representative.
7.7 Maximum Award Payable. Notwithstanding any provision contained in the Plan
to the contrary, the maximum number of shares for which Employee Stock Options
may be granted under the Plan to any one Participant for a calendar year is
20,000 shares of Common Stock.
ARTICLE 8 - STOCK APPRECIATION RIGHTS
8.1 In General. Awards may be granted to employees in the form of stock
appreciation rights ("SARs"). An SAR may be granted in tandem with all or a
portion of a related Employee Stock Option under the Plan ("Tandem SARs"), or
may be granted separately ("Freestanding SARs"). A Tandem SAR may be granted
either at the time of the grant of the related Employee Stock Option or at any
time thereafter during the term of the Employee Stock Option. SARs shall entitle
the recipient to receive a payment equal to the appreciation in market value of
a stated number of shares of Common Stock from the exercise price to the market
value on the date of exercise. All Awards under the Plan issued to Covered
Employees in the form of an SAR shall qualify as "performance-based
compensation" under Section 162(m) of the Code.
8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall be exercisable to
the extent, and only to the extent, that the related Employee Stock Option is
exercisable, and the "exercise price" of such an SAR (the base from which the
value of the SAR is measured at its exercise) shall be the option price under
the related Employee Stock Option. However, at no time shall a Tandem SAR be
issued if the option price of its related Employee Stock Option is less than the
fair-market value of the Common Stock, as determined by the Committee, on the
Effective Date of the Tandem SAR's grant. If a related Employee Stock Option is
exercised as to some or all of the shares covered by the Award, the related
Tandem SAR, if any, shall be cancelled automatically to the extent of the number
of shares covered by the Employee Stock Option exercise. Upon exercise of a
Tandem SAR as to some or all of the shares covered by the Award, the related
Employee Stock Option shall be cancelled automatically to the extent of the
number of shares covered by such exercise, and such shares shall not again be
eligible for grant in accordance with Section 6.1. Moreover, all Tandem SARs
shall not expire later than 10 years from the Effective Date of the SAR's grant.
8.3 Terms and Conditions of Freestanding SARs. Freestanding SARs shall be
exercisable in whole or in such installments and at such times as may be
determined by the Committee. The exercise price of a Freestanding SAR shall be
not less than 100% of the closing price at which a share of Common Stock trades
on the date of the grant's Effective Date, or the next preceding trading day if
such date was not a trading date, on the primary securities exchange or
quotation system on which the Common Stock is then traded. Moreover, all
Freestanding SARs shall not expire later than 10 years from the Effective Date
of the Freestanding SAR's grant.
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8.4 Deemed Exercise. The Committee may provide that an SAR shall be deemed to be
exercised at the close of business on the scheduled expiration date of such SAR
if at such time the SAR by its terms remains exercisable and, if so exercised,
would result in a payment to the holder of such SAR.
8.5 Additional Terms and Conditions. The Committee may, by way of the Award
Notice or otherwise, determine such other terms, conditions, restrictions, and
limitations, if any, of any SAR Award, provided they are not inconsistent with
the Plan.
8.6 Nontransferability of SARs. No SAR granted pursuant to the Plan shall be
transferable otherwise than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code.
During the lifetime of the Participant to whom the SAR was granted, the SAR
shall be exercisable only by such Participant personally or by the holder's
legal representative.
8.7 Maximum Award Payable. Notwithstanding any provision contained in the Plan
to the contrary, the maximum number of shares for which SARs may be granted
under the Plan to any one Participant for a calendar year is 20,000 shares of
Common Stock.
ARTICLE 9 - PERFORMANCE RESTRICTED STOCK PROGRAM
9.1 Purpose. The purposes of the Performance Restricted Stock Program are: (a)
to promote the interests of the Company and its shareholders by providing a
means to acquire a proprietary interest in the Company to selected Key Employees
who are in a position to make a substantial contribution to the continued
progress and success of the Company; (b) to attract and retain qualified
individuals to serve as Employees in those positions; (c) to enhance long-term
performance of the Company by linking a meaningful portion of the compensation
of selected Key Employees to the achievement of specific long-term financial
objectives of the Company; and (d) to motivate and reward selected Key Employees
to undertake actions to increase the price of the Common Stock.
9.2 Eligibility. Any Key Employee is eligible to participate in the Performance
Restricted Stock Program. Within the first 90 days of a Performance Cycle (or,
if longer, within the maximum period allowed under Section 162(m) of the Code),
the Committee will select those Key Employees who will be Participants for such
Performance Cycle. However, designation of a Key Employee as a Participant for a
Performance Cycle shall not in any manner entitle the Participant to receive
payment of an Award for the cycle. The determination as to whether or not such
Participant becomes entitled to payment of an Award for such Performance Cycle
shall be decided solely in accordance with the provisions of this Article 9.
Moreover, designation of a Key Employee as a Participant for a particular
Performance Cycle shall not require designation of such Key Employee as a
Participant in any subsequent Performance Cycle and designation of one Key
Employee as a Participant shall not require designation of any other Key
Employee as a Participant in such Performance Cycle or in any other Performance
Cycle.
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9.3 Description of Awards. Awards granted under the Performance Restricted Stock
Program provide Participants with the opportunity to earn shares of Performance
Restricted Stock, subject to the terms and conditions of Section 9.6 below. Each
Award granted under the Plan for a Performance Cycle shall consist of a Target
Award expressed as fixed number of shares of Performance Restricted Stock. In
the event the Performance Goals for the Performance Cycle are achieved, the
Performance Formula shall determine, with regard to a particular Participant,
what percentage of the Participant's Target Award for the Performance Cycle will
be earned. All of the Awards issued under the Performance Restricted Stock
Program to Covered Employees are intended to qualify as "performance-based
compensation" under Section 162(m) of the Code.
9.4 Procedure for Determining Awards. Within the first 90 days of a Performance
Cycle (or, if longer, within the maximum period allowed under Section 162(m) of
the Code), the Committee shall establish in writing for such Performance Cycle
the following: the specific Performance Criteria that will be used to establish
the Performance Goal(s), the kind(s) and level(s) of the Performance Goal(s),
whether the Performance Goal(s) is(are) to apply to the Company, PCA
International, a Subsidiary, or any one or more subunits of the foregoing, the
amount of the Target Award and the Performance Formula.
9.5 Payment of Awards.
9.5.1 Condition to Receipt of Awards. Except as provided in Section 9.8,
a Participant must be employed by the Company on the Performance Cycle's
Award Payment Date to be eligible for an Award for such Performance
Cycle.
9.5.2 Limitation. A Participant shall be eligible to receive an Award
for a Performance Cycle only if:
9.5.2.1 the Performance Goals for such cycle are achieved; and
9.5.2.2 the Performance Formula as applied against such
Performance Goals determines that all or some portion of the
Participant's Target Award has been earned for the Performance
Period.
