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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-6672
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 95-2745285
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2430 EAST DEL AMO BOULEVARD
DOMINGUEZ, CALIFORNIA 90220-6306
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 537-9220
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK ($.02778 PAR VALUE) NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NOT APPLICABLE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of shares of the voting stock held by
non-affiliates of the Company, based on the closing sale price of such stock on
the New York Stock Exchange on April 21, 1995, was approximately $333,145,519.
The number of shares of Common Stock outstanding as of April 21, 1995
was 25,540,843.
Documents Incorporated by Reference
Portions of the Company's definitive proxy statement relating to the
1995 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. IN
FORM 10-K PAGE
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PART I
1. BUSINESS....................................................................................... 1
General........................................................................................ 1
Merchandise and Suppliers...................................................................... 1
Warehousing and Distribution................................................................... 2
Retail Stores.................................................................................. 2
Marketing...................................................................................... 3
Employees...................................................................................... 3
Competition.................................................................................... 3
Trademarks..................................................................................... 3
Restrictions on Imports........................................................................ 3
2. PROPERTIES..................................................................................... 4
Retail Stores.................................................................................. 4
Corporate Offices and Warehouse Facilities..................................................... 5
3. LEGAL PROCEEDINGS.............................................................................. 5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 5
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................................................ 6
6. SELECTED FINANCIAL DATA........................................................................ 7
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................... 8
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................... 11
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........... 11
PART III
10.-13. THE INFORMATION REQUIRED BY ITEMS 10-13 OF FORM 10-K IS INCORPORATED BY REFERENCE FROM THE
COMPANY'S DEFINITIVE PROXY MATERIALS FOR ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD IN
1995........................................................................................... 12
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................ 12
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Mac Frugal' Bargains o Close-outs Inc. (collectively with its
subsidiaries, the "Company") was incorporated under the laws of the state of
Delaware in 1971 as successor to a number of entities, the first of which was
founded in 1950. The Company's principal executive offices are located at 2430
E. Del Amo Boulevard in Dominguez, California, a suburb of Los Angeles. The
Company maintains centralized buying, personnel, systems, pricing, advertising,
merchandising, real estate and accounting functions at its principal executive
offices. See ITEM 2. "Properties -- Corporate Offices and Warehouse Facilities".
At January 29, 1995, the Company operated a chain of 278 retail stores
that specialize in the sale of new "close-out" merchandise which is purchased
from manufacturers and wholesalers at prices less than initial wholesale prices
and is sold at prices below normal retail prices. The Company's stores are
operated under the names "Pic 'N' Save" and "Mac Frugal's Bargains o Close-outs"
and collectively offer, on a self-service basis, a wide selection of close-out
merchandise, including apparel and accessories, notions, novelties, toys, games,
stationery, greeting cards, books, candles, luggage, artificial flowers, beauty
aids, candy, snacks, beverages, housewares, domestics, Christmas theme items and
giftwares. The Company targets value-oriented consumers, and merchandise is
currently sold on a cash-and-carry basis, with certain credit cards accepted.
During the fall of 1993 and 1992, the Company developed a seasonal store
concept that operated under the names "Christmas Close-outs" and "Christmas
Enchantments." The Company operated 168 and 25 of these seasonal stores in 1993
and 1992, respectively. These seasonal stores offered new Christmas theme
merchandise purchased from manufacturers at prices less than initial wholesale
prices and sold at prices below normal retail prices. Categories of merchandise
available in these stores were similar to the Christmas seasonal merchandise
offered in the year-round stores. The Christmas Close-outs and Christmas
Enchantments stores were generally operated for the three months from October
through Christmas. The Company has put further development of this concept on
hold for the reasons discussed later in this section under "Retail Stores".
At January 29, 1995, 165 of the Company's year-round retail stores
operated under the name "Mac Frugal's Bargains o Close-outs". The remaining 113
year-round stores, located in Southern California, operated under the name "Pic
'N' Save".
For the year ended January 29, 1995 (fiscal 1994), approximately 56% of
the Company's year-round stores were located in California and generated
approximately 63% of the sales from year-round stores. The Company believes
California entered the current recession some time between 1991 and 1992. In
addition to facing some of the same factors that influence the national and
global economies, California has been challenged by reductions in aerospace and
federal defense spending which have adversely affected California unemployment
rates relative to national unemployment rates. The economic hardship felt by
unemployed individuals has led to a general reduction of retail spending in
California as measured by reduced sales tax receipts by the State of California.
This reduction has adversely impacted the Company's California sales during
fiscal 1994, 1993 and 1992.
There has also been a general decline in California commercial real
estate values and an increase in commercial vacancies since approximately 1990.
The Company has benefitted from this decline as a result of its position as
lessee or buyer of sites for additional California stores.
Seasonal fluctuations in the Company's sales have followed the
traditional trend in the retail industry, with a substantial portion of its
annual sales volume and annual earnings occurring during the fourth quarter of
its fiscal year. The Company expects this pattern to continue in the future but
with less of the extreme experienced in fiscal 1993 as a result of putting the
Christmas season store concept on hold.
MERCHANDISE AND SUPPLIERS
Close-out merchandise is new merchandise that is available to the
Company at prices less than initial wholesale prices for a variety of reasons,
including the inability of a manufacturer or wholesaler to dispose of a larger
supply of merchandise through normal channels, the discontinuance of merchandise
due to a change in style, color, shape or packaging, the insufficiency of sales
to justify continued production of an item, or the termination of business by a
manufacturer or wholesaler.
The Company purchases merchandise at prices less than initial wholesale
prices, allowing the Company to sell its merchandise to customers at what the
Company believes are below normal retail prices. Therefore, although general
categories of merchandise are usually available, specific lines, items and
manufacturers frequently change, depending upon the availability of close-out
merchandise at suitable prices. In order to ensure supply and attractive
pricing, the Company will often purchase close-out merchandise in large
quantities and some seasonal merchandise out of season.
The Company buys merchandise, including numerous national brands, from
more than 2,000 suppliers. Due to its long-term association in the close-out
industry, the Company has developed good relationships with numerous
manufacturers and wholesalers that offer some or all of their close-out
merchandise to the Company prior to attempting to dispose of it through other
channels. By selling close-out merchandise only through its own retail stores,
the Company is able to assure suppliers that close-out merchandise will not be
sold through the same channels of distribution as the supplier's current
merchandise.
The Company also special-orders and reorders merchandise from offshore
manufacturers primarily in Asia at purchase prices consistent with its general
merchandising philosophy of offering merchandise to customers at prices below
normal retail prices. Purchases are made either through a trading company or
direct from the manufacturer, often early in the purchasing season. The
continuation of the Company's purchasing of such merchandise is dependent upon
the continuation of the Company's
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ability to obtain such advantageous pricing. Offshore purchases did not account
for more than 24% of the Company's total purchases in any year during the three
years ended January 29, 1995.
WAREHOUSING AND DISTRIBUTION
Merchandise purchased for sale through the Company's retail stores is
centrally received at either the Company's warehouse and distribution center
located in Rancho Cucamonga, California, or its warehouse and distribution
center located in New Orleans, Louisiana. The Rancho Cucamonga facility opened
in August 1984 and was expanded in 1988 from 806,000 square feet to 1,431,000
square feet. The New Orleans facility, which contains 1,100,000 square feet, was
opened in September 1991. See ITEM 2. "Properties -- Corporate Offices and
Warehouse Facilities". Merchandise is distributed to retail outlets either by
Company-operated tractors and trailers, or to locations more distant from the
warehouse, by contract carriers. Inventory control functions are conducted at
both distribution centers.
RETAIL STORES
Permanent Stores -- The Company's retail stores are principally located
in the Western, Southwestern, Southern and Southeastern United States, with 113
stores located in Southern California at January 29, 1995. Stores in Southern
California are currently operated under the name "Pic 'N' Save" and all other
stores are operated under the name "Mac Frugal's Bargains o Close-outs". The
table below provides a state by state breakdown of the Company's year-round
retail store locations at the end of the five most recent fiscal years.
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
TOTAL NUMBER OF YEAR-ROUND STORES AT FISCAL YEAR END
1990-1994
<TABLE>
<CAPTION>
FISCAL
YEAR
END CA AZ TX NV NM UT CO ID LA GA FL AL TOTAL
- ------ --- --- --- --- --- --- --- --- --- --- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 157 20 37 8 6 7 11 1 9 5 16 1 278
1993 133 16 36 7 5 6 7 1 9 5 11 1 237
1992 109 11 36 5 5 6 7 1 9 5 10 1 205
1991 98 11 35 5 5 6 7 1 9 5 10 1 193
1990 98 11 35 4 5 6 7 1 9 5 9 1 191
</TABLE>
During fiscal 1994, the Company opened thirty-nine stores, net of one
store relocated, reopened three stores damaged in an earthquake and closed one
store due to its lease expiring with no options and no relocation opportunities.
Of the 41 net new stores, seventeen are located in Southern California, seven in
Northern California, four in Arizona, one each in Texas, Nevada, New Mexico and
Utah, four in Colorado and five in Florida. The relocated store was in Arizona.
In fiscal 1994, the Company continued to focus its expansion in the
California market. California is the Company's largest market for sales and
earnings. The Company believes that concentrating on this market at a time when
quality real estate is readily available at lower prices than in the past will
provide growth opportunities as the California economy strengthens over time.
During the five-year period from January 29, 1990 through January 29,
1995, the Company opened or acquired the operations of 114 new stores,
permanently closed 26 stores and temporarily closed and reopened three stores,
increasing its chain of retail stores from 190 to 278. Fourteen stores
permanently closed were Job Lot Pushcart stores in New York and New Jersey,
which the Company acquired in 1988 and conveyed back to the former owner in
accordance with a put provision in the original acquisition agreement. Six of
the other closed stores were replaced by upgraded facilities located in the same
geographic area; four were closed due to inability to renew the leases; one
owned store was permanently closed due to earthquake damages; and one owned
store was closed, put up for sale and subsequently reopened.
No store accounts for more than 2% of the Company's revenues.
Seasonal Stores -- In addition to the "Pic 'N' Save" and "Mac Frugal's
Bargains o Close-outs" stores which are open year-round, the Company opened
temporary retail locations during the Christmas season for the first time in
fiscal 1992 and again in fiscal 1993. The Christmas season stores were designed
to allow the Company to generate additional revenues and profits through sales
during the peak Christmas selling season while avoiding related costs associated
with maintaining such locations on a year-round basis.
The table on the next page provides a state by state breakdown of the
Company's Christmas season store locations in operation at the conclusion of the
Christmas selling season for the two fiscal years that they operated.
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MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
TOTAL NUMBER OF CHRISTMAS SEASON STORES AT DECEMBER 24,
1992-1993
<TABLE>
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DECEMBER 24, CA AZ TX NV UT CO LA GA FL TOTAL
- ------------ --- --- --- --- --- --- --- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 105 13 12 4 11 4 5 5 9 168
1992 25 0 0 0 0 0 0 0 0 25
</TABLE>
The Company has put future development of this concept on hold. After
assessing the performance of the Christmas season stores at the completion of
the 1993 season, the Company determined that it would be difficult to earn
pretax profit contributions as a percentage of sales from these stores equal to
or higher than the contributions it can earn from its year-round stores.
MARKETING
The Company's primary marketing strategy is to distribute color
circulars within a radius surrounding substantially all of its stores. These
circulars communicate selected product offerings to targeted customers within
each such store's primary trade area. To a lesser extent, the Company employs
electronic media or newspaper advertising, usually to supplement circular
advertising. The Company also utilizes various special promotions and celebrity
appearances in conjunction with the grand openings of its stores.
EMPLOYEES
At January 29, 1995 the Company had approximately 8,177 employees.
Temporary personnel are employed in the stores during the Christmas holiday
season. Management believes its employee relations are generally good.
COMPETITION
The Company faces competition for patronage of customers in varying
degrees from national, regional and local areas in which the Company's stores
are located. Many of these retail establishments offer merchandise similar to
that available from the Company, including close-out merchandise at discount
prices. However, unlike the Company's stores, most retail outlets, including
discount stores, primarily offer continuing lines of merchandise. The Company
competes with other retail establishments, including discount stores, by
offering new close-out merchandise at significant reductions from original
retail prices. Some of the Company's competitors have greater financial
resources than those available to the Company.
During the past several years, there have been a number of off-price
retailers entering the retail consumer market. These retailers generally carry
fashion-oriented soft goods sold at higher price points than the soft goods sold
by the Company's stores and do not generally carry lines of close-out hard
goods. Recently, stores that sell all or substantially all of their merchandise
at a single price have entered the market selling close-out goods.
Competition for close-out merchandise has increased over the years. The
Company, however, has not experienced, and does not anticipate experiencing, any
difficulty in obtaining close-out merchandise in adequate volume and at suitable
prices. The Company competes for quality close-out merchandise primarily with
wholesalers and other close-out retailers, some of which are larger than the
Company. Unlike most of these wholesalers, however, the Company disposes of the
merchandise through its own retail stores, which specialize in close-out
merchandise. The Company is thus able to assure a supplier that its close-out
merchandise will not compete in the supplier's normal channels of distribution.
In addition to competing for customers and merchandise, the Company also
competes with a wide range of other entities to obtain suitable locations for
new year-round stores.
TRADEMARKS
The Company employs the service marks "Pic 'N' Save" and "Mac Frugal's
Bargains o Close-outs" in connection with its year-round stores. The Company has
registered its service mark "Mac Frugal's Bargains o Close-outs" with the U.S.
Patent and Trademark Office and the Company has common law rights in the
Southern California area to the service mark "Pic 'N' Save". The Company does
not believe that loss of any of the Company's service marks would have a
material adverse impact upon the Company.
RESTRICTIONS ON IMPORTS
The Company's operations are subject to the customary risks of doing
business abroad, including fluctuation in the value of currencies, customs
duties and related fees, import controls and trade barriers (including quotas),
restrictions on the transfer of funds, work stoppages and, in certain parts of
the world, political instability. The Company believes that it has reduced these
risks by diversifying its offshore purchases among various countries and
factories. These factors have not had a material adverse impact upon the
Company's operations to date. Imports into the United States are also affected
by the cost of transportation, the imposition of import duties and increased
competition from greater production demands abroad. The countries from which the
Company's products are imported may, from time to time, impose new quotas,
duties, tariffs or other restrictions, or adjust presently prevailing quotas,
duty or tariff levels, which could affect the Company's operations and its
ability to import products at current or increased levels. The Company cannot
predict the likelihood or frequency of any such events occurring.
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The Company's imported products are subject to United States customs
duties and, in the ordinary course of its business, the Company may, from time
to time, be subject to claims for duties and other charges. United States
customs duties currently are between 3.4% and 30.0% of the customs value on the
vast majority of products imported by the Company, as classified pursuant to the
Harmonized Tariff Schedule of the United States. All goods imported by the
Company are finished products.
On March 3, 1994, the President reinstated, by Executive Order, the
"Special 301" provisions of the Omnibus Trade and Competitiveness Act of 1988.
On April 30, 1994, the United States Trade Representative ("USTR") designated
China as a priority foreign country for purposes of "Special 301" because it
concluded that China was failing to provide adequate and effective protection of
intellectual property rights and denying fair and equitable market access to
persons that rely on intellectual property protection. As required by law, an
investigation was initiated and consultations were undertaken between the
governments of United States and China. On February 5, 1995, the USTR determined
that China's enforcement of intellectual property rights and provisions for
market access to persons that rely on intellectual property protection were
unreasonable and constituted a burden or restriction on U.S. commerce. As such,
the USTR determined to increase duties on certain products to 100% percent ad
valorem.
Pursuant to an agreement reached between China and the United States,
effective February 26, 1995, the USTR terminated its Special 301 investigation,
rescinded China's designation as a priority country and rescinded the increased
tariffs. The USTR will continue to monitor the implementation of this agreement
to determine whether further action is required under "Special 301." The Company
is unable to predict whether China will continue to comply with the terms of the
agreement.
On June 2, 1994, the President renewed the People's Republic of China's
most-favored nation (MFN) status for another year. At that time the President
indicated that China's MFN status would no longer be conditioned upon progress
in the area of human rights. Other conditions, such as freedom of emigration
goals, continue to be in force. The decision to extend China's MFN status for
another year must be taken on June 3, 1995.
The Company is unable to predict whether the United States will revoke
the People's Republic of China MFN status, but any such revocation of MFN status
would result in significantly higher tariffs on Chinese Imports. In addition,
the Company is unable to predict whether the People's Republic of China or any
other country from which the Company imports goods will be investigated under
Special 301 provisions, whether the United States will retaliate against the
People's Republic of China or any such other country, or whether any such
retaliation would include products imported by the Company or otherwise result
in increases in the cost or restrictions in the supply of products imported by
the Company.
ITEM 2. PROPERTIES
RETAIL STORES
The Company leases most of the buildings and land that comprise its
retail stores. At the end of fiscal 1994, the Company owned the buildings (but
not the underlying land) occupied by two stores, and owned the buildings and
land occupied by 54 other stores, one of which is a commercial condominium, one
of which is located at the Company's corporate office facility in Dominguez,
California, and one of which is located at the Company's warehousing facility in
Rancho Cucamonga, California. One of the owned buildings is permanently closed
due to earthquake damage and is up for sale while a relocation is being sought.
The balance of the buildings and land which comprised the Company's 278
operating store locations at fiscal year end were leased.
The leases for the store premises vary as to their terms, rental
provisions, expiration dates, and the existence of renewal options. The number
of years remaining on leases for the Company's stores (excluding unexercised
options) ranges from less than one year to 26 years. The termination of the
lease due to expire within the next two years (without renewal options) would
not have a material adverse effect on the operations of the Company. Most of the
leases are fixed minimum rentals, and some provide for additional rental based
upon a percentage of total store sales in excess of certain amounts. Most leases
also require the Company to pay all or a portion of the real estate taxes,
insurance charges and maintenance expenses relating to the leased premises. The
Company generally does not maintain earthquake insurance for its retail stores.
The Company acquires sites for new stores by a variety of methods,
including lease, purchase, assignment or sublease of existing facilities,
build-to-suit leases, or purchase and development of sites which may be owned by
the Company or sold by the Company under leaseback arrangements. In many cases,
the Company is able to lease or sublease existing buildings that have been
previously used for other purposes, such as for supermarkets, drug stores or
home improvement centers, which are suitable for the Company's needs at a rental
within the Company's guidelines and without the need for substantial
expenditures to convert the facilities to the Company's needs. In connection
with the opening of new stores, the Company generally makes capital investments
and incurs expenses (not including land and building or purchase of a leasehold
interest) of less than $850,000 per store. These costs consist of inventory,
fixtures and equipment, signs and pre-opening costs.
The Company's retail stores are located in concrete or masonry buildings
and are mostly furnished with inexpensive store fixtures. During fiscal 1992,
the Company installed point-of-sale and scanning equipment in all of its stores
pursuant to an equipment lease entered into in 1991. The equipment lease expires
with respect to various equipment between December 31, 1996 and March 31, 1997
and contains options to extend the terms and options to buy the equipment.
Except for this leased equipment, the Company owns all of its store fixtures and
equipment.
The majority of the Company's stores are located in or adjacent to
shopping centers of various sizes and have adjacent parking facilities. The
stores generally offer air-conditioned shopping from 9:00 a.m. to 9:00 p.m.,
Monday through Saturday, and 10:00 a.m. to 9:00 p.m. on Sunday. Particular
location schedules may vary slightly.
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Selling space in the Company's stores generally is between 17,000 and
23,000 square feet, depending on the particular location. Currently, the
smallest selling area in any one store location is approximately 4,427 square
feet; the largest selling area in any one store location is approximately 28,060
square feet. For the period from December 31, 1989 through January 29, 1995,
gross selling space increased from 3,412,367 square feet to 5,008,535 square
feet. As of the end of fiscal 1994, aggregate retail selling space at the
Company's 278 operating store locations was categorized according to the
following real property arrangements:
<TABLE>
<CAPTION>
RETAIL
NUMBER OF SELLING SPACE
OPERATING STORES LOCATIONS (IN SQ. FT.)
-------------------------------------- --------- -------------
<S> <C> <C>
Owned 54 958,368
Leased 222 4,009,717
Owned, Subject to Ground Lease 2 40,450
--- -------------
Total Operating 278 5,008,535
========== ============
</TABLE>
CORPORATE OFFICES AND WAREHOUSE FACILITIES
The Company owns its corporate offices, located at 2430 East Del Amo
Boulevard, Dominguez, California 90220-6306. Construction of the facility was
completed in November 1973, and comprises approximately 250,000 square feet of
ground floor space and 18,000 square feet of second floor office space.
Approximately 202,000 square feet of warehouse/distribution space (formerly used
by the Company) at this facility has been leased to an unaffiliated third party
and the remainder houses the Company's corporate offices of 38,000 square feet,
a Pic 'N' Save retail store and corporate warehousing space.
The Company also leases an office in New York City to facilitate buying
operations at that supply source. As of January 29, 1995, a new lease was in
place to relocate the existing 3,082 square foot office to a new 1,350 square
foot office in the same building.
The Company owns a 90 acre parcel of land in Rancho Cucamonga,
California and operates a 1,431,000 square foot central warehousing and
distribution center on this location as well as a store containing 19,000 square
feet of retail selling space.
In 1988, the Company executed a Lease Agreement with the Industrial
Development Board of the City of New Orleans, Louisiana for the construction of
a warehouse and distribution facility. The lease provides for an initial term of
10 years, eight 10-year options to extend the term of the lease and an option to
buy the land. Rent is nominal. During fiscal 1991, the Company completed
construction of this 1,100,000 square feet facility which utilizes advanced
technology to conserve space and maximize efficiency. It was completed at a net
cost of $58,617,000 of which $32,233,000 was classified as building and
improvements and $26,384,000 was classified as fixtures and equipment. In
addition, $7,406,000 of interest expense was capitalized over the three-year
construction period.
The New Orleans distribution center was completed in 1991 with a
capacity to service approximately 200 year-round stores. The Company is
currently servicing 85 stores in the South and Southeastern United States from
the New Orleans distribution center. In the third quarter of fiscal 1992, the
Company wrote down the net book value of the New Orleans distribution center
(warehouse and equipment) by $36,646,000 to reflect a permanent impairment in
its value to the Company. Ongoing under-utilization of the warehouse capacity
because of the Company's decision to initially concentrate future expansion
plans mainly in western markets as well as management's intention to investigate
a sale/leaseback of the facility necessitated a write-down to the Company's
recoverable cost. The recoverable cost was determined by fair market value
appraisals conducted by independent nationally recognized appraisers.
In October 1993, the Company sold all its interest in the New Orleans
distribution center (both real and personal) to TriNet Corporate Realty Trust,
Inc. (TriNet) for $23,463,000, the net book value of the interest sold. TriNet
is a NYSE listed real estate investment trust. Concurrently with the sale to
TriNet, the Company leased the fully equipped distribution center from TriNet.
The initial term expires October 31, 2009. The lease contains two options to
renew, a two year option followed by a ten year option.
The Company leased approximately 75,000 square feet of the New Orleans
distribution center to an unaffiliated third party during fiscal 1991. The lease
expired in January 1994. The Company leased an additional 33,340 square feet to
an unaffiliated third party during fiscal 1992, and this was expanded to 40,940
square feet in fiscal 1993 and to 48,840 square feet in fiscal 1994. That lease
expires in 1997.
The Company maintains earthquake insurance for its corporate office and
warehouse facilities that it believes is adequate.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote of security holders during
the fourth quarter of the fiscal year ended January 29, 1995.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<S> <C> <C>
Philip L. Carter 46 President and Chief Executive Officer since March 1995; Executive Vice President,
Chief Financial Officer since August 1993, Senior Vice President, Chief Financial
Officer since October 1991; Vice President Finance; Distribution since 1991; Chief
Executive Officer, San Remo (Australia) 1987-1990.
Mark J. Miller 43 Executive Vice President, Merchandising and Stores since March 1995; Executive Vice
President, General Merchandise Manager since September 1992; Vice President of
Merchandising/General Merchandise Manager 1991-1992, The Disney Store, Inc.; Vice
President, Merchandise Manager, Hardlines 1988-1991, Pic 'N' Save Corporation.
Patricia J. Wehner 44 Senior Vice President, Real Estate and Construction since August 1993, Vice
President, Real Estate and Construction since June 1991; Senior Vice President,
1988-1991, MAS Marketing (retail consulting).
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company commenced trading of its Common Stock on the New York Stock
Exchange effective June 11, 1992, under the symbol MFI. The Company's Common
Stock was traded in the over-the-counter market under the symbol PICN and was
reported on the NASDAQ National Market System until June 10, 1992. The following
table shows the high and low sales prices as reported on the New York Stock
Exchange for the Company's Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER HIGH LOW
- ----------- --------------- ------- -------
<C> <S> <C> <C>
1993 First Quarter $ 18.75 $ 13.88
Second Quarter 20.13 13.13
Third Quarter 16.75 13.25
Fourth Quarter 20.00 13.13
1994 First Quarter 18.50 14.50
Second Quarter 18.75 15.63
Third Quarter 21.13 17.25
Fourth Quarter 21.25 16.38
</TABLE>
At April 21, 1995, there were 974 stockholders of record.
The closing sale price of the Company's Common Stock on April 21, 1995
was $13.75 per share.
DIVIDENDS
The Company has never declared or paid cash dividends on its capital
stock. The Company currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. Payment of dividends is within the discretion of the Company's Board of
Directors and will depend upon, among other factors, the Company's earnings,
financial condition and capital requirements.