9.5.3 Certification. Following the completion of a Performance Cycle,
the Committee shall meet to review and certify in writing whether, and
to what extent, the Performance Goals for the Performance Cycle have
been achieved. If the Committee certifies that the Performance Goals
have been achieved, it shall, based upon application of the Performance
Formula to the Performance Goals for such cycle, also calculate and
certify in writing for each Participant what percentage of the
Participant's Target Award has been earned for the cycle. The Committee
shall then determine the actual size of each Participant's Award for the
Performance Cycle and, in so doing, shall apply Negative Discretion, if
and when it deems appropriate.
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9.5.4 Negative Discretion. In determining the actual size of an
individual Award to be paid for a Performance Cycle, the Committee may,
through the use of Negative Discretion, reduce or eliminate the amount
of the Award earned under the Performance Formula for the Performance
Cycle if, in its sole judgment, such reduction or elimination is
appropriate.
9.5.5 Timing of Award Payments. The Awards granted by the Committee for
a Performance Cycle shall be paid to Participants on the Award Payment
Date for such Performance Cycle.
9.5.6 New Participants. Participants who are employed by the Company
after the Committee's selection of Participants for the Performance
Cycle, as well as Key Employees who are selected by the Committee to be
Participants after such date, shall, in the event Awards are paid for
the Performance Cycle, only be entitled to a pro rata Award. The amount
of the pro rata Award shall be determined by multiplying the Award the
Participant would have otherwise been paid if he or she had been a
Participant for the entire Performance Cycle by a fraction, the
numerator of which is the number of full months he or she was eligible
to participate in the Performance Restricted Stock Program during the
Performance Cycle and the denominator of which is the total number of
full months in the Performance Cycle. For purposes of this calculation,
a partial month of participation shall be treated as a full month of
participation to the extent a Participant participates in the
Performance Restricted Stock Program for 15 or more days of such month;
and shall not be taken into consideration to the extent the Participant
participates in the Performance Restricted Stock Program for less than
15 days of such month.
9.5.7 Noncompetition. No Participant shall receive payment of an Award
if, subsequent to the commencement of the Performance Cycle and prior to
the Award Payment Date for such cycle, the Participant engages in the
conduct prohibited under Section 13.3.
9.6 Performance Restricted Stock: Terms and Conditions. Shares of Performance
Restricted Stock shall be subject to the following terms and conditions:
9.6.1 Subject to the provisions of the Plan and the Performance
Restricted Stock Agreement referred to in paragraph 9.6.4, until the
expiration of the Restriction Period, the Participant shall not be
permitted to sell, assign, transfer, pledge, or otherwise encumber
shares of Performance Restricted Stock.
9.6.2 Except as provided in this Section 9.6 and the Performance
Restricted Stock Agreement, the Participant shall have, with respect to
the shares of Performance Restricted Stock, all of the rights of a
shareholder of the Company holding shares of the Common Stock,
including, if applicable, the right to vote the shares and the right to
receive any cash dividends. If so determined by the Committee in the
applicable Performance Restricted Stock Agreement, dividends payable in
Common Stock shall be paid in the form of Performance Restricted Stock
on which such dividend was paid, held
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subject to the same conditions and restrictions of the underlying
Performance Restricted Stock.
9.6.3 Except to the extent otherwise provided in the applicable
Performance Restricted Stock Agreement, this Section 9.6.3, and Articles
16 and 17, upon a Participant's termination of employment during an
unexpired Restriction Period, all shares still subject to such unexpired
Restriction Period held by that Participant shall be forfeited by that
Participant. In the event of the termination of employment of a
Participant because of death, Disability, Retirement, or for an Approved
Reason, the unexpired Restriction Period(s) shall lapse as to a pro-rata
portion of such Performance Restricted Stock, which pro-rata portion
shall be equal to the portion of the applicable Restriction Period(s)
that has elapsed as of the date of such termination of employment, and
such pro-rata portion shall become free of all restrictions and become
fully vested and transferable. The remaining portion of the Performance
Restricted Stock for which the Restriction Period has not expired shall
be forfeited by the Participant.
Notwithstanding anything contained in this Section 9.6.3 to the
contrary, as to any Participant who, on the date of his or her
termination of employment because of death, Disability, Retirement or
for an Approved Reason, holds any Performance Restricted Stock that has
not been outstanding for a period of at least six months from the
Effective Date of such Performance Restricted Stock and who on the date
of such termination is required to report under Section 16 of the
Exchange Act, such Performance Restricted Stock shall not become free of
restrictions, vested, and transferable pursuant to this Section 9.6.3
until the first business day next following the end of such six-month
period.
9.6.4 Each Performance Restricted Stock award shall be confirmed by, and
be subject to the terms of, a Performance Restricted Stock Agreement.
9.7 Performance Restricted Stock Certificates. Shares of Performance Restricted
Stock shall be evidenced in such manner as the Committee may deem appropriate,
including book-entry registration or issuance of one or more stock certificates.
Any certificate issued in respect of shares of Performance Restricted Stock
shall be registered in the name of such Participant and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Performance Restricted Stock, substantially in the following
form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the PCA International, Inc. Omnibus Long-Term
Compensation Plan and a Performance Restricted Stock Agreement. Copies
of such Plan and Agreement are on file at the offices of PCA
International, Inc., 815 Matthews-Mint Hill Road, Matthews, North
Carolina 28105.
The Committee may require that the certificates evidencing such shares
be held in custody by the Company until the restrictions thereon shall have
lapsed and that, as a condition of any
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Award of Performance Restricted Stock, the Participant shall have delivered a
stock power, endorsed in blank, relating to the Common Stock covered by such
Award.
If and when the applicable Restriction Period expires without a prior
forfeiture of the Performance Restricted Stock, unlegended certificates for such
shares shall be delivered to the Participant promptly upon surrender of the
legended certificates.
9.8 Termination of Employment During Performance Cycle. In the event a
Participant's employment is terminated prior to an Award Payment Date for a
Performance Cycle for any reason other than death, Disability, Retirement or for
an Approved Reason, all of such Participant's Awards for such Performance Cycle
shall be forfeited. In the event a Participant terminates employment due to
death, Disability, or Retirement, or for an Approved Reason, prior to the Award
Payment Date for a Performance Cycle, the Participant shall receive, if Awards
are paid for such Performance Cycle and if he or she complies with the
requirements of Subsection 9.5.7 through the Award Payment Date, a pro rata
Award. The amount of the pro rata Award shall be determined by multiplying the
Award the Participant would have otherwise been paid if he or she had been a
Participant through the Award Payment Date for the Performance Cycle by a
fraction, the numerator of which is the number of full months he or she was a
Participant during such Performance Cycle and the denominator of which is the
total number of full months in the Performance Cycle. For purposes of this
calculation, a partial month of participation shall: (1) be treated as a full
month of participation to the extent a Participant participates in the
Performance Restricted Stock Program for 15 or more days of such month; and (2)
not be taken into consideration to the extent the Participant participates in
the Performance Restricted Stock Program for less than 15 days of such month.
Such pro rata Award shall be paid in the form of shares of Common Stock, not
subject to any restrictions, limitations or escrow requirements. In the event of
Disability, or Retirement or termination for an Approved Reason, the pro rata
Award shall be paid directly to the Participant and, in the event of death, to
the Participant's estate.