6
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT FOR CURRENT RATIO, STORE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 2, FEBRUARY 3,
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales..................................... $ 682,083 $ 627,063 $ 540,295 $ 542,578 $ 529,115
Operating Income.............................. $ 70,645 $ 57,667 $ 24,268 $ 63,163 $ 37,056
Earnings Before Income Taxes.................. $ 64,272 $ 52,875 $ 17,408 $ 54,877 $ 27,682
Net Earnings.................................. $ 38,884 $ 31,937 $ 11,348 $ 34,215 $ 17,245
Net Earnings Per Common Share................. $ 1.37 $ 1.07 $ 0.37 $ 1.12 $ 0.52
Net Earnings as a Percent of Sales............ 5.7% 5.1% 2.1% 6.3% 3.3%
Average Shares Outstanding.................... 28,353 29,931 30,295(1) 30,649(1) 33,480(1)
Cash Dividends Per Common Stock............... None None None None None
At Year End:
Total Assets.................................. $ 386,376 $ 369,563(2) $ 382,621(2) $ 410,425(2) $ 350,087(2)
Long-Term Debt................................ $ 4,491 $ 3,869 $ 54,475 $ 81,567 $ 68,164
Stockholders' Equity.......................... $ 216,881 $ 257,350 $ 224,447 $ 226,038 $ 190,405
Working Capital............................... $ 44,012 $ 108,323 $ 105,834 $ 104,422 $ 54,439
Current Ratio................................. 1.3 2.2 2.3 2.3 1.7
Number of Stores (End of Year)................ 278 237 205 193 191
Number of Stores Opened....................... 43 39 12 3 20
Number of Stores Closed....................... 2 7 0 1 19
Sales Square Footage.......................... 5,008 4,409(3) 3,869(3) 3,607 3,568
Net Sales Per Avg. Sq. Footage................ $ 145 $ 144(4) $ 143(4) $ 151 $ 152
</TABLE>
- ---------------
(1) Adjusted for the effect of shares issued pursuant to two stock purchase
agreements in 1988 assumed outstanding under the Treasury stock method.
(2) Total assets reflect certain balance sheet reclassifications to conform to
the January 29, 1995 balance sheet presentation.
(3) Excludes sales square footage of four stores temporarily closed on January
17, 1994 due to the Southern California earthquake for the year ended
January 30, 1994 and excludes sales square footage related to seasonal
Christmas stores.
(4) Excludes space and results related to seasonal Christmas stores but includes
sales and sales square footage of the four stores temporarily closed on
January 17, 1994 for the year ended January 30, 1994.
7
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents for the periods indicated certain items in
the consolidated statements of earnings as a percentage of net sales (except as
otherwise provided) and the percentage change in dollar amounts of such items
compared to the indicated prior period.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE CHANGE
---------------------------------------- -------------------------
JANUARY JANUARY JANUARY FISCAL FISCAL
29, 1995 30, 1994 31, 1993 1994 VS 1993 VS
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR ENDED 1994 1993 1992 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Permanent Store Sales....................... 100.0% 95.8% 99.3% 13.5% 12.1%
Seasonal Store Sales........................ -- 4.2 0.7 (100.0) 545.4
---------- ---------- ---------- ---------- ----------
Net Sales................................... 100.0 100.0 100.0 8.8 16.1
---------- ---------- ---------- ---------- ----------
Costs of Permanent Store Sales(1)........... 52.5 53.6 52.2 11.2 15.2
Costs of Seasonal Store Sales(2)............ -- 52.8 45.3 (100.0) 652.3
---------- ---------- ---------- ---------- ----------
Total Costs of Sales........................ 52.5 53.6 52.1 6.7 19.3
---------- ---------- ---------- ---------- ----------
Gross Profit from Permanent Store
Sales(1).................................. 47.5 46.4 47.8 16.1 8.7
Gross Profit from Seasonal Store Sales(2)... -- 47.2 54.7 (100.0) 456.8
---------- ---------- ---------- ---------- ----------
Total Gross Profit.......................... 47.5 46.4 47.9 11.2 12.5
---------- ---------- ---------- ---------- ----------
Store Expenses.............................. 28.1 28.7 27.8 6.4 19.8
Warehouse and Administrative Expenses....... 9.0 8.5 8.8 15.2 12.4
Warehouse Write-down Expense................ -- -- 6.8 -- (100.0)
---------- ---------- ---------- ---------- ----------
Total Expenses.............................. 37.1 37.2 43.4 8.4 (0.4)
---------- ---------- ---------- ---------- ----------
Operating Income............................ 10.4 9.2 4.5 22.5 137.6
---------- ---------- ---------- ---------- ----------
Interest Expense, Net....................... 0.9 0.8 1.3 33.0 (30.1)
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes................ 9.4 8.4 3.2 21.6 203.7
Income Taxes................................ 3.7 3.3 1.1 21.3 245.5
---------- ---------- ---------- ---------- ----------
Net Earnings................................ 5.7% 5.1% 2.1% 21.8% 181.4%
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) As a percentage of Permanent Store Sales.
(2) As a percentage of Seasonal Store Sales.
FISCAL YEAR ENDED JANUARY 29, 1995 COMPARED TO FISCAL YEAR ENDED JANUARY 30,
1994
Net sales for fiscal 1994 increased $55,020,000 or 8.8% from fiscal
1993. This increase was the combined result of 41 net new stores during the year
and the full year operation of the 36 net new stores opened in the prior year
partially offset by the discontinuance of the seasonal Christmas stores, 168 of
which were operated during the third and fourth quarters of the prior year.
Excluding the loss of sales from discontinuing the seasonal Christmas store
concept, net sales increased $81,139,000 or 13.5% from fiscal 1993. Sales from
California stores accounted for 62.8% of net sales in fiscal 1994 compared to
64.1% of net sales in fiscal 1993 (excluding seasonal Christmas stores in
California).
At the beginning of fiscal 1994, the Company changed its method for
reporting comparable store sales. Under the new method, a comparable store is
one that has been open fifteen full months (65 full weeks) and which doesn't
have a store within four miles of it that has been open less than twelve full
months (52 full weeks). The prior method treated a store as a comparable store
when it was open a full fiscal year. The new method is intended to eliminate the
effect (the "sales transfer effect") on an existing store's sales that can occur
when a new store is opened within four miles of a store that has been open more
than 15 full months. Fifteen full months was selected as the period when a new
store should be tracked as a comparable store because it is the earliest uniform
time a store has sales in both the current and prior year, and the prior year
sales is not distorted because of the grand opening promotions which occur
during the first one to three months the store is open. Based on historical
experience, and subject to certain exceptions, the Company believes that a sales
transfer effect typically occurs within a radius of approximately four miles.
Based on the new method, comparable store sales increased 1.8% in fiscal
1994. Under the old method, comparable store sales increased 0.8% in fiscal
1994. California comparable store sales decreased 1.8% (old method) and 1.4%
(new method) reflecting continuing poor economic conditions in California.
Gross profit (total) as a percentage of sales was 47.5% in fiscal 1994
compared to 46.4% in fiscal 1993. The increase was primarily due to a higher
initial markup on beginning store inventory in the current year. The gross
profit percent also rose, to a lesser extent, because of the expense recorded in
the last fiscal year for damaged inventory as a result of the January 1994
Southern California earthquake. Partially offsetting these increases were small
increases in markdowns to clear certain old merchandise,
8
<PAGE> 11
primarily softgoods, and an increase in the rate of inventory shrinkage
(inventory shrinkage being the difference between the physical inventory on hand
at year end and the calculated value of inventory at year end as determined by
the retail and cost inventory methods, as appropriate) to 3.3% in fiscal 1994
from 3.1% in fiscal 1993.
Operating expenses consist of store and warehouse and administrative
expenses. In fiscal 1993, the store expenses component of operating expenses
includes $1,179,000 of earthquake expenses from the January 17, 1994 earthquake
in Southern California. Operating expenses were 37.1% of sales in fiscal 1994
compared to 37.2% of sales in fiscal 1993 including the earthquake expenses and
37.0% excluding the earthquake expenses. Store expenses decreased in both
dollars and as a percentage of sales because of the fiscal 1993 addition to the
Company's insurance reserves for certain prior year workers' compensation and
general liability claims as a result of increasing costs to settle these claims;
and reduced advertising expense in fiscal 1994 compared to fiscal 1993 because
television advertising was not used in fiscal 1994 while it was in fiscal 1993.
Occupancy costs rose as a percentage of sales which is to be expected during a
phase of expansion. As a percentage of sales, administrative expenses increased
because of gains on the sale of two excess properties in the prior fiscal year
(which partially offset administrative expenses in such years), and warehouse
expenses decreased reflecting efficiencies as the Company grows.
Net interest expense increased as a result of both higher interest rates
and higher debt levels incurred to finance a portion of the Company's stock
repurchase programs and temporary working capital requirements.
The Company's effective tax rate remained relatively constant at 39.5%
in fiscal 1994 compared to 39.6% in fiscal 1993.
The Company believes that a meaningful assessment of its net earnings
performance requires making adjustments for earthquake related expenses incurred
in fiscal 1993. Net earnings in fiscal 1993 would have been $33,776,000 or 5.4%
of net sales and $1.13 per share excluding such expenses.
FISCAL YEAR ENDED JANUARY 30, 1994 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1993
Net sales for fiscal 1993 increased $86,768,000 or 16.1% from fiscal
1992. This increase was the combined result of the opening of 36 net new stores
during the year and the full year operation of the twelve new stores opened in
the prior year, the operation of 168 seasonal Christmas stores during the third
and fourth quarters compared to 25 seasonal Christmas stores operating during
the same period of the prior year and a 0.3% increase in comparable store sales
(old method). The 0.3% comparable store sales growth (old method) achieved
during the year was adversely impacted by the 2.5% decline in comparable
California store sales (old method) since 64.1% of the Company's sales from
year-round stores occurred within California. This decrease resulted from a
combination of the continuing poor economic climate in California as well as a
sales transfer effect experienced in some of those stores as a result of the
Company's expansion strategy of filling in selected Southern California markets.
Gross profit (total) as a percentage of sales was 46.4% in fiscal 1993
compared to 47.9% in fiscal 1992. The decrease was primarily the result of a
lower initial markup on beginning store inventory in fiscal 1993 as a result of
the Company's selectively reducing the selling price of certain categories of
merchandise, partially offset by lower markdowns taken during the year. The
remainder of the decrease resulted from damaged inventory as a result of the
January 1994 earthquake. Inventory shrinkage was 3.1% of sales in fiscal 1993
compared to 3.2% of sales in fiscal 1992. The gross profit percentage earned by
the seasonal Christmas stores was about the same in fiscal 1993 and higher in
fiscal 1992 than that earned by year-round stores during the period of time both
types of stores were open. However, the gross profit percentage in the seasonal
Christmas stores did not significantly affect the overall gross margin of the
Company due to the small percentage of overall sales contributed by these stores
in both years.
In fiscal 1993 the store expenses component of operating expenses
includes $1,179,000 of earthquake expenses from the January 17, 1994 earthquake
in Southern California. Fiscal 1992 operating expenses include a separate
$36,646,000 warehouse write-down expense which is discussed below. Operating
expenses were 37.2% of sales in fiscal 1993 compared to 43.4% of sales in fiscal
1992. Operating expenses excluding the earthquake expenses and warehouse
write-down expense rose to 37.0% in fiscal 1993 from 36.6% in 1992. Store
expenses increased due to an addition to the Company's insurance reserves for
certain prior year workers' compensation and general liability claims as a
result of increasing costs to settle these claims and a full year of lease
payments for point-of-sale equipment in fiscal 1993 compared to a partial year's
payments in the prior year. Store expenses grew as a percentage of sales because
fixed occupancy costs and payroll expenses associated with the seasonal
Christmas stores were higher as a percentage of sales than the same expenses for
the year-round stores. Partially offsetting these increases were lower
advertising expenses in fiscal 1993. Warehouse expenses fell as a percentage of
sales primarily as a result of lower depreciation expense from the New Orleans
distribution center resulting from its write-down to fair market value in fiscal
1992 and the subsequent sale of the facility in fiscal 1993. Except for a slight
increase in administrative expenses to support the temporary Christmas stores,
administrative expenses as a percentage of sales remained about constant.
Net interest expense decreased $2,068,000 from fiscal 1992 to fiscal
1993. Gross interest expense decreased due to a combination of lower debt
levels, lower interest rates and slower amortization of the remaining fees
associated with obtaining the 1991 Credit Agreement due to the extension of the
debt maturity of such Credit Agreement in connection with its amendment in 1993.
Interest income decreased because fiscal 1992 contained recognition of income
upon collection of a stock purchase receivable.
The Company's effective tax rate rose from 34.8% in fiscal 1992 to 39.6%
in fiscal 1993. The higher rate in fiscal 1992 was due partially to a 1%
increase in the enacted federal income tax rate as well as a smaller favorable
impact on the effective tax rate from the targeted jobs tax credit which
resulted from both a lower tax credit and higher pre-tax income in fiscal 1993
than in fiscal 1992. Additionally, the fiscal 1992 effective rate was benefitted
from a favorable state income tax audit determination.
9
<PAGE> 12
The Company adopted the Financial Accounting Standards Board Statement
No. 109 "Accounting for Income Taxes" (SFAS 109) on the first day of fiscal 1993
with no significant income statement impact. This statement supersedes APB
opinion No. 11. SFAS 109 requires a change from the income to the liability
method of computing deferred income taxes whereby deferred income taxes result
from temporary differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements.