9.9 Awards. On or promptly after the Award Payment Date for a Performance Cycle,
the Committee shall issue to each Participant the Award, in the form of shares
of Performance Restricted Stock, he or she has earned for such Performance
Cycle. Such shares of Performance Restricted Stock shall be subject to such
terms, conditions, limitations, and restrictions of Section 9.6 and such other
as the Committee, in its sole judgment, determines.
9.10 Maximum Award Payable. Notwithstanding any provision contained in the Plan
to the contrary, the Maximum Award Payable to any one Participant under the Plan
for a Performance Cycle is 5,000 shares of Performance Restricted Stock.
ARTICLE 10 - PERFORMANCE AWARD PROGRAM
10.1 Eligibility. Only Key Employees shall be eligible to receive Performance
Awards. Within the first 90 days of a Performance Period (or, if longer, within
the maximum period allowed under Section 162(m) of the Code), the Committee
shall select those Key Employees
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who will be Participants for such Performance Period. However, designation of a
Key Employee as a Participant for a Performance Period shall not in any manner
entitle the Participant to receive a Performance Award for the Performance
Period. The entitlement of any Participant to payment of a Performance Award for
such Performance Period shall be decided solely in accordance with the
provisions of this Article 10. Moreover, designation of a Key Employee as a
Participant for a particular Performance Period shall not require designation of
such Key Employee as a Participant in any subsequent Performance Period, and
designation of one Key Employee as a Participant shall not require designation
of any other Key Employee as a Participant in such Performance Period or in any
other Performance Period. All of the Performance Awards issued under the
Performance Award Program to Covered Employees are intended to qualify as
"performance-based compensation" under Section 162(m) of the Code.
10.2 Calculation of Performance Incentive Base Salary. Within the first 90 days
of a Performance Period (or, if longer, within the maximum period allowed under
Section 162(m) of the Code), the Committee shall calculate the Participant's
Performance Incentive Base Salary for the Performance Period then beginning. The
Performance Incentive Base Salary for any Performance Period shall be the
Participant's base salary as of the date the Performance Goal(s) for such
Performance Period is set by the Committee. Once the Performance Incentive Base
Salary is determined, the Performance Incentive Base Salary will not change for
that Performance Period.
10.3 Procedure for Determining Awards. With regard to a particular Performance
Period, the Committee shall, using its full discretion, select the length of
such Performance Period. Within the first 90 days of a Performance Period (or,
if longer, within the maximum period allowed under Section 162(m) of the Code),
the Committee shall establish in writing for such Performance Period (i) the
specific Performance Criteria that will be used to establish the Performance
Goal(s) for such Performance Period and the kind(s) and level(s) of such
Performance Goal(s) and (ii) an award matrix detailing the Performance Award for
each Participant if such Performance Goals are attained. The amount of a
Participant's Performance Award will be calculated from the Performance Formula
for the Performance Period, which Performance Formula shall be equal to the
product of the Participant's Incentive Base Salary and the percentage derived
from the award matrix.
10.4 Performance Awards. On the Award Payment Date for a Performance Period, the
Committee shall issue to each Participant the Award, in the form of cash or
Common Stock, as the Committee may determine in its sole discretion. Shares of
Common Stock shall be subject to such terms, conditions, limitations, and
restrictions as the Committee, in its sole judgment, determines.
10.5 Payment of Awards.
10.5.1 Condition to Receipt of Awards. Except as provided in Sections
10.6 and Articles 16 and 17, a Participant must be employed by the
Company on the Performance Period's Award Payment Date to be eligible
for an Award for such Performance Period.
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10.5.2 Limitation. A Participant shall be eligible to receive an Award
for a Performance Period only if: (i) the Performance Goals for such
Performance Period are achieved; and (ii) the Performance Formula as
applied against such Performance Goals determines that all or some
portion of the Performance Award has been earned by that Participant for
the Performance Period.
10.5.3 Certification. Following the completion of a Performance Period,
the Committee shall meet to review and certify in writing whether, and
to what extent, the Performance Goals for the Performance Period have
been achieved. If the Committee certifies that the Performance Goals
have been achieved, it shall, based upon application of the Performance
Formula to the Performance Goals for such Performance Period, also
calculate and certify in writing for each Participant what percentage of
the Performance Award has been earned for the Performance Period. The
Committee shall then determine the size of each Participant's Award for
the Performance Period and, in so doing, shall apply Negative Discretion
if and when it deems appropriate.
10.5.4 Negative Discretion. In determining the size of an individual
Award to be paid for a Performance Period, the Committee may, through
the use of Negative Discretion, reduce or eliminate the amount of the
Award earned under the Performance Formula for the Performance Period
if, in its sole discretion, such reduction or elimination is
appropriate.
10.5.5 Timing of Award Payments. The Performance Awards granted by the
Committee for a Performance Period shall be paid to Participants on or
promptly after the Award Payment Date for such Performance Period.
10.5.6 New Participants. Participants who commence employment by the
Company after the Committee's selection of Participants for the
Performance Period, as well as Key Employees who are selected by the
Committee to be Participants after such date, shall, in the event Awards
are paid for the Performance Period, be entitled to a pro rata Award.
The amount of the pro rata Award shall be determined by multiplying the
Award the Participant would have otherwise been paid if he or she had
been a Participant for the entire Performance Period by a fraction, the
numerator of which is the number of full months he or she was eligible
as a Participant to participate in the Performance Award Program during
the Performance Period and the denominator of which is the total number
of full months in the Performance Period. For purposes of this
calculation, a partial month of participation shall: (i) be treated as a
full month of participation to the extent a Participant participates in
the Performance Award Program for 15 or more days of such month; and
(ii) not be taken into consideration to the extent the Participant
participates in the Performance Award Program for less than 15 days of
such month.
10.6 Termination of Employment During Performance Period. In the event a
Participant's employment terminates because of death, Disability, Retirement or
for an Approved Reason prior to the Award Payment Date for a Performance Period,
the Participant shall receive, if
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Awards are paid for such Performance Period, through the Award Payment Date, a
pro rata Performance Award. The amount of the pro rata Performance Award shall
be determined by multiplying the Performance Award the Participant would have
otherwise been paid if he or she had been a Participant through the Award
Payment Date for the Performance Period by a fraction, the numerator of which is
the number of full months he or she was a Participant during such Performance
Period and the denominator of which is the total number of full months in the
Performance Period. For purposes of this calculation, a partial month of
participation shall: (1) be treated as a full month of participation to the
extent a Participant participates in the Performance Award Program for 15 or
more days of such month; and (2) not be taken into consideration to the extent
the Participant participates in the Performance Award Program for less than 15
days of such month. Such pro rata Performance Award shall be paid in the form of
cash. In the event of death, Disability, Retirement or for an Approved Reason,
the pro rata Performance Award shall be paid directly to the Participant and, in
the event of death, to the Participant's estate, no more than 120 days after the
Award Payment Date for such Performance Period. In the event a Participant's
employment terminates for any reason other than death, Disability, Retirement or
an Approved Reason, such Participant shall have no right to any Performance
Award for the Performance Period in which such Participant's employment is
terminated.
10.7 Maximum Award Payable. Notwithstanding any provision contained in the Plan
to the contrary, the maximum Performance Award payable to any one Participant
under the Plan for a calendar year is $100,000, or, in the event the Performance
Award is paid in shares of Common Stock, the equivalent Common Stock award
thereof, based on the closing price at which a share of Common Stock trades on
the date of the grant's Effective Date, or the next preceding trading day if
such date was not a trading date, on the primary securities exchange or
quotation system on which the Common Stock is then traded.
ARTICLE 11 - PERFORMANCE UNITS
11.1 Grants. Awards may be granted in the form of performance units. Performance
units, as that term is used in this Plan, shall refer to Units valued by
reference to designated criteria established by the Committee, but performance
units shall not be payable in Common Stock.
11.2 Performance Criteria. Performance units shall be contingent on the
attainment during a Performance Period of certain performance objectives. The
length of the Performance Period, the performance objectives to be achieved
during the Performance Period, and the measure of whether and to what degree
such objectives have been attained shall be conclusively determined by the
Committee in the exercise of its absolute discretion. Performance objectives may
be revised by the Committee, at such times as it deems appropriate during the
Performance Period, in order to take into consideration any unforeseen events or
changes in circumstances.
11.3 Additional Terms and Conditions. The Committee may, by way of the Award
Notice or otherwise, determine such other terms, conditions, restrictions, and
limitations, if any, of any Award of performance units, provided they are not
inconsistent with the Plan.
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ARTICLE 12 - NONEMPLOYEE DIRECTOR OPTIONS
12.1 Eligible Awards. Only Nonemployee Directors are eligible to receive Formula
Options and Deferral Options, which shall be nonqualified stock options (i.e.
options that are not incentive stock options within the meaning of Section 422
of the Code).
12.2 Formula Options.
12.2.1 Each Nonemployee Director shall automatically receive, upon his
or her initial election or appointment as a Director, subject to any
subsequent approval by the Company's shareholders required by Rule
16b-3, an option to purchase 10,000 shares of Common Stock ("Formula
Options").
12.2.2 Terms and Conditions of Formula Options
12.2.2.1 Exercise Price. The price at which Common Stock may
be purchased upon exercise of a Formula Option shall be not
less than 100% of the closing price at which a share of Common
Stock traded on the date of the grant of the Formula Option,
or the next preceding date if such date is not a trading date,
on the primary securities exchange or quotation system on
which the Common stock is then traded on the date of grant of
such Formula Options.
12.2.2.2 Vesting. Subject to the provisions of Sections
10.3.4.3 and 10.3.4.4, after one (1) year from the Effective
date of such Formula Option, such Formula Option shall become
exercisable for all shares of Common Stock covered thereby;
provided that in the event the Service of the Non-employee
Director holding such option terminates prior to the end of
such vesting period for reason other than death, Disability or
Retirement, such option shall be forfeited and shall lapse
immediately.
12.2.2.3 Term of Exercisability. Upon the termination of the
Service of a Nonemployee Director because of death, Disability
or Retirement, the nonexercised Formula Options held by such
Nonemployee Director shall become immediately exercisable as
to 100% of the Shares of Common Stock covered thereby;
provided that in the event the Service of the Non-employee
Director holding such option terminates prior to the end of
such vesting period for reason other than death, Disability or
Retirement, such option shall be forfeited and shall lapse
immediately. Once any portion of a Formula Option becomes
exercisable, it shall remain exercisable for the lesser of
(10) ten years after the date of grant, (2) one year from the
date the Participant shall cease, by reason of the
Participant's death, Disability or Retirement, to be a
Nonemployee Director, or (3) three months from the date the
Participant shall cease, for any reason other than such
Participant's death or Disability, to be a Nonemployee
Director; provided, however, that if the Participant shall
cease to be a Nonemployee
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Director and then die or become Disabled within three months
thereafter, the Formula Option shall remain exercisable for
one year after the date of the Participant's death.
Notwithstanding any contrary provision in the Plan, upon a
Change in Control, no additional terms, conditions,
restrictions, or limitations shall be placed upon any Formula
Option granted under this Article 12 and each Formula Option
outstanding shall become immediately exercisable as to all of
the shares of Common Stock covered thereby and shall be valued
and cashed out on the basis of the Change in Control Price
within 90 days of the Change in Control; provided that any
such options having an exercise price equal to or greater than
the Change in Control Price shall have a value of zero, shall
be cancelled, and the owner thereof shall not be entitled to
any payment.
12.2.2.4 Exercise and Payment. Upon exercise, the option price
of a Formula Option may be paid in cash, shares of Common
Stock, a combination of the foregoing, or such other
consideration as the Committee may deem appropriate. The
Committee shall establish appropriate methods for accepting
Common Stock, whether restricted or unrestricted, and may
impose such conditions as it deems appropriate on the use of
such Common Stock to exercise a stock option. Subject to
Section 18.9, stock options awarded under the Plan may be
exercised by way of a broker-assisted exercise program,
provided such program is available at the time of the option's
exercise. The Committee may permit a Participant to satisfy
any amounts required to be withheld under the applicable
federal, state and local tax laws in effect from time to time,
by electing to have the Company withhold a portion of the
shares of Common Stock to be delivered for the payment of such
taxes.
12.2.2.5 Option Agreements. Each Award of a Formula Option
under this Plan shall be evidenced by a written agreement
signed by the Participant.
12.2.3 The provisions of the formula contained in Subsections 12.2.1 and
12.2.2 of this Plan shall not be altered or amended more often than
every six (6) months except as necessary to comply with the Code and the
rules and regulations thereunder.
12.2.4 The formula contained in Subsections 12.2.1 and 12.2.2 of this
Plan is intended to comply with Rule 16b-3(c)(2)(ii) promulgated under
Section 16(b) of the Exchange Act.
12.3 Deferral Options.
12.3.1 Election. Each year, at least six months prior to the date of the
scheduled annual shareholders' meeting of PCA International (or, for
Nonemployee Directors whose Initial Election Date shall fall within the
period of six months prior to such scheduled annual meeting, on said
Initial Election Date), each Nonemployee Director may, subject to any
approval by the shareholders of the Company required by Rule 16b-3, make
an
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irrevocable election to receive, in lieu of all or any part of the cash
compensation to which such member would otherwise be entitled as a
member of the Board and any committee thereof (other than reimbursement
of expenses) for the period from the next scheduled annual shareholders'
meeting to the day prior to the following annual meeting, Deferral
Options; provided, however, that a Participant may make his or her first
election on, or at any time prior to, his or her Initial Election Date.
An election made hereunder shall be effective, beginning on the Initial
Election Date or the annual meeting dates following such Initial
Election Date, for the grant of such number of Deferral Options as is
determined by the Committee at the Effective Date to constitute an
amount of Deferral Options equivalent to the cash compensation elected
to be forgone. In making such determination of equivalency, the
Committee shall rely upon the Black-Scholes option pricing model or
other generally accepted method of pricing options.