Net earnings for fiscal 1993 excluding earthquake related expenses would
have been $33,776,000 or 5.4% of net sales and $1.13 per share as compared to
net earnings for fiscal 1992 excluding the warehouse write-down expense of
$35,241,000 or 6.5% of net sales and $1.16 per share.
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
Net return on average assets and net return on average stockholders'
equity for the past three years are as follows:
<TABLE>
<CAPTION>
NET RETURN
ON AVERAGE
NET RETURN ON STOCKHOLDERS'
YEAR ENDED AVERAGE ASSETS EQUITY
- ----------- -------------- ------------
<S> <C> <C>
Fiscal 1994 10.3% 16.4%
Fiscal 1993 8.5%(1) 13.3%
Fiscal 1992 2.9%(1) 5.0%
</TABLE>
- ---------------
(1) Net Return on Average Assets has been restated to conform fiscal 1993 and
1992 total assets to the fiscal 1994 presentation.
Net return on average assets increased from fiscal 1993 to fiscal 1994
because net income grew at a faster rate than average assets, and net return on
average stockholders' equity grew as the combined result of the net income
growth and repurchase of Company stock.
Net return on average assets and net return on average stockholders'
equity would have been 9.0% and 12.7% in fiscal 1993, respectively, excluding
the earthquake expenses, and 8.9% and 14.9% in fiscal 1992, respectively,
excluding the warehouse write-down expense.
Net return on average assets increased in fiscal 1993 compared to fiscal
1992 due to both an increase in net income over the prior year and a decrease in
average assets. The decrease in average assets was primarily the result of
selling the New Orleans distribution center and using the proceeds to reduce
debt.
Net return on average stockholders' equity increased in fiscal 1993 over
1992 due to the increase in net earnings as explained in the previous section on
Results of Operations. Excluding both the earthquake expenses in fiscal 1993 and
warehouse write-down expense in fiscal 1992, net return on average stockholders'
equity decreased because the level of net income declined from fiscal 1992 to
fiscal 1993 while average stockholders' equity rose.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements flow principally from the need to
purchase in advance and pay for inventory, particularly for the fourth quarter,
and to acquire, construct, equip and purchase inventory for new stores.
Repurchase of the Company's stock represents a secondary need for cash.
Accordingly, the Company's demand for borrowed funds is determined largely from
the timing of its inventory investment relative to the seasonality of its sales,
the magnitude and timing of its capital expenditure programs and size of stock
repurchase programs.
The following table indicates the Company's primary cash requirements
for the past three years:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(AMOUNTS IN THOUSANDS) 1994 1993 1992 TOTAL
- ------------------------------------------------------------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Cash Requirements:
Capital Expenditures............................................. $ 40,814 $ 29,365 $ 15,264 $ 85,443
Increase in inventory (net of checks outstanding and accounts
payable)...................................................... 4,764 30,742 19,661 55,167
-------- -------- -------- ---------
Total............................................................ $ 45,578 $ 60,107 $ 34,925 $ 140,610
======= ======= ======= ========
Cash provided by operating activities (excluding net inventory
additions)....................................................... $ 72,887 $ 55,124 $ 42,170 $ 170,181
======= ======= ======= ========
</TABLE>
The Company opened 43 stores in fiscal 1994, 36 stores in fiscal 1993
and 12 stores in fiscal 1992. In fiscal 1994, with increased levels of capital
expenditures due to the accelerating store expansion program combined with two
stock repurchase programs, the Company increased its debt by $46,188,000. In
fiscal 1993, with significant cash flows from operating activities, proceeds
from the sale and leaseback of the New Orleans distribution center and a
reduction of its cash balances, the Company reduced its debt by $42,029,000. In
fiscal 1992, with significant cash flows from operating activities, a relatively
small capital expenditure program, a stock repurchase program and a reduction of
its cash balances, the Company reduced its debt by $19,466,000.
On a per store basis, inventories in the stores have remained fairly
stable during each of the past three years but move up and down within the
warehouses depending on the availability of close-out merchandise during the
last several months of the fiscal year as well as changing internal buying
patterns.
10
<PAGE> 13
In fiscal 1994 and 1993, the Company repurchased 4,258,100 and 55,100
shares of its Common Stock, respectively, in open market transactions at an
average cost of $19.08 and $15.02 per share, respectively. All of the shares
repurchased in fiscal 1993 and 1,280,400 of the shares repurchased in fiscal
1994 were part of a 1,500,000 share repurchase program authorized by the Board
of Directors in the last quarter of fiscal 1993. The remaining 2,977,700 shares
repurchased in fiscal 1994 were made under a 3,000,000 share repurchase program
authorized by the Board of Directors in fiscal 1994.
The Company presently plans to open approximately 30 stores in fiscal
1995 including at least 10 stores in new markets (states). Management estimates
that the cost to open these 30 stores plus capital expenditures in its existing
stores, warehouses and corporate office during fiscal 1995 will approximate
$30,000,000. Additionally, the Company has authorization to repurchase an
additional $10,000,000 of its stock for treasury during fiscal 1995 if and when
market prices warrant such repurchases in the Board of Directors opinion. Funds
required to finance the store expansion program and repurchase stock are
expected to come from operating activities with the remainder, if necessary,
provided by unused bank lines of credit.
The Company currently has in place a $200,000,000 unsecured revolving
credit facility with a group of banks (the "Revolver") with a maturity date of
August 1997. At January 29, 1995, the Company had $56,000,000 outstanding under
the Revolver and $125,603,000 was available to be borrowed. Amounts outstanding
under the Revolver bear interest at the agent bank's prime rate (9.0% at April
21, 1995), LIBOR plus 5/8% or such other negotiated rate, all at the Company's
option. In addition, the Company has in place $55,000,000 of other unsecured
revolving credit facilities with four individual banks (collectively the "Other
Revolvers"). The banks providing the Other Revolvers are not obligated to
advance funds when requested by the Company. At January 29, 1995, the Company
had $24,500,000 outstanding under the Other Revolvers, and pursuant to the terms
of the Revolver, $15,500,000 was permitted to be borrowed under the Other
Revolvers. The weighted average interest rate for borrowings during fiscal 1994
under the Revolver and Other Revolvers was 5.4%. The Company believes the
Revolver is adequate to meet any seasonal or temporary liquidity needs that
cannot be met with cash flows from operating activities.
Working capital was $44,012,000 and $108,323,000 at January 29, 1995 and
January 30, 1994, respectively. The decrease in fiscal 1994 was primarily the
result of funding most of the $81,254,000 of repurchases of the Company's Common
Stock with bank debt. The Company's current ratio was 1.3 and 2.1 at January 29,
1995 and January 30, 1994, respectively. The total debt to equity ratio
increased from 15.1% at January 30, 1994 to 39.2% at January 29, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Except for the following Selected Quarterly Data, the financial
statements and related financial information required to be filed hereunder are
indexed on Page F-1 of this report.
SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET
EARNINGS
NET GROSS NET PER COMMON
SALES PROFIT EARNINGS SHARE
-------- -------- ------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Quarter Ended
May 1......................................................... $142,095 $ 66,770 $ 5,910 $ 0.20
July 31....................................................... 133,693 62,398 2,534 0.09
October 30.................................................... 158,491 74,698 5,234 0.19
January 29, 1995.............................................. 247,804 119,879 25,206 0.96(1)
-------- -------- ------- ----------
$682,083 $323,745 $38,884 $ 1.37
======== ======== ======= =========
1993
Quarter Ended
May 2......................................................... $126,697 $ 58,564 $ 5,887 $ 0.20
August 1...................................................... 116,081 54,104 2,053 0.07
October 31.................................................... 140,581 65,712 3,598 0.12
January 30, 1994.............................................. 243,704 112,755 20,399 0.68(2)
-------- -------- ------- ----------
$627,063 $291,135 $31,937 $ 1.07
======== ======== ======= =========
</TABLE>
- ---------------
(1) The Company repurchased 2,121,900 and 855,800 shares of its common stock in
the third and fourth quarters, respectively, of fiscal 1994. These
repurchases resulted in a dilution of the quarterly weighted average shares
outstanding and, as such, the sum of the quarterly earnings per share
exceeds annual earnings per share by $0.07.
(2) A pre-tax charge of $3,046,000 for operating expenses and inventory
write-off related to the January 17, 1994 Southern California earthquake is
included in the quarter ended January 30, 1994. The effect of this charge
was to reduce the quarterly net earnings per share by $0.06.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information
required by Items 10-13 of Part III of Form 10-K is incorporated herein by
reference from the Company's definitive proxy materials to be filed with the
Securities and Exchange Commission within 120 days after the close of the
Company's most recent fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. Reference is made to the Index to Financial
Statements and Schedules of the Company on page F-1 of this Annual Report
on Form 10-K.
(a)(2)FINANCIAL STATEMENT SCHEDULES. Reference is made to the Index to Financial
Statements and Schedules of the Company on page F-1 of this Annual Report
on Form 10-K.
(a)(3) EXHIBITS. The following documents are exhibits to this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended, filed as Exhibit 6.1 to the
Company's Registration Statement on Form 8-A dated May 22, 1992 and incorporated herein by
this reference.
3.2 By-Laws of the Company, as amended, filed as Exhibit 6.2 to the Company's Registration
Statement on Form 8-A dated May 22, 1992 and incorporated herein by this reference.
10.1 Incentive Stock Option Plan filed as Exhibit A to the Company's definitive Proxy Statement
for 1982 and incorporated herein by this reference.
10.2 Amendment to Incentive Stock Option Plan filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated herein by
this reference.
10.3 Common Stock Incentive Plan filed as Appendix C to the Company's definitive Proxy Statement
for 1979 and incorporated herein by this reference.
10.4 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.3(3) to the Company's
Annual Report on Form 10-K for fiscal year ended December 31, 1982 and incorporated herein
by this reference.
10.5 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated herein by
this reference.
10.6 Non-Qualified Stock Option Agreement dated December 26, 1985 filed as Exhibit 10.3(3) to the
Company's Annual Report on Form 10-K for fiscal year ended December 31, 1985 and
incorporated herein by this reference.
10.7 Form of Amended Stock Option Agreement used in connection with the Incentive Stock Option
Plan filed as Exhibit 10.6(1) to the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1989 and transition period ended January 28, 1990 and incorporated herein
by this reference.
10.8 Form of Restricted Stock Agreement used in connection with the Incentive Stock Option Plan
filed as Exhibit 10.6(2) to the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1989 and transition period ended January 28, 1990 and incorporated herein by
this reference.
10.9 1990 Employee Stock Incentive Plan filed as Annex B to the Company's definitive Proxy
Statement for the 1990 Annual Meeting of Stockholders and incorporated herein by this
reference.
10.10 Amendments No. 1 and No. 2 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1992 and
incorporated herein by this reference.
10.11 Form of Stock Option Agreement used in connection with the 1990 Employee Stock Incentive
Plan for options subject to staggered vesting filed as Exhibit 10.8 to the Company's Annual
Report on Form 10-K for fiscal year ended February 3, 1991 and incorporated herein by this
reference.
10.12 Form of Stock Option Agreement used in connection with the 1990 Employee Stock Incentive
Plan for immediately exercisable options filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for fiscal year ended February 3, 1991 and incorporated herein by this
reference.
10.13 Form of Restricted Stock Agreement used in connection with the 1990 Employee Stock Incentive
Plan filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for fiscal year
ended February 3, 1991 and incorporated herein by this reference.
10.14 Stock Option Agreement dated December 6, 1990 between the Company and Peter S. Willmott
filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for fiscal year ended
February 3, 1991 and incorporated herein by this reference.
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------------------
<S> <C>
10.15 Stock Option Plan for Non-Employee Directors filed as Annex B to the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders held in 1992 and incorporated herein
by this reference.
10.16 Employment Agreement dated November 12, 1990 between the Company and Leonard S. Williams
filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for fiscal year ended
February 3, 1991 and incorporated herein by this reference.
10.17 Amendment No. 1 to Employment Agreement dated November 12, 1990 between the Company and
Leonard S. Williams dated as of February 3, 1992 filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated
herein by this reference.
10.18 Amendment No. 2 to Employment Agreement between the Company and Leonard S. Williams dated as
of January 31, 1994 filed as Exhibit 10.18 to the Company's Annual Report on From 10-K for
the fiscal year ended January 30, 1994 and incorporated herein by this reference.
10.19 Employment Agreement dated as of September 25, 1992 between the Company and Mark J. Miller
filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993 and incorporated herein by this reference.
10.20 Amendment No. 1 to the Employment Agreement between the Company and Mark J. Miller dated as
of January 31, 1994 filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1994 and incorporated herein by this reference.
10.21 Employment Agreement dated as of August 4, 1993 between the Company and Patricia J. Wehner
filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1994 and incorporated herein by this reference.
10.22 Employment Agreement dated as of January 31, 1994 by and between the Company and Philip L.
Carter filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 1994 and incorporated herein by this reference.
10.23 Lease dated August 1, 1988 between the Company, the City of New Orleans, State of Louisiana
Inc., and the City of New Orleans, Louisiana Industrial Development Board re New Orleans
Distribution Center filed as Exhibit 10.5(1) to the Company's Annual Report on Form 10-K for
fiscal year ended January 1, 1989 and incorporated herein by this reference.