Each such election shall be in writing and shall be delivered to the
Secretary of the Company. The Effective Date of any such Deferral Option
shall be the date six months after such Nonemployee Director's Initial
Election Date and, for subsequent elections, the date of PCA
International's annual shareholders' meeting following such elections.
12.3.2 Terms and Conditions of Deferral Options.
12.3.2.1 Exercise Price. The price at which Common Stock may
be purchased upon exercise of a Deferral Option shall be not
less than 100% of the closing price at which a share of Common
Stock trades on the date of the grant of the Deferral Option,
or the next preceding date if such date is not a trading date,
on the primary securities exchange or quotation system on
which the Common Stock is then traded.
12.3.2.2 Vesting. Subject to the provisions of Sections
12.3.2.3 and 10.3.4.4, after one (1) year, or such longer time
as the Committee shall determine, from the Effective date of
such Deferral Option, such Deferral Option shall become
exercisable for all shares of Common Stock covered thereby.
12.3.2.3 Acceleration due to Termination of Service, Change in
Control. If the Service of any Participant ends during the
1-year period for which cash compensation has been waived,
such Participant's rights in such Deferral Option shall be as
follows:
12.3.2.3.1 Upon the termination of such
Nonemployee Director's Service because of
death, Disability or Retirement during such
1-year period, each unexercised Deferral
Option held by that Nonemployee Director shall
become immediately exercisable as to 100% of
the shares of Common Stock covered thereby;
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12.3.2.3.2 Upon the termination of such
Nonemployee Director's Service during such
1-year period for any reason other than death,
Disability or Retirement, a portion of the
shares of Common Stock covered by the Deferral
Option thereby shall become immediately
exercisable as follows:
12.3.2.3.2.1 The shares of Common
Stock covered by a Deferral Option
attributable to the election to forgo
cash compensation for the 1-year
period in which such Participant's
Service terminates shall be prorated
and such Option shall become
immediately exercisable to the extent
of that portion of the shares of
Common Stock attributable to the time
of Service during that 1-year period;
and
12.3.2.3.2.2 As to the balance of the
shares of Common Stock covered by
such Deferral Option for such 1- year
period, such Deferral Option shall
lapse immediately.
Notwithstanding any contrary provision in the
Plan, upon a Change in Control, no additional
terms, conditions, restrictions, or
limitations shall be placed upon any Deferral
Option granted under this Article 12, and each
Deferral Option outstanding shall become
immediately exercisable as to all of the
shares of Common Stock covered thereby and
shall be valued and cashed out on the basis of
the Change in Control Price within 90 days of
the Change in Control; provided that any such
options having an exercise price equal to or
greater than the Change in Control Price shall
have a value of zero, shall be cancelled, and
the owner thereof shall not be entitled to any
payment.
12.3.2.4 Term of Exercisability. Once any portion of a
Deferral Option becomes exercisable, it shall remain
exercisable only for the lesser of
12.3.2.4.0.1 10 years after the date
of grant (or such lesser number of
years as the Committee shall
determine) or
12.3.2.4.0.2 1-year (or such greater
number of years as the Committee
shall determine) after the Service of
a Participant terminates for any
reason. Subject to the provisions of
Section 12.3.2.3.1, if applicable,
each such Deferral Director Option
may be exercised in whole or in part
not earlier than 6 months (or such
longer time as the Committee shall
provide in the written agreement
referred to
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in Section 12.3.2.6) after the date
of grant and shall expire on the date
ten years after the date of grant, or
such earlier date as determined by
the Committee.
12.3.2.5 Exercise and Payment. Upon exercise, the
option price of a Deferral Option may be paid in cash,
shares of Common Stock, a combination of the foregoing,
or such other consideration as the Committee may deem
appropriate. The Committee shall establish appropriate
methods for accepting Common Stock, whether restricted
or unrestricted, and may impose such conditions as it
deems appropriate on the use of such Common Stock to
exercise a stock option. Subject to Section 18.9, stock
options awarded under the Plan may be exercised by way
of a broker-assisted exercise program, provided such
program is available at the time of the option's
exercise. The Committee may permit a Participant to
satisfy any amounts required to be withheld under the
applicable federal, state and local tax laws in effect
from time to time, by electing to have the Company
withhold a portion of the shares of Common Stock to be
delivered for the payment of such taxes.
12.3.2.6 Option Agreements. Each Award of a Deferral
Option under this Plan shall be evidenced by a written
agreement signed by the Nonemployee Director.
12.3.3 Rule 16b-3 Compliance. The grant of Deferral Options is
intended to comply in all respects with Rule 16b-3(d)(1) of the
Exchange Act such that the grant of all Deferral Options issued under
the Plan shall be exempt from Section 16(b) of the Exchange Act.
12.4 Nontransferability of Formula and Deferral Options. No Formula or Deferral
Option granted pursuant to the Plan shall be transferable otherwise than by will
or by the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code. During the lifetime of an optionee, the
Formula Option and Deferral Option shall be exercisable only by the optionee
personally or by the optionee's legal representative.
ARTICLE 13 - PAYMENT OF AWARDS
13.1 In General. In the absence of a Plan provision to the contrary, payment of
Awards may, at the discretion of the Committee, be made in cash, Common Stock, a
combination of cash and Common Stock, or any other form of property as the
Committee shall determine. In addition, payment of Awards may include such
terms, conditions, restrictions, and limitations, if any, as the Committee deems
appropriate, including, in the case of Awards paid in the form of Common Stock,
restrictions on transfer and forfeiture provisions; provided, however, such
terms, conditions, restrictions, and limitations are not inconsistent with the
Plan. Further,
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payment of Awards may be made in the form of a lump sum or installments, as
determined by the Committee.
13.2 Termination of Employment. If employment with the Company of a Key Employee
who is a Participant terminates for a reason other than death, Disability,
Retirement, or any Approved Reason, unpaid Awards granted under Articles 7, 8,
9, 10 and 11, including, but not by way of limitation, Awards earned or
exercised but not yet paid, all unpaid dividends and dividend equivalents, and
all interest accrued on the foregoing shall be cancelled or forfeited, as the
case may be, unless the Participant's Award Notice provides otherwise. The
Committee shall, notwithstanding Sections 4.4 and 18.11 to the contrary, have
the authority to promulgate rules and regulations to determine the treatment of
an Award under the Plan in the event of the Key Employee Participant's death,
Disability, Retirement or termination for an Approved Reason; provided, however,
in the case of Awards issued under the Performance Restricted Stock Program,
such rules and regulations are consistent with Section 9.8, and in the case of
Awards under the Performance Award Program, such rules and regulations are
consistent with Section 10.6.
13.3 Noncompetition. As to all Awards made pursuant to Articles 7, 8, 9, 10 and
11, unless the Award Notice specifies otherwise, a Participant shall forfeit all
unpaid Awards, including, but not by way of limitation, Awards earned or
exercised but not yet paid, all unpaid dividends and dividend equivalents and
all interest, if any, accrued on the foregoing if, (i) in the opinion of the
Committee, the Participant, without the prior written consent of the Company,
engages directly or indirectly in any manner or capacity as principal, agent,
partner, officer, director, stockholder, employee, or otherwise, in any business
or activity competitive with the business conducted by PCA International or any
Subsidiary; (ii) at any time divulges to any person or any entity other than the
Company any trade secrets, methods, processes or the proprietary or confidential
information of the Company; or (iii) the Participant performs any act or engages
in any activity that the Committee determines is inimical to the best interests
of the Company. For purposes of this Section 13.3, a Participant shall not be
deemed a stockholder if the Participant's record and beneficial ownership amount
to not more than 5% of the outstanding capital stock of any company subject to
the periodic and other reporting requirements of the Exchange Act.
ARTICLE 14 - DIVIDEND AND DIVIDEND EQUIVALENT
If an Award is granted in the form of a Restricted Stock Award, stock
option, or Common Stock share, or in the form of any other stock-based grant,
the Committee may choose, at the time of the grant of the Award or any time
thereafter up to the time of the Award's payment, to include as part of such
Award an entitlement to receive dividends or dividend equivalents, subject to
such terms, conditions, restrictions, and limitations, if any, as the Committee
may establish. Dividends and dividend equivalents shall be paid in such form and
manner (i.e., lump sum or installments) and at such time(s) as the Committee
shall determine. All dividends or dividend equivalents that are not paid
currently may, at the Committee's discretion, accrue interest, be reinvested
into additional shares of Common Stock or, in the case of dividends or dividend
equivalents credited in connection with performance shares, be credited
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as additional performance shares and paid to the Participant if and when, and to
the extent that, payment is made pursuant to such Award. The total number of
shares available for grant under Section 6.1 shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into additional shares of
Common Stock or credited as additional performance shares.
ARTICLE 15 - DEFERRAL OF AWARDS
At the discretion of the Committee, payment of any Award, dividend,
or dividend equivalent, or any portion thereof, may be deferred by a Participant
until such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery of a written, irrevocable election by the
Participant prior to the time established by the Committee for such purpose, on
a form provided by the Company. Further, all deferrals shall be made in
accordance with administrative guidelines established by the Committee to ensure
that such deferrals comply with all applicable requirements of the Code.
Deferred payments shall be paid in a lump sum or installments, as determined by
the Committee. Deferred Awards may also be credited with interest, at such rates
to be determined by the Committee and, with respect to those deferred Awards
denominated in the form of Common Stock, with dividends or dividend equivalents.
ARTICLE 16 - CHANGE IN OWNERSHIP
16.1 Background. The provisions of this Article 16 shall apply only to Awards
made pursuant to Articles 7, 8, 9, 10 and 11 and shall not apply to Awards made
pursuant to Article 12. Notwithstanding any provision contained in the Plan,
including, but not limited to, Sections 4.4 and 18.11, the provisions of this
Article 16 shall control over any contrary provision. Upon a Change In
Ownership: (i) the terms of this Article 16 shall immediately become operative,
without further action or consent by any person or entity; (ii) all terms,
conditions, restrictions and limitations in effect on any unexercised, unearned,
unpaid and/or deferred Award, or any other outstanding Award, shall immediately
lapse as of the date of such event; (iii) no other terms, conditions,
restrictions and/or limitations shall be imposed upon any Awards on or after
such date, and in no circumstance shall an Award be forfeited on or after such
date; and (iv) except in those instances where a prorated Award is required to
be paid under this Article 16, all unexercised, unvested, unearned and/or unpaid
Awards or any other outstanding Awards shall automatically become one hundred
percent (100%) vested immediately.
16.2 Dividends and Dividend Equivalents. Upon a Change In Ownership, all unpaid
dividends and dividend equivalents and all interest accrued thereon, if any,
shall be treated and paid under this Article 16 in the identical manner and time
as the Award under which such dividends or dividend equivalents have been
credited. For example, if upon a Change In Ownership, an Award under this
Article 16 is to be paid in a prorated fashion, all unpaid dividends and
dividend equivalents with respect to such Award shall be paid according to the
same formula used to determine the amount of such prorated Award.
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16.3 Treatment of Performance Units and Performance Awards. Upon a Change In
Ownership, any Participant in the Performance Award Program or Performance Unit
Program, whether or not he or she is still employed by the Company, shall be
paid, as soon as practicable but in no event later than 90 days after the Change
In Ownership, a pro rata Award for each Performance Period in which the
Participant was selected to participate and during which the Change In Ownership
occurs ("Current Performance Period"). The amount of such pro rata Award shall
be determined by annualizing (over the current Performance Period) the level of
the applicable Performance Criteria for the Performance Goal for such Current
Performance Period up to the end of the month preceding the Change In Ownership,
determining the Performance Award that would have been payable for such
Performance Period had such annualized level been the actual level of the
applicable Performance Criteria for the Performance Goal for such Current
Performance Period, and multiplying such Performance Award so determined by a
fraction, the numerator of which shall be the number of full months in the
Current Performance Period prior to the date of the Change In Ownership and the
denominator of which shall be the total number of full months in the Performance
Period. For purposes of this calculation, a partial month shall be treated as a
full month to the extent 15 or more days in such month have elapsed.
16.4 Treatment of Awards under Performance Restricted Stock Program. Upon a
Change In Ownership, any Participant of the Performance Restricted Stock
Program, whether or not he or she is still employed by the Company, shall be
paid, as soon as practicable but in no event later than 90 days after the Change
In Ownership, a pro rata Award for each Performance Cycle in which the
Participant was selected to participate and during which the Change In Ownership
occurs. The amount of the pro rata Award shall be determined by multiplying the
Target Award for such Performance Cycle for Participants by a fraction, the
numerator of which shall be the number of full months in the Performance Cycle
prior to the date of the Change In Ownership and the denominator of which shall
be the total number of full months in the Performance Cycle. For purposes of
this calculation, a partial month shall be treated as a full month to the extent
15 or more days in such month have elapsed.
16.5 Valuation of Awards. Upon a Change In Ownership, all outstanding shares of
Common Stock, Freestanding SARs, stock options (including incentive stock
options), Restricted Stock Awards, performance units and all other outstanding
stock-based Awards (including those earned as a result of the application of
Section 16.4 above and those granted by the Committee pursuant to its authority
under Subsection 4.2(m) hereof), shall be valued and cashed out on the basis of
the Change In Control Price and shall be cancelled; provided that any Options
granted under this Plan having an exercise price equal to or greater than the
Change in Control Price shall have a value of zero, shall be cancelled, and the
owner thereof shall not be entitled to any payment.
16.6 Payment of Awards. Upon a Change In Ownership, any Participant, whether or
not he or she is still employed by the Company, shall be paid, in a single lump
sum cash payment, as soon as practicable but in no event later than 90 days
after the Change In Ownership, all of his or her shares of Common Stock,
Freestanding SARs, stock options (including incentive stock options), Restricted
Stock Awards, Performance Awards and (including those earned as a result
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of the application of Section 16.3 above) performance units, and all other
outstanding stock-based Awards (including those earned as a result of the
application of Section 16.4 above and those granted by the Committee pursuant to
its authority under Subsection 4.2(m) hereof) and all other outstanding Awards.