10.24 Amended and Restated Credit Agreement dated as of October 5, 1993 among the Company, West
Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed therein and Bank of America
National Trust and Savings Association, as Administrative Agent, and Continental Bank, as
Co-Agent filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 1994 and incorporated herein by this reference.
10.25 First Amendment to Amended and Restated Credit Agreement dated as of August 10, 1994 among
the Company, West Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed therein and
Bank of America National Trust and Savings Association, as Administrative Agent, and
Continental Bank, as Co-Agent.
10.26 Second Amendment to Amended and Restated Credit Agreement dated as of February 21, 1995
among the Company, West Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed
therein and Bank of America National Trust and Savings Association, as Administrative Agent,
and Bank of America Illinois (formerly named Continental Bank, N.A.), as Co-Agent.
10.27 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and West
Coast Liquidators, Inc. filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 30, 1994 and incorporated herein by this reference.
10.28 Settlement Agreement dated August 9, 1990 among the Company, Batchelder Co., DHB Partners,
L.P., David H. Batchelder, Batchelder & Partners, Inc. and Girard Partners, L.P. filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended February
3, 1991 and incorporated herein by this reference.
10.29 Master Lease dated December 27, 1991 between the Company and Comdisco, Inc. filed as Exhibit
10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1992
and incorporated herein by this reference.
10.30 Mac Frugal's Bargains - Close-outs Inc. Savings and Retirement Plan dated as of January 1,
1995.
22.1 Subsidiaries of Company.
24.1 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
(b) The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended January 29, 1995.
(c) Copies of Exhibits 10.25, 10.26, 10.30, 22.1, 24.1 and 27 are attached
hereto. Reference is made to the Exhibit Index for an indication of the
availability of other exhibits identified at Item 14(a)(3) above.
(d) Not applicable.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 27, 1995
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
By: /s/ PHILIP L. CARTER
-------------------------------------------
Philip L. Carter
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of this
registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C>
April 27, 1995 /s/ PHILIP L. CARTER
---------------------------------------------------------
Philip L. Carter
President and Chief Executive Officer
(Principal Executive, Financial and Accounting Officer)
April 27, 1995 /s/ PETER S. WILLMOTT
---------------------------------------------------------
Peter S. Willmott
Chairman of the Board
April 27, 1995 /s/ DAVID H. BATCHELDER
---------------------------------------------------------
David H. Batchelder
Director
April 27, 1995 /s/ BRUCE E. KARATZ
---------------------------------------------------------
Bruce E. Karatz
Director
April 27, 1995 /s/ ANTHONY LUISO
---------------------------------------------------------
Anthony Luiso
Director
April 27, 1995 /s/ RONALD P. SPOGLI
---------------------------------------------------------
Ronald P. Spogli
Director
April 27, 1995 /s/ BILL M. THOMAS
---------------------------------------------------------
Bill M. Thomas
Director
April 27, 1995 /s/ LEONARD S. WILLIAMS
---------------------------------------------------------
Leonard S. Williams
Director
April 27, 1995 /s/ JAMES J. ZEHENTBAUER
---------------------------------------------------------
James J. Zehentbauer
Director
</TABLE>
14
<PAGE> 17
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................................... F-2
Consolidated balance sheets -- January 29, 1995, and January 30, 1994.................................. F-3
Consolidated statements of earnings -- years ended January 29, 1995, January 30, 1994, and January 31,
1993................................................................................................. F-4
Consolidated statements of stockholders' equity -- years ended January 29, 1995, January 30, 1994, and
January 31, 1993..................................................................................... F-5
Consolidated statements of cash flows -- years ended January 29, 1995, January 30, 1994, and January
31, 1993............................................................................................. F-6
Notes to consolidated financial statements............................................................. F-7
</TABLE>
- ---------------
* Schedules have been omitted because they are not applicable or because the
required information is shown in the consolidated financial statements or
notes to consolidated financial statements.
F-1
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Mac Frugal's Bargains o Close-outs Inc.
Dominguez, California
We have audited the accompanying consolidated balance sheets of Mac
Frugal's Bargains o Close-outs Inc. and subsidiaries as of January 29, 1995 and
January 30, 1994 and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended January 29, 1995,
January 30, 1994 and January 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mac Frugal's
Bargains o Close-outs Inc. and subsidiaries at January 29, 1995 and January 30,
1994 and the results of their operations and their cash flows for the years
ended January 29, 1995, January 30, 1994 and January 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed
its method of accounting for income taxes in 1993.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 14, 1995
F-2
<PAGE> 19
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PAR VALUE)
ASSETS
<TABLE>
<CAPTION>
JANUARY 29, 1995 JANUARY 30, 1994
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................... $ 6,674 $ 12,445
Merchandise inventories...................................................... 182,102 181,755
Other current assets (Note 4)................................................ 14,883 15,114
-------- --------
Total current assets...................................................... 203,659 209,314
Property, Equipment and Improvements (Notes 5, 10 and 12):
Land......................................................................... 33,876 27,109
Building and improvements.................................................... 80,762 71,784
Automobiles and trucks....................................................... 2,778 2,778
Furniture, fixtures and equipment............................................ 89,225 75,797
Leasehold improvements....................................................... 73,931 64,843
Construction in progress..................................................... 2,987 1,137
-------- --------
283,559 243,448
Less: Accumulated depreciation and amortization.............................. (105,339) (89,628)
-------- --------
178,220 153,820
Deferred Income Tax Asset (Note 4)............................................. 780 1,252
Deferred Financing Costs and Other Assets...................................... 3,717 5,177
-------- --------
Total Assets......................................................... $386,376 $369,563
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding........................................................... $ 11,098 $ 11,430
Loan payable to bank (Note 2)................................................ 80,500 34,900
Current portion of long-term debt (Note 5)................................... 63 97
Accounts payable............................................................. 9,359 13,444
Accrued expenses (Note 3).................................................... 37,096 31,726
Income taxes payable (Note 4)................................................ 12,154 --
Sales tax payable............................................................ 9,377 9,394
-------- --------
Total current liabilities................................................. 159,647 100,991
Long-Term Debt (Note 5)........................................................ 4,491 3,869
Deferred Income Taxes (Note 4)................................................. 5,357 7,353
Commitments (Notes 2, 8, 9 and 11)
Stockholders' Equity (Notes 2, 6 and 7):
Preferred stock, $1 par value; authorized, 500 shares;
issued, none
Common stock, $.02778 par value; authorized, 100,000 shares; issued 29,854
shares (1995) and 29,727 shares (1994).................................... 829 825
Additional paid-in capital................................................... 3,216 1,319
Retained earnings............................................................ 294,917 256,033
-------- --------
298,962 258,177
Less: Treasury stock, at cost, 4,313 shares (1995) and 55 shares (1994)...... (82,081) (827)
-------- --------
Total Stockholders' Equity................................................ 216,881 257,350
-------- --------
Total Liabilities and Stockholders' Equity........................... $386,376 $369,563
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 20
MAC FRUGALS' BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Net Sales............................................................. $ 682,083 $ 627,063 $540,295
Cost of Sales......................................................... 358,338 335,928 281,504
--------- --------- --------
Gross Profit.......................................................... 323,745 291,135 258,791
--------- --------- --------
Expenses:
Store expenses...................................................... 191,496 180,008 150,304
Warehouse and administrative expenses............................... 61,604 53,460 47,573
Warehouse write-down expense (Note 10).............................. -- -- 36,646
--------- --------- ---------
Total Expenses.............................................. 253,100 233,468 234,523
--------- --------- --------
Operating Income...................................................... 70,645 57,667 24,268
Interest expense, net (Note 2)........................................ 6,373 4,792 6,860
--------- --------- --------
Earnings Before Income Taxes.......................................... 64,272 52,875 17,408
Income Taxes (Note 4)................................................. 25,388 20,938 6,060
--------- --------- --------
Net Earnings.......................................................... $ 38,884 $ 31,937 $ 11,348
========= ========= ========
Average Shares Outstanding............................................ 28,353 29,931 30,295
========= ========= ========
Net Earnings Per Common Share......................................... $ 1.37 $ 1.07 $ 0.37
========= ========= ========
Dividends Per Common Share............................................ None None None
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 21
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RECEIVABLE
COMMON STOCK ADDITIONAL TREASURY STOCK UNDER
--------------- PAID-IN RETAINED ------------------- STOCK PURCHASE
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT AGREEMENT TOTAL
------ ------ ---------- --------- ------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, February 2, 1992................ 40,016 $1,112 $ 15,055 $ 321,328 9,382 $(107,315) $(4,142) $226,038
Exercise of stock options.............. 42 1 539 540
Increase in purchase price under stock
purchase agreement................... 12 (12)
Redemption of stock issued under
September 15, 1988 stock purchase
agreement............................ (250) (7) (5,368) 4,154 (1,221)
Cancellation of option rights.......... (3,279) (3,279)
Recognition of interest income upon
collection of September 15, 1988
stock purchase
receivable........................... (481) (481)
Non-cash compensation expense.......... 132 132
Restricted stock cancelled............. (3)
Treasury stock retired................. (9,382) (261) (6,548) (100,506) (9,382) 107,315
Purchase of Treasury stock, at cost.... 832 (8,630) (8,630)
Net earnings for the year.............. 11,348 11,348
------ ------ ---------- --------- ------- --------- --------------- --------
BALANCE, January 31, 1993................ 30,423 845 62 232,170 832 (8,630) -- 224,447
Exercise of stock options.............. 136 3 1,715 1,718
Non-cash compensation expense.......... 75 75
Treasury stock retired................. (832) (23) (533) (8,074) (832) 8,630
Purchase of Treasury stock, at cost.... 55 (827) (827)
Net earnings for the year.............. 31,937 31,937
------ ------ ---------- --------- ------- --------- --------------- --------
BALANCE, January 30, 1994................ 29,727 825 1,319 256,033 55 (827) -- 257,350
Exercise of stock options.............. 127 4 1,510 1,514
Non-cash compensation expense.......... 75 75
Purchase of Treasury stock, at cost.... 4,258 (81,254) (81,254)
Tax benefit from disqualifying
dispositions of stock options........ 312 312
Net earnings for the year.............. 38,884 38,884
------ ------ ---------- --------- ------- --------- --------------- --------
BALANCE, January 29, 1995................ 29,854 $ 829 $ 3,216 $ 294,917 4,313 $ (82,081) -- $216,881
====== ====== ========== ========== ======== ========== ================ ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 22
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
DECREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers........................................... $ 682,083 $ 627,063 $ 540,295
Cash paid to suppliers and employees................................... (594,293) (576,515) (485,599)
Income taxes paid...................................................... (13,709) (21,091) (24,411)
Interest paid (net of amount capitalized).............................. (6,579) (5,774) (8,494)
Interest received...................................................... 621 699 718
--------- --------- ---------
Net cash provided by operating activities........................... 68,123 24,382 22,509
Cash flows from investing activities:
Capital expenditures................................................... (40,814) (29,365) (15,264)
Proceeds from sale of fixed assets..................................... 473 25,883 2,432
--------- --------- ---------
Net cash used in investing activities............................... (40,341) (3,482) (12,832)
Cash flows from financing activities:
Net borrowings under line of credit agreement.......................... 45,600 34,900 --
Repurchase of Treasury stock........................................... (81,254) (827) (8,630)
Payment of long-term debt.............................................. (96) (76,814) (19,776)
Proceeds from exercise of stock options................................ 1,514 1,718 540
Redemption of stock subject to stock purchase agreement and
cancellation of certain option rights............................... -- -- (4,500)
Other (net)............................................................ 683 (116) 310
--------- --------- ---------
Net cash used in financing activities............................... (33,553) (41,139) (32,056)
--------- --------- ---------
Decrease in cash and cash equivalents............................... (5,771) (20,239) (22,379)
Cash and cash equivalents, beginning of period........................... 12,445 32,684 55,063
--------- --------- ---------
Cash and cash equivalents, end of period................................. $ 6,674 $ 12,445 $ 32,684
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income............................................................... $ 38,884 $ 31,937 $ 11,348
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 16,000 15,380 17,293
Tax benefit from disqualifying dispositions of stock options........... 312 -- --
Warehouse write-down expense........................................... -- -- 36,646
Recognition of interest income upon collection of September 15, 1988
stock purchase receivable........................................... -- -- (481)
Gain on sale of fixed assets........................................... (58) (924) (658)
Non-cash compensation expense.......................................... 75 75 132
Changes in assets and liabilities:
Increase in inventory............................................... (347) (34,180) (17,018)
Decrease (increase) in other assets................................. 1,691 4,525 (5,253)
Decrease (increase) in deferred income tax asset.................... 472 11,501 (12,753)
Increase (decrease) in checks outstanding, accounts payable, accrued
expenses and sales tax payable..................................... 936 14,595 (7,154)
Increase (decrease) in income taxes payable......................... 12,154 (14,717) 191
(Decrease) increase in deferred income taxes........................ (1,996) (3,810) 216
--------- --------- ---------
29,239 (7,555) 11,161
--------- --------- ---------
$ 68,123 $ 24,382 $ 22,509
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 23
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 29, 1995, JANUARY 30, 1994
AND JANUARY 31, 1993
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
Mac Frugal's Bargains o Close-outs Inc. (formerly Pic 'N' Save
Corporation) and its wholly-owned subsidiaries (the Company) operate a chain of
278 retail stores which offer a broad range of new close-out merchandise on a
self-service, cash-and-carry basis.
The consolidated financial statements include the accounts of Mac
Frugal's Bargains o Close-outs Inc. and its wholly-owned subsidiaries. All
material intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
All highly liquid investments purchased with a maturity of three months
or less are considered to be cash equivalents.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market. Cost
is determined on the first-in, first-out method for individual items of
warehouse stock and by the retail inventory method for retail stores.
Property, Equipment and Improvements
Property, equipment and improvements are recorded at cost unless the
Company determines there has been a permanent impairment in value (Note 10).
Depreciation and amortization are provided by the straight-line method over the
estimated useful lives of the property.
Capitalization of Interest
The Company capitalizes interest in connection with the construction of
certain facilities and other assets. Interest was capitalized using the
Company's weighted average interest rate (Note 2).
Deferred Financing Costs
Deferred financing costs are amortized using the straight-line method
over the terms of the related debt agreements.
Deferred Expenses
The Company capitalizes costs associated with opening new store and
warehouse facilities and amortizes these over six and twenty-four months,
respectively.
Income Taxes
The Company changed its method of accounting for income taxes, effective
February 1, 1993, to conform with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." The change had no significant
income statement impact. The Company provides for deferred income taxes under
the asset and liability method, whereby deferred income taxes result from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest January 31 and
contains 52 weeks.
Earnings per Common Share
Earnings per Common Share is based on the weighted average number of
Common shares and Common Stock equivalents (stock options) outstanding.
Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
F-7
<PAGE> 24
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- BANK BORROWINGS AND INTEREST:
In October 1993, the Company repaid its then outstanding term loan and
amended and restated its credit agreement (the Restated Agreement) with its
syndicate of banks. The Restated Agreement included an annually renewable
unsecured three-year $150,000,000 revolving loan for seasonal working capital
needs, with a $50,000,000 sublimit for commercial and standby letters of credit.
The Restated Agreement was amended in August 1994 (the Current Agreement) to
increase the revolving loan to $200,000,000 and extend its maturity to August
1997. The Current Agreement contains certain restrictive covenants requiring the
Company to maintain certain financial ratios and limiting the payment of
dividends based on a formula. At January 29, 1995, $98,000 of retained earnings
were unrestricted as to the declaration of cash dividends and the acquisition of
Common Stock by the Company. Interest rates are prime (8.50% at January 29,
1995), LIBOR plus 5/8%, or negotiated at the Company's option. The Company had
outstanding borrowings of $56,000,000 and $22,000,000 at January 29, 1995 and
January 30, 1994, respectively, under the applicable credit agreements at those
dates. In February 1995, the Current Agreement was amended to increase by
$10,000,000 the amount of retained earnings that are unrestricted as to the
declaration of cash dividends and the acquisition of Common Stock by the
Company.
The Company also has $55,000,000 of unsecured, uncommitted short-term
line of credit facilities with four individual banks. Under the terms of the
Current Agreement, only $40,000,000 may be outstanding under these facilities at
any one time. Interest rates are negotiated. At January 29, 1995 and January 30,
1994, $24,500,000 and $12,900,000, respectively, were outstanding under these
facilities. Interest rates ranged between 6.00% and 6.43% on outstanding
borrowings at January 29, 1995. The weighted average interest rate for all
short-term borrowings outstanding during fiscal 1994 was 5.42%.
Commitments under outstanding letters of credit amounted to $18,397,000
and $18,109,000 at January 29, 1995 and January 30, 1994, respectively.
Net interest on bank borrowings and long-term debt is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Expense............................................................ $ 6,997 $ 5,436 $ 8,059
Income............................................................. (389) (644) (1,199)
Capitalized Interest............................................... (235) -- --
------- ------- -------
Net Interest....................................................... $ 6,373 $ 4,792 $ 6,860
======= ======= =======
</TABLE>
NOTE 3 -- ACCRUED EXPENSES:
Accrued expenses are comprised of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1995 1994
----------- -----------
<S> <C> <C>
Insurance...................................................................... $20,369 $16,898
Salaries....................................................................... 3,956 2,748
Profit sharing................................................................. 1,047 961
Percentage rent................................................................ 589 864
Other expenses................................................................. 11,135 10,255
------- -------
$37,096 $31,726
======= =======
</TABLE>
F-8
<PAGE> 25
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES:
The provision for income taxes includes the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal...................................................... $22,673 $ 5,048 $ 18,107
State........................................................ 4,430 1,571 5,077
------- ------- ---------
27,103 6,619 23,184
Deferred:
Federal...................................................... (1,996) 11,649 (13,247)
State........................................................ 281 2,670 (3,877)
------- ------- ---------
(1,715) 14,319 (17,124)
------- ------- ---------
$25,388 $20,938 $ 6,060
======= ======= =========
</TABLE>
The Company's effective tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal tax rate..................................... 35.0% 35.0% 34.0%
State income tax net of federal benefit........................ 4.7 5.4 4.0
Rate benefit from federal targeted jobs tax credit............. (0.8) (.4) (1.9)
Other, net..................................................... 0.6 (.4) (1.3)
----- ----- -----
39.5% 39.6% 34.8%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
On August 10, 1993 legislation was enacted that retroactively increased
the maximum corporate income tax rate to 35%. The increased income tax rate was
retroactive to January 1, 1993. The effect of the rate increase on the Company's
accumulated deferred income taxes for fiscal 1993 is deemed immaterial.
Significant components of the Company's net deferred income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1995 1994
----------- -----------
<S> <C> <C>
Deferred Income Tax Assets:
Inventories.............................................................. $ 3,541 $ 5,238
State Franchise Taxes.................................................... 991 (1,477)
Insurance Reserves....................................................... 1,558 1,020
Deferred Expenses........................................................ 804 965
Excess of Tax Over Book Depreciation..................................... (672) --
Other.................................................................... (65) 692
------- ---------
6,157 6,438
------- ---------
Deferred Income Tax Liabilities:
Excess of Tax Over Book Depreciation..................................... (13,786) (15,976)
Insurance Reserves....................................................... 7,025 6,469
Other.................................................................... 1,404 2,154
------- ---------
(5,357) (7,353)
------- ---------
Net Deferred Income Tax Asset (Liability).................................. $ 800 $ (915)
======= =========
</TABLE>
The Company provided no valuation allowance against the deferred income
tax assets recorded as of January 29, 1995 and January 30, 1994.
Other current assets on the balance sheet at January 29, 1995 and
January 30, 1994 include current deferred income tax assets of $5,377,000 and
$5,186,000, respectively. Other current assets at January 30, 1994 includes
refundable income taxes of $927,000.
F-9
<PAGE> 26
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5- LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1995 1994
----------- -----------
<S> <C> <C>
Industrial Development Revenue Bonds with interest payable quarterly based
on the current prime rate, next redeemable August 1998, due August
2028..................................................................... 2,000 2,000
Non interest-bearing construction loan, due in quarterly installments
beginning May 1, 1991 through May 1, 2006 net of discount based on
imputed interest rate of 10% ($852 in fiscal 1994, $996 in fiscal
1993).................................................................... 1,348 1,404
Equipment contract, 12.032%, maturing through 1994, collateralized by
equipment................................................................ -- 40
Other...................................................................... 1,206 522
------- -------
4,554 3,966
Less current maturities.................................................... (63) (97)
------- -------
Long-term debt............................................................. $ 4,491 $ 3,869
======= =======
</TABLE>
The aggregate maturities of long-term debt for the years subsequent to
January 29, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1995....................................... $ 63
1996....................................... 69
1997....................................... 2,076
1998....................................... 84
1999....................................... 93
Thereafter................................. 2,169
------
$4,554
======
</TABLE>
NOTE 6 -- STOCK INCENTIVE PLANS:
In 1990, the Company adopted a new stock incentive plan (the 1990
Employee Stock Incentive Plan) to enable key employees to acquire shares of the
Company's Common Stock. The new plan replaced the Company's Stock Incentive Plan
and Incentive Stock Option Plan adopted previously. Under the new plan, as
amended in fiscal 1993, which provides for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights and restricted stock, up
to 3,200,000 shares of Common Stock may be issued. Prior to the 1993 amendment,
up to 1,750,000 shares of Common Stock could be issued. Although stock options
and restricted stock granted under the Stock Incentive Plan and Incentive Stock
Option Plan remain outstanding, no new options or restricted shares will be
granted under such plans. Under the terms of the new plan, incentive stock
options may be granted at not less than 100% of fair market value at the date of
grant (110% in the case of 10% stockholders) and nonqualified stock options may
be granted at not less than par value (or, in the case of officers of the
Company, not less than the greater of par value or 50% of fair market value on
the date of grant). A portion of the fiscal 1992 grants under the plan was
subject to reduction based upon the level of pre-tax earnings for fiscal 1992
compared to a target level established at the date of grant.
In 1992, the Company adopted its Stock Option Plan for Non-Employee
Directors to enable non-employee directors to acquire shares of the Company's
Common Stock. Each non-employee director receives a nonqualified stock option
grant of 2,500 shares upon election or re-election to the board of directors. In
addition, each non-employee director may elect, on the date of each annual
meeting at which he or she is elected or re-elected, to receive a certain
portion of their annual retainer in the form of a nonqualified stock option
grant based on a formula. Expense is recognized ratably over the director's
term.
The Company awarded 35,830 and 41,830 shares of restricted stock under
the old plans in March 1989 and April 1990, respectively. Such shares vested
over three-year periods. No stock appreciation rights have been granted under
any of the plans to date. The Company has granted options to purchase 25,000
shares outside of these plans.
F-10
<PAGE> 27
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes for all options are summarized as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
-----------------------------
PER SHARE
SHARES PRICE RANGE
--------- -------------
<S> <C> <C>
Outstanding, February 2, 1992.................................... 1,577,746 $ 6.63-$23.00
Granted........................................................ 151,460 $10.60-$13.63
Granted subject to reduction................................... 498,000 $19.75-$19.75
Exercised...................................................... (41,918) $10.50-$16.63
Cancelled...................................................... (517,725) $10.50-$22.13
--------- -------------
Outstanding, January 31, 1993.................................... 1,667,563 $ 6.63-$23.00
Granted........................................................ 646,570 $14.25-$18.50
Exercised...................................................... (135,745) $ 9.00-$17.08
Cancelled...................................................... (772,863) $10.50-$22.13
--------- -------------
Outstanding, January 30, 1994.................................... 1,405,525 $ 6.63-$23.00
Granted........................................................ 39,856 $16.10-$16.88
Exercised...................................................... (126,318) $ 9.00-$16.00
Cancelled...................................................... (103,142) $10.50-$22.13
--------- -------------
Outstanding, January 29, 1995.................................... 1,215,921 $ 6.63-$23.00
</TABLE>
At January 29, 1995, there were 1,972,990 and 70,914 shares of the
Company's Common Stock available for grant under the 1990 Employee Stock
Incentive Plan and Non-Employee Directors Plan, respectively. Options were
exercisable for 741,915 shares under all of the Company's four stock option
plans and stock option agreements, collectively, at January 29, 1995.
On March 16, 1993, options to purchase 424,250 shares of the 498,000
shares granted subject to reduction were cancelled (options to purchase 30,000
shares having already been cancelled) upon determination of the Company's fiscal
1992 pre-tax earnings.
Although most of the stock options granted under the plans are intended
to be incentive stock options, the Company will be entitled to a tax deduction
for the excess (if any) of the aggregate market price over the aggregate
exercise price at such time as nonqualified options are exercised.
In March 1992, the Company cancelled all option rights (563,700 shares)
held by the Company's former president and a potential cash bonus related to
certain options was cancelled in exchange for a cash payment of $3,279,000 (Note
7).
NOTE 7 -- STOCKHOLDERS' EQUITY:
In September 1988, the Board approved the sale of 250,000 shares of
Common Stock, at the quoted market value on the date of sale ($12 3/8 per
share), to the Company's former president under a purchase agreement in exchange
for a promissory note in which the face amount increased at 9.08% annually. The
$3,087,000 promissory note was originally due five years after issuance.
The shares were voting, collateralized the note until paid, and
dividends or other distributions, if any, were to be offset against the note.
Upon termination of the former president's employment in fiscal 1990, the
Company extended the maturity date of the promissory note to December 31, 1995.
In March 1992, the Company purchased the 250,000 shares related to the
promissory note from the former president at $21.50 per share. Of the proceeds,
$4,154,000 was applied against the outstanding balance of the promissory note.
The remaining proceeds of $1,221,000 were paid in cash to the former president
(Note 6).
NOTE 8 -- PROFIT SHARING PLAN:
The Company has a profit sharing plan covering substantially all
employees with more than one year of service. Under this plan, the Company
contributes a portion of earnings based on a formula. Effective January 1, 1995,
the Company amended and restated this plan to include a 401(k) employee deferral
and Company matching feature. The Company's match is determined each year by the
Board of Directors. Profit Sharing and 401(k) expenses for the plan for the
years ended January 29, 1995, January 30, 1994 and January 31, 1993 were
$1,050,000, $1,038,000 and $766,000, respectively.