16.7 Deferred Awards. Upon a Change In Ownership, all Awards deferred by a
Participant under Article 15 hereof, but for which he or she has not received
payment as of such date, shall be paid in a single lump sum cash payment as soon
as practicable, but in no event later than 90 days after the Change In
Ownership. For purposes of making such payment, the value of all Awards which
are stock based shall be determined by the Change In Control Price.
16.8 Section 16 of the Exchange Act. Notwithstanding anything contained in this
Article 16 to the contrary, any Participant who, on the date of the Change In
Ownership, holds any stock options or Freestanding SARs that have not been
outstanding for a period of at least six months from their date of grant and who
on such date is required to report under Section 16 of the Exchange Act shall
not be paid such an Award until the first day next following the end of such
six-month period.
16.9 Miscellaneous. Upon a Change In Ownership, (i) the provisions of Sections
13.2, 13.3 and 18.3 hereof shall become null and void and of no further force
and effect; and (ii) no action, including, but not by way of limitation, the
amendment, suspension, or termination of the Plan, shall be taken which would
affect the rights of any Participant or the operation of the Plan with respect
to any Award to which the Participant may have become entitled hereunder on or
prior to the date of such action or as a result of such Change In Ownership.
ARTICLE 17 - CHANGE IN CONTROL
17.1 Background. Notwithstanding any provision contained in the Plan, including,
but not limited to, Sections 4.4 and 18.11, the provisions of this Article 17
shall control over any contrary provision except with respect to Awards made
pursuant to Article 12 (as to which Article 12 this Article 17 shall not apply).
All Participants shall be eligible for the treatment afforded by this Article 17
if their employment terminates within two years following a Change in Control,
unless the termination is due to (i) death, (ii) Disability, (iii) Cause, (iv)
termination by the Participant other than for Good Reason, or (v) Retirement.
17.2 Vesting and Lapse of Restrictions. If a Participant is eligible for
treatment under this Article 17, (i) all of the terms, conditions, restrictions
and limitations in effect on any of his or her unexercised, unearned, unpaid
and/or deferred Awards shall immediately lapse as of the date of his or her
termination of employment, (ii) no other terms, conditions, restrictions and/or
limitations shall be imposed upon any of his or her Awards on or after such
date, and in no event shall any of his or her Awards be forfeited on or after
such date; and (iii) except in those instances where a prorated Award is
required to be paid under this Article 17, all of his or her unexercised,
unvested, unearned and/or unpaid Awards shall automatically become one hundred
percent (100%) vested immediately upon his or her termination of employment.
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17.3 Dividends and Dividend Equivalents. If a Participant is eligible for
treatment under this Article 17, all of his or her unpaid dividends and dividend
equivalents and all interest accrued thereon, if any, shall be treated and paid
under this Article 17 in the identical manner and time as the Award under which
such dividends or dividend equivalents have been credited.
17.4 Treatment of Awards under the Performance Award Program and Performance
Unit Program. If a Participant is eligible for treatment under this Article 17,
for each Performance Period in which the Participant was selected to participate
and during which his or her termination of employment occurs ("Termination
Current Performance Period"), he or she shall be considered to have earned and,
therefore, be entitled to receive that prorated portion of the Award for such
Termination Current Performance Period. The amount of such pro rata Award shall
be determined by assuming that the Performance Goal for such Termination Current
Performance Period was attained at a level of 100% or the equivalent thereof,
determining the Performance Award that would have been payable for such
Performance Period had the Performance Goal been attained at a level of 100% or
the equivalent thereof, and multiplying such Performance Award so determined by
a fraction, the numerator of which shall be the number of full months in the
Termination Current Performance Period prior to the date of the Change In
Ownership and the denominator of which shall be the total number of full months
in the Performance Period.
The Participant shall be paid, as soon as practicable but in no event
later than 90 days after the date of his or her termination of employment, a pro
rata Award so determined, in cash.
17.5 Treatment of Awards under Performance Restricted Stock Program. If a
Participant of the Performance Restricted Stock Program is eligible for
treatment under this Article 17, he or she shall be paid, as soon as practicable
but in no event later than 90 days after the date of his or her termination of
employment, a pro rata Award for each Performance Cycle in which the Participant
was selected to participate and during which the Change In Ownership occurs. The
amount of the pro rata Award shall be determined by multiplying the Target Award
for such Performance Cycle for such Participants by a fraction, the numerator of
which shall be the number of full months in the Performance Cycle prior to the
date of his or her termination of employment and the denominator of which shall
be the total number of full months in the Performance Cycle. For purposes of
this calculation, a partial month shall be treated as a full month to the extent
15 or more days in such month have elapsed. To the extent Target Awards have not
yet been established for the Performance Cycle, the Target Award for the
immediately preceding Performance Cycle shall be used.
17.6 Valuation of Awards. If a Participant is eligible for treatment under this
Article 17, his or her Award shall be valued and cashed out in accordance with
the provisions of Section 16.5.
17.7 Payment of Awards. If a Participant is eligible for treatment under this
Article 17, he or she shall be paid, in a single lump sum cash payment, as soon
as practicable but in no event later than 90 days after the date of his or her
termination of employment, all of his or her shares
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of Common Stock, Freestanding SARs, stock options (including incentive stock
options), Restricted Stock Awards, Performance Awards and performance units and
shares (including those earned as a result of the application of Section 17.4
above), all other outstanding stock-based Awards (including those earned as a
result of the application of Section 17.5 above and those granted by the
Committee pursuant to its authority under Subsection 4.2(m) hereof) and all
other outstanding Awards.
17.8 Deferred Awards. If a Participant is eligible for treatment under this
Article 17, all of his or her deferred Awards for which payment has not been
received as of the date of his or her termination of employment shall be paid to
the Participant in a single lump sum cash payment as soon as practicable, but in
no event later than 90 days after the date of the Participant's termination. For
purposes of making such payment, the value of all Awards which are stock based
shall be determined by the Change In Control Price.
17.9 Section 16 of the Exchange Act. Notwithstanding anything contained in this
Article 17 to the contrary, any Participant who, on the date of his or her
termination of employment under the conditions described in Section 17.1, holds
any stock options or Freestanding SARs that have not been outstanding for a
period of at least six months from their date of grant and who on the date of
such termination is required to report under Section 16 of the Exchange Act
shall not be paid such Award until the first business day next following the end
of such six-month period.
17.10 Miscellaneous. Upon a Change In Control, (i) the provisions of Sections
13.2, 13.3 and 18.3 hereof shall become null and void and of no force and effect
insofar as they apply to a Participant who has been terminated under the
conditions described in Section 17.1 above, and (ii) no action, including, but
not by way of limitation, the amendment, suspension or termination of the Plan,
shall be taken which would affect the rights of any Participant or the operation
of the Plan with respect to any Award to which the Participant may have become
entitled hereunder on or prior to the date of the Change In Control or to which
he or she may become entitled as a result of such Change In Control.