F-11
<PAGE> 28
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LEASE COMMITMENTS:
The Company has leases outstanding for retail store locations, the New
Orleans distribution center and equipment with varying initial expiration dates
through 2020; most leases include options to renew. The Company may also be
required to pay insurance, taxes and/or additional rents based on a percentage
of sales. Total rental expense was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Base rental expense................................................ $ 34,858 $28,707 $ 21,969
Contingent rental expense.......................................... 416 102 917
--------- ------- ---------
$ 35,274 $28,809 $ 22,886
========= ======= =========
</TABLE>
Aggregate minimum rental commitments under all leases and aggregate
minimum rental income from sublease tenants of leased buildings under all
noncancellable leases in effect as of January 29, 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR EXPENSE INCOME NET
------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
1995............................................................... $ 31,227 $ 2,635 $ 28,592
1996............................................................... 31,178 2,602 28,576
1997............................................................... 29,108 1,696 27,412
1998............................................................... 28,242 1,358 26,884
1999............................................................... 27,623 1,024 26,599
Thereafter......................................................... 206,388 6,072 200,316
--------- ------- ---------
$ 353,766 $15,387 $ 338,379
========= ======= =========
</TABLE>
NOTE 10 -- WAREHOUSE WRITE-DOWN EXPENSE:
The Company completed construction of its New Orleans warehouse and
distribution center effective September 1991. The facility was completed at a
net cost of $58,617,000, of which $32,233,000 was classified as building and
building improvements and $26,384,000 was classified as furniture, fixtures and
equipment. Furthermore, $7,406,000 of interest expense was capitalized over the
three-year construction period.
During fiscal 1992, the Company determined that the value of the
facility was permanently impaired based on an assessment of the Company's
continued and planned future under-utilization of the facility. Additionally,
the Company had decided to pursue a sale and leaseback of the facility.
Accordingly, during fiscal 1992 a charge to operating income was
recorded for approximately $36,646,000 which represented the difference between
the net book value and the estimated net realizable value at the date of
impairment. The estimated net realizable value of the facility was based upon
appraisals received by independent nationally recognized appraisal firms.
In October 1993, the Company completed a sale and leaseback of this
facility. The sales price of $23,643,000 approximated the recorded net book
value.
NOTE 11 -- OTHER COMMITMENTS:
The Company is a defendant in certain legal actions. While management
and legal counsel are presently unable to predict the outcome or to estimate the
amount of any liability the Company may have with respect to these lawsuits, it
is not expected that these matters will have a material adverse effect on the
Company.
NOTE 12 -- NORTHRIDGE, CALIFORNIA EARTHQUAKE:
On January 17, 1994, a 6.7 magnitude earthquake occurred in the San
Fernando Valley of Southern California. Twenty-five stores experienced
relatively minor merchandise and physical damage requiring closures that varied
from a few hours to one week. Four stores experienced substantial merchandise
and physical damage. Three stores reopened during fiscal 1994. The fourth store
has been permanently closed and will be relocated during fiscal 1995.
The Company incurred significant costs in connection with the earthquake
including approximately $1,867,000 of damaged merchandise, $744,000 of destroyed
property, $258,000 of expenses to repair property and $177,000 of other
expenses, primarily labor costs associated with removing damaged merchandise and
reopening the affected stores. All of these costs were recorded in fiscal 1993.
F-12
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
NUMBER FILED WITH THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 1994 NUMBER
- ------ --------------------------------------------------------------------------------------------- ------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as amended, filed as Exhibit 6.1 to the *
Company's Registration Statement on Form 8-A dated May 22, 1992.
3.2 By-Laws of the Company, as amended, filed as Exhibit 6.2 to the Company's Registration *
Statement on Form 8-A dated May 22, 1992.
10.1 Incentive Stock Option Plan filed as Exhibit A to the Company's definitive Proxy Statement *
for 1982.
10.2 Amendment to Incentive Stock Option Plan filed as Exhibit 10.2 to the Company's Annual Report *
on Form 10-K for the year ended February 2, 1992.
10.3 Common Stock Incentive Plan filed as Appendix C to the Company's definitive Proxy Statement *
for 1979.
10.4 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.3(3) to the Company's Annual *
Report on Form 10-K for fiscal year ended December 31, 1982.
10.5 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.5 to the Company's Annual *
Report on Form 10-K for the fiscal year ended February 2, 1992.
10.6 Non-Qualified Stock Option Agreement dated December 26, 1985 filed as Exhibit 10.3(3) to the *
Company's Annual Report on Form 10-K for fiscal year ended December 31, 1985.
10.7 Form of Amended Stock Option Agreement used in connection with the Incentive Stock Option *
Plan filed as Exhibit 10.6(1) to the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1989 and transition period ended January 28, 1990.
10.8 Form of Restricted Stock Agreement used in connection with the Incentive Stock Option Plan *
filed as Exhibit 10.6(2) to the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1989 and transition period ended January 28, 1990.
10.9 1990 Employee Stock Incentive Plan filed as Annex B to the Company's definitive Proxy *
Statement for the 1990 Annual Meeting of Stockholders.
10.10 Amendments No. 1 and No. 2 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.10 to *
the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1992.
10.11 Form of Stock Option Agreement used in connection with the 1990 Employee Stock Incentive Plan *
for options subject to staggered vesting filed as Exhibit 10.8 to the Company's Annual Report
on Form 10-K for fiscal year ended February 3, 1991.
10.12 Form of Stock Option Agreement used in connection with the 1990 Employee Stock Incentive Plan *
for immediately exercisable options filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K for fiscal year ended February 3, 1991.
10.13 Form of Restricted Stock Agreement used in connection with the 1990 Employee Stock Incentive *
Plan filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for fiscal year ended
February 3, 1991.
10.14 Stock Option Agreement dated December 6, 1990 between the Company and Peter S. Willmott filed *
as Exhibit 10.11 to the Company's Annual Report on Form 10-K for fiscal year ended February
3, 1991.
10.15 Stock Option Plan for Non-Employee Directors filed as Annex B to the Company's definitive *
Proxy Statement for the Annual Meeting of Stockholders held in 1992.
10.16 Employment Agreement dated November 12, 1990 between the Company and Leonard S. Williams *
filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for fiscal year ended
February 3, 1991.
10.17 Amendment No. 1 to Employment Agreement between the Company and Leonard S. Williams dated as *
of February 3, 1992 filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 2, 1992.
10.18 Amendment No. 2 to Employment Agreement between the Company and Leonard S. Williams dated as *
of August 31, 1993 filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1994.
10.19 Employment Agreement dated as of September 25, 1992 betwen the Company and Mark J. Miller *
filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993.
10.20 Amendment No. 1 to the Employment Agreement between the Company and Mark J. Miller dated as *
of January 31, 1994 filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1994.
</TABLE>
- ---------------
* By this reference incorporated herein and made a part hereof.
<PAGE> 30
<TABLE>
<CAPTION>
PAGE
NUMBER FILED WITH THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 1994 NUMBER
- ------ --------------------------------------------------------------------------------------------- ------
<C> <S> <C>
10.21 Employment Agreement dated as of August 31, 1993 between the Company and Patricia J. Wehner *
filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1994.
10.22 Employment Agreement dated as of January 31, 1994 between the Company and Philip L. Carter *
filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1994.
10.23 Lease dated August 1, 1988 between the Company, the City of New Orleans, State of Louisiana *
Inc., and the City of New Orleans, Louisiana Industrial Development Board re New Orleans
Distribution Center filed as Exhibit 10.5(1) to the Company's Annual Report on Form 10-K for
fiscal year ended January 1, 1989.
10.24 Amended and Restated Credit Agreement dated as of October 5, 1993 among the Company, West *
Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed therein and Bank of America
National Trust and Savings Association, as Administrative Agent, and Continental Bank, as
Co-Agent filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 1994 and incorporated herein by this reference.
10.25 First Amendment to Amended and Restated Credit Agreement dated as of August 10, 1994 among
the Company, West Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed therein and
Bank of America National Trust and Savings Association, as Administrative Agent, and
Continental Bank, as Co-Agent.
10.26 Second Amendment to Amended and Restated Credit Agreement dated as of February 21, 1995 among
the Company, West Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed therein and
Bank of America National Trust and Savings Association, as Administrative Agent, and Bank of
America Illinois (formerly named Continental Bank, N.A.), as Co-Agent.
10.27 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and West *
Coast Liquidators, Inc. file as Exhibit 10.27 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1994.
10.28 Settlement Agreement dated August 9, 1990 among the Company, Batchelder Co., DHB Partners, *
L.P., David H. Batchelder, Batchelder & Partners, Inc. and Girard Partners, L.P. filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for fiscal year ended February 3,
1991.
10.29 Master Lease dated December 27, 1991 between the Company and Comdisco, Inc. filed as Exhibit *
10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1992.
10.30 MacFrugal's Bargains - Close-outs Inc. Savings and Retirement Plan dated as of January 1,
1995.
22.1 Subsidiaries of Company.
24.1 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
- ---------------
* By this reference incorporated herein and made a part hereof.
<PAGE> 1
EXHIBIT 10.25
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
is made and dated as of August 10, 1994 (the "FIRST AMENDMENT") among MAC
FRUGAL'S BARGAINS - CLOSE-OUTS INC., a Delaware corporation, WEST COAST
LIQUIDATORS, INC., a California corporation, PNS STORES, INC., a California
corporation (individually a "BORROWER" and collectively the "BORROWERS"), the
lenders named on the signature pages hereof (the "LENDERS"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("BOFA"), as administrative agent for the
Lenders and the Issuing Banks (in such capacity, the "ADMINISTRATIVE AGENT") and
CONTINENTAL BANK N.A. as co-agent (in such capacity, the "CO-AGENT"), and amends
that certain Amended and Restated Credit Agreement dated as of October 5, 1993,
among the Borrowers, the Lenders, the Administrative Agent and the Co-Agent (the
"CREDIT AGREEMENT").
RECITAL
WHEREAS, the Borrowers have requested that the Lenders, the
Administrative Agent and the Co-Agent amend certain provisions of the Credit
Agreement to increase the Revolving Commitments, extend the maturity, amend
certain financial covenants, and certain other amendments and modifications to
the Credit Agreement, all as more fully set forth hereinafter, and the Lenders,
Administrative Agent and the Co-Agent are willing to do so on the terms and
conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereby agree
as follows:
1. Terms. All terms used herein shall have the same meanings as
in the Credit Agreement unless otherwise defined herein. All references to the
Credit Agreement shall mean the Credit Agreement as hereby amended.
2. Amendments to Credit Agreement.
2.1 The definition of "Applicable Margin" set forth in Section
1.1 of the Credit Agreement shall be amended by inserting "Consolidated" before
"Fixed Charge Coverage Ratio" each time such phrase is used therein.
- 1 -
<PAGE> 2
2.2 The definition of "Applicable Margin Certificate" set forth
in Section 1.1 of the Credit Agreement shall be amended by inserting
"Consolidated" before "Fixed Charge Coverage Ratio" each time such phrase is
used therein.
2.3 Clause (iii) of the definition of "Clean-Down Debt" set
forth in Section 1.1 of the Credit Agreement shall be amended and restated in
entirety as follows:
(iii) outstanding Indebtedness of the Borrowers permitted under
subsections 6.1(x) and (xi); provided that only the Net
Cash Proceeds of sale and leaseback transactions shall be
included for purposes of determining compliance with Section
2.1A."
2.4 The definition of "Revolving Commitment" set forth in
Section 1.1 of the Credit shall be amended and restated in entirety as follows:
"'REVOLVING COMMITMENT' means the commitment or
commitments of a Lender or the Lenders to make Revolving Loans
as set forth in subsection 2.1A. The amount of the original
Commitment of each Lender is set forth on Schedule L hereto."
2.5 The definition of "Revolver Maturity Date" set forth in
Section 1.1 of the Credit Agreement shall be amended by deleting "October 5,
1996" and inserting "August 10, 1997" in lieu thereof.
2.6 Section 1.1 of the Agreement is amended by inserting the
following new definitions in proper alphabetical order:
"'CUMULATIVE STOCK BUYBACK AMOUNT' means, on any date,
the aggregate purchase price of the Company's common stock from
the date of the First Amendment to such date of determination,
which amount shall not exceed $60,000,000."
"'FIRST AMENDMENT' means that certain First Amendment
to Amended and Restated Credit Agreement dated as of August 10,
1994 among the Borrowers, the Lenders, the Administrative Agent
and the Co-Agent."
2.7 The second sentence of Section 2.1A of the Credit Agreement
shall be amended by deleting "$150,000,000" and inserting "$200,000,000" in lieu
thereof.