17.11 Legal Fees. PCA International shall pay all legal fees and related
expenses incurred by a Participant in seeking to obtain or enforce any payment,
benefit or right he or she may be entitled to under the Plan after a Change In
Control; provided, however, the Participant shall be required to repay any such
amounts to PCA International to the extent a court of competent jurisdiction
issues a final and non-appealable order setting forth the determination that the
position taken by the Participant was frivolous or advanced in bad faith.
ARTICLE 18 - MISCELLANEOUS
18.1 Nonassignability. No Awards rights shall be subject in any manner to
alienation, anticipation, sale, transfer (except by will or the laws of descent
and distribution), assignment, pledge, or encumbrance prior to payment pursuant
to the Plan.
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18.2 Withholding Taxes. The Company shall be entitled to deduct from any payment
under the Plan, regardless of the form of such payment, the amount of all
applicable income and employment taxes required by law to be withheld with
respect to such payment or may require the Participant to pay to it such tax
prior to and as a condition of the making of such payment. In accordance with
any applicable administrative guidelines it establishes, the Committee may allow
a Participant to pay the amount of taxes required by law to be withheld from an
Award by withholding from any payment of Common Stock due as a result of such
Award, or by permitting the Participant to deliver to the Company, shares of
Common Stock having a fair-market value, as determined by the Committee, equal
to the amount of such required withholding taxes.
18.3 Amendments to Awards. The Committee may at any time unilaterally amend any
unexercised, unearned, or unpaid Award, including, but not by way of limitation,
Awards earned but not yet paid, to the extent it deems appropriate; provided,
however, that any such amendment which, in the opinion of the Committee, is
adverse to the Participant shall require the Participant's consent.
18.4 Regulatory Approvals and Listings. Notwithstanding anything contained in
this Plan to the contrary, the Company shall have no obligation to issue or
deliver certificates of Common Stock evidencing Stock Awards or any other Award
resulting in the payment of Common Stock prior to (i) the obtaining of any
approval from any governmental agent which the Company shall, in its sole
discretion, determine to be necessary or advisable, (ii) the admission of such
shares to listing on the stock exchange on which the Common Stock may be listed
and (iii) the completion of any registration or other qualification of said
shares under any state or Federal law or ruling of any governmental body that
the Company shall, in its sole discretion, determine to be necessary or
advisable.
18.5 No Right to Continued Employment or Grants. Participation in the Plan shall
not give any Employee any right to remain in the employ of PCA International or
any Subsidiary. PCA International, or, in the case of employment with a
Subsidiary, the Subsidiary, reserves the right to terminate any Employee at any
time. Further, the adoption of this Plan shall not be deemed to give any
Employee or any other individual any right to be selected as a Participant or to
be granted an Award.
18.6 Amendment/Termination. The Committee may suspend or terminate the Plan at
any time with or without prior notice. In addition, the Committee may, from time
to time and with or without prior notice, amend the Plan in any manner, but may
not without shareholder approval adopt any amendment that would require the vote
of the shareholders of PCA International pursuant to Section 16 of the Exchange
Act or Section 162(m) of the Code, but only insofar as such amendment affects
Covered Employees.
18.7 Governing Law. The Plan shall be governed by and construed in accordance
with the laws of the State of North Carolina, except as superseded by applicable
Federal Law.
-33-
<PAGE>
18.8 No Right, Title, or Interest in Company Assets. No Participant shall have
any rights as a shareholder as a result of participation in the Plan until the
date of issuance of a stock certificate in his or her name and, in the case of
restricted shares of Common Stock, such rights are granted to the Participant
under the Plan. To the extent any person acquires a right to receive payments
from the Company under the Plan, such rights shall be no greater than the rights
of an unsecured creditor of the Company and the Participant shall not have any
rights in or against any specific assets of the Company. All of the Awards
granted under the Plan shall be unfunded.
18.9 Section 16 of the Exchange Act. In order to avoid any Exchange Act
violations, the Committee may, from time to time, impose additional restrictions
upon an Award, including but not limited to, restrictions regarding tax
withholdings and restrictions regarding the Participant's ability to exercise
Awards under any broker-assisted exercise program.
18.10 No Guarantee of Tax Consequences. No person connected with the Plan in any
capacity, including, but not limited to, PCA International and its Subsidiaries
and their directors, officers, agents and employees makes any representation,
commitment, or guarantee that any tax treatment, including, but not limited to,
Federal, state and local income, estate and gift tax treatment, will be
applicable with respect to amounts deferred under the Plan, or paid to or for
the benefit of a Participant under the Plan, or that such tax treatment will
apply to or be available to a Participant on account of participation in the
Plan.
18.11 Compliance with Section 162(m). If any provision of the Plan, other than
the application of those contained in Articles 17 or 18 hereof, would cause the
Awards granted to a Covered Person not to qualify as "performance-based
compensation" under Section 162(m) of the Code, that provision, insofar as it
pertains to the Covered Person, shall be severed from, and shall be deemed not
to be a part of this Plan, but the other provisions hereof shall remain in full
force and effect.
18.12 Other Benefits. No Award granted under the Plan shall be considered
compensation for purposes of computing benefits under any retirement plan of the
Company nor affect any benefits or compensation under any other benefit or
compensation plan of the Company now or subsequently in effect.
-34-
<PAGE>
EXHIBIT 11
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
April 28, 1996 April 30, 1995
------------------ ----------------
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Net income............................................................... $1,138,778 $ 851,001
================== ================
COMPUTATION OF COMMON SHARES AND COMMON
EQUIVALENT SHARES:
Weighted average number of common shares............................... 7,468,386 8,109,410
Dilutive effect of stock options....................................... 400,093 371,452
------------------ ----------------
Weighted average number of common shares after
dilutive effect............................................... 7,868,479 8,480,862
================== ================
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
Net income............................................................. $ 0.14 $ 0.10
================== ================
FULLY DILUTED EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Net income............................................................. $1,138,778 $ 851,001
================== ================
COMPUTATION OF COMMON SHARES AND COMMON
EQUIVALENT SHARES:
Weighted average number of common shares outstanding................... 7,468,386 8,109,410
Dilutive effect of stock options....................................... 563,843 413,919
------------------ ----------------
Weighted average number of common shares
outstanding as adjusted......................................... 8,032,229 8,523,329
================== ================
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE ASSUMING FULL DILUTION:
Net income........................................................... $ 0.14 $ 0.10
================== ================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-2-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> APR-28-1996
<CASH> 839,587
<SECURITIES> 0
<RECEIVABLES> 12,481,555
<ALLOWANCES> 1,397,319
<INVENTORY> 2,979,414
<CURRENT-ASSETS> 17,604,087
<PP&E> 89,042,303
<DEPRECIATION> 47,046,827
<TOTAL-ASSETS> 60,817,909
<CURRENT-LIABILITIES> 22,385,637
<BONDS> 0
0
0
<COMMON> 1,488,815
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 60,817,909
<SALES> 36,087,986
<TOTAL-REVENUES> 36,087,986
<CGS> 27,285,557
<TOTAL-COSTS> 27,285,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,547
<INCOME-PRETAX> 1,992,642
<INCOME-TAX> 853,864
<INCOME-CONTINUING> 1,138,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,138,778
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