- 2 -
<PAGE> 3
2.8 Section 2.1A of the Credit Agreement shall be amended by
deleting the last paragraph thereof in its entirety and inserting the following
in lieu thereof:
"Notwithstanding the foregoing provisions of this subsection
2.1A, (i) at no time shall the Total Utilization of Revolving
Commitments exceed the aggregate Revolving Commitments then in
effect, and (ii) for 45 consecutive days during each twelve
consecutive month period (a "CLEAN-DOWN PERIOD") following the
date of the First Amendment, the Clean-Down Debt shall not
exceed the sum of (x) $70,000,000, plus (y) the
Cumulative Stock Buyback Amount, minus (z) for the
period ending 9/30/95, zero; for the period ending 9/30/96,
$15,000,000; and for the period ending on the Revolver Maturity
Date, $20,000,000."
2.9 Section 2.6B of the Credit Agreement shall be amended by
adding the following at the end thereof:
"In addition, the Borrowers shall immediately prepay Loans in
an amount equal to any cash payments received by any Loan Party
from any transaction permitted pursuant to Section 6.1(xi) that
is entered into after the date of the First Amendment,
less (A) the amount of any fees and commissions payable
to persons other than any Loan Party or any Affiliate of any
Loan Party in connection with such transaction, (B) other costs
and expenses related to such transaction that are to be paid in
cash, in each case only to the extent customarily borne by an
issuer/obligor in an arm's-length transaction or reasonable in
light of the applicable circumstances, and (C) in the case of
sale and leaseback transactions only, the related amount
described in clause (i) of the definition of Net Cash Proceeds
(collectively, the "net proceeds"), and the Revolving
Commitments shall be reduced by an amount equal to such net
proceeds, up to an aggregate reduction not exceeding
$50,000,000; provided, that up to $10,000,000 in the
aggregate of such net proceeds received by the Borrowers in
respect of sale and leaseback transactions only shall be
excluded from such prepayment or Commitment reduction
requirement."
2.10 Section 2.16B of the Credit Agreement shall be amended by
inserting "or amendment" after the word "issuance," "or amended" after the word
"issued," and "or amend" after the word "issue" wherever they appear.
- 3 -
<PAGE> 4
2.11 Section 2.21 of the Credit Agreement shall be amended by
deleting "September 30, 1994" and inserting "August 10, 1995" in lieu thereof.
2.12 The first paragraph of Section 3.3 of the Credit Agreement
shall be amended by inserting the following after the word "hereunder:"
", amending any Letter of Credit to extend the maturity thereof
or to increase the amount of any drawing thereunder"
2.13 Sections 3.3B and 3.3C of the Credit Agreement shall be
amended by inserting "or amendment" after the word "issuance" wherever it
appears.
2.14 Section 3.3 of the Credit Agreement shall be amended by
inserting the following at the end thereof:"
"The Issuing Bank shall have the right, at the
direction of the Requisite Lenders, to deliver a notice to the
beneficiary of any 'evergreen' Letter of Credit terminating
such Letter of Credit in accordance with the terms thereof, if
on any notice date, or at any time within a 30-day period
preceding any such notice date, the conditions precedent set
forth in Section 3.2B (with reference to the continuation of
such Letter of Credit) are not satisfied. For purposes of this
paragraph, "notice date" means any date on or by which a notice
may be given under a Letter of Credit notifying the beneficiary
that such Letter of Credit is being terminated."
2.15 Section 6.1 of the Credit Agreement shall be amended by
(a) deleting "and" at the end of clause (ix) thereof, (b) deleting "$30,000,000"
and inserting "$40,000,000" in lieu thereof in clause (x) thereof, (c) deleting
the period at the end of clause (x) and inserting "; and " in lieu thereof, and
(d) inserting a new clause (xi) immediately following clause (x) as follows:
"(xi) In addition to the foregoing Indebtedness
permitted by clauses (i)-(x) above, the Borrowers may become
and remain liable with respect to (a) deed of trust/mortgage
financing or sale and leaseback transactions relating to
properties utilized in the ordinary course of the Borrowers'
business, having a maturity or an initial lease term of not
less than 15 years, and/or (b) unsecured Indebtedness having an
average life and final maturity date after the Revolver
Maturity Date; provided, however, that the sum
of (A)
- 4 -
<PAGE> 5
the Net Cash Proceeds of sale and leaseback transactions plus (B) the
amount of other Indebtedness described in clauses (a) and (b) above, in
all cases resulting from transactions entered into after the date of
the First Amendment, shall not exceed $60,000,000 in the aggregate at
any time outstanding; provided, further, that the Loans are prepaid,
and the Revolving Commitments are reduced, as required by Section 2.6B
in connection with any such transaction."
2.16 Section 6.2 of the Credit Agreement shall be amended by (a)
deleting "and" at the end of clause (ii) thereof, (b) deleting the period at the
end of clause (iii) thereof and inserting "; and" in lieu thereof, and (c)
adding a new clause (iv) as follows:
"(iv) Liens securing Indebtedness permitted pursuant to subsection
6.1(xi)(a); provided, that such Liens shall extend only to the property
financed."
2.17 Section 6.3 of the Credit Agreement shall be amended by (a)
deleting "and" at the end of clause (vii) and (b) inserting a new clause (viii)
immediately following clause (vii) as follows:
"(viii) The Borrowers may make and own Investments in the common
or preferred stock of Persons primarily engaged in the business of
discount retailing, the aggregate consideration for which shall not
exceed $15,000,000; and"
2.18 Section 6.3 of the Credit Agreement shall be further amended by
(a) renumbering clause (viii) as clause (ix) and (b) deleting "(vii) above"
where it appears in such clause and inserting "(viii) above" in lieu thereof.
2.19 Section 6.5 of the Credit Agreement shall be amended and restated
in its entirety as follows:
"6.5 RESTRICTED JUNIOR PAYMENTS
"The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, declare, order, pay, make or set apart any
sum for (by way of defeasance or otherwise) any Restricted Junior
Payment; provided, that so long as no Event of Default or Potential
Event of Default has occurred and is continuing, (i) the Subsidiaries
of the Company may make Restricted Junior Payments to the Company and
(ii) the Company may make Restricted Junior Payments to purchase
outstanding capital stock of the Company in
- 5 -
<PAGE> 6
open market purchases or otherwise or to pay cash dividends to its
shareholders so long as after giving effect to such proposed Restricted
Junior Payments, the aggregate of all such Restricted Junior Payments
made pursuant to this clause (ii) since the date of the First Amendment
does not exceed $60,000,000."
2.20 Section 6.6A of the Credit Agreement shall be amended by deleting
such section in its entirety and inserting the following in lieu thereof:
"A. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. The Borrowers will
not permit, on any Fiscal Quarter End during the period from the date
of the First Amendment until the Revolver Maturity Date, Consolidated
Tangible Net Worth to be less than the sum of $230,000,000, plus 50% of
Consolidated Net Income (with no deduction for losses) from August 1,
1994 to such Fiscal Quarter End, minus the Cumulative Stock Buyback
Amount."
2.21 Section 6.6C of the Credit Agreement shall be amended by deleting
such section in its entirety and inserting the following in lieu thereof:
"C. MAXIMUM LEVERAGE RATIO. The Borrowers will not permit, on any
Fiscal Quarter End occurring during the periods set forth below, the
Leverage Ratio to be greater than the corresponding ratio set forth in
such table:
<TABLE>
<CAPTION>
"Fiscal Quarters Ending in Leverage Ratio
-------------------------- --------------
<S> <C>
8/01/94 through 1/27/96 0.60 to 1.00
1/28/96 through 1/31/97 0.55 to 1.00
2/01/97 and thereafter 0.50 to 1.00"
</TABLE>
2.22 Section 6.9 of the Credit Agreement shall be amended by deleting
the last proviso thereof in its entirety and inserting the following in lieu
thereof:
"provided that the Net Cash Proceeds of each such Asset Sale described
in this Section 6.9 will not cause the limit set forth in Section
6.1(xi) to be exceeded."
2.23 The table in Section 6.13 of the Credit Agreement shall be amended
and restated in its entirety as follows:
- 6 -
<PAGE> 7
<TABLE>
<CAPTION>
Maximum Consolidated
"Fiscal Year Capital Expenditures
<S> <C>
1994 $50,000,000
1995 50,000,000
1996 60,000,000
1997 60,000,000"
</TABLE>
2.24 All references to the Revolving Commitment and Pro Rata Share of
each Lender on the signatures pages to the Credit Agreement are deleted, and a
new Schedule L is inserted as an exhibit to the Credit Agreement in the form of
Schedule L hereto.
3. Representations and Warranties. The Borrowers represent and warrant
to Lenders, Administrative Agent and Co-Agent that, on and as of the date
hereof, and after giving effect to this First Amendment:
3.1 Authorization. The execution, delivery and performance of this
First Amendment have been duly authorized by all necessary corporate action by
the Borrowers and this First Amendment has been duly executed and delivered by
the Borrowers.
3.2 Binding Obligation. This First Amendment is the legal, valid and
binding obligation of Borrowers, enforceable against the Borrowers in accordance
with its terms.
3.3 No Legal Obstacle to Credit Agreement. The execution, delivery and
performance of this First Amendment will not (a) contravene the terms of the
Borrowers' certificate of incorporation, by-laws or other organization document;
(b) conflict with or result in any breach or contravention of the provisions of
any contract to which the Borrowers are a party, or the violation of any law,
judgment, decree or governmental order, rule or regulation applicable to
Borrowers, or (c) result in the creation under any agreement or instrument of
any security interest, lien, charge, or encumbrance upon any of the assets of
the Borrowers. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by the Borrowers of
this First Amendment, or the transactions contemplated hereby.
3.4 Incorporation of Certain Representations. The representations and
warranties of the Borrowers set forth in Section 4 of the Credit Agreement are
true and correct in all respects on and as of the date hereof as though made on
and as of the date hereof, except as to such representations made as of an
earlier specified date.
- 7 -
<PAGE> 8
3.5 Default. No Potential Event of Default or Event of Default under
the Credit Agreement has occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this First Amendment
shall be subject to the compliance by the Borrowers with their agreements herein
contained, and to the delivery of the following to the Administrative Agent in
form and substance satisfactory to the Administrative Agent, Co-Agent and the
Lenders:
4.1 Secretary's Certificate. A certificate, signed by the Secretary or
an Assistant Secretary of each Borrower and dated the date of this First
Amendment, attaching a certified copy of corporate resolutions authorizing the
execution, delivery and performance of this First Amendment, and as to the
incumbency and specimen signature of the person or persons authorized to execute
and deliver this First Amendment and any instrument or agreement required
hereunder on behalf of each Borrower.
4.2 Payment of Fees. Receipt of the fee described in the letter between
the Borrowers, BofA and BA Securities, Inc., dated July 14, 1994.
4.3 Other Evidence. Such other evidence with respect to each Borrower
or any other person as the Administrative Agent or any Lender may reasonably
request in connection with this First Amendment and the compliance with the
conditions set forth herein.
5. Miscellaneous.
5.1 Effectiveness of the Credit Agreement and the Loan Documents.
Except as hereby expressly amended, the Credit Agreement and each other Loan
Document shall each remain in full force and effect, and are hereby ratified and
confirmed in all respects on and as of the date hereof.
5.2 Waivers. This First Amendment is limited solely to the matters
expressly set forth herein and is specific in time and in intent and does not
constitute, nor should it be construed as, a waiver or amendment of any other
term or condition, right, power or privilege under the Credit Agreement or under
any agreement, contract, indenture, document or instrument mentioned therein;
nor does it preclude or prejudice any rights of the Administrative Agent,
Co-Agent or the Lenders thereunder, or any exercise thereof or the exercise of
any other right, power or privilege, nor shall it require the Requisite Lenders
to agree to an amendment, waiver or consent for a similar transaction or on a
- 8 -
<PAGE> 9
future occasion, nor shall any future waiver of any right, power, privilege or
default hereunder, or under any agreement, contract, indenture, document or
instrument mentioned in the Credit Agreement, constitute a waiver of any other
default of the same or of any other term or provision.
5.3 Counterparts. This First Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument. This First Amendment shall not become
effective until the Borrowers, the Lenders, Administrative Agent and the
Co-Agent shall have signed a copy hereof and the same shall have been delivered
to the Administrative Agent.
5.4 Jurisdiction. This First Amendment shall be governed by and
construed under the laws of the State of New
- 9 -
<PAGE> 10
York.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered as of the date first written above.
MAC FRUGAL'S BARGAINS - CLOSE-OUTS
INC.
By: /s/ PHILIP L. CARTER
----------------------------------------
Name: Philip L. Carter
Title: EVP & CFO
WEST COAST LIQUIDATORS, INC.
By: /s/ PHILIP L. CARTER
----------------------------------------
Name: Philip L. Carter
Title: EVP & CFO
PNS STORES, INC.
By: /s/ PHILIP L. CARTER
----------------------------------------
Name: Philip L. Carter
Title: EVP & CFO
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent
By: /s/ L. CHENEVERT, JR.
----------------------------------------
Vice President
CONTINENTAL BANK, N.A.,
individually and as Co-Agent
By: /s/ ANDREW J. SUTHERLAND
----------------------------------------
Name: Andrew J. Sutherland
Title: Vice President
(Signatures continue)
- 10 -
<PAGE> 11
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
BY: /s/ YVONNE DENNIS
--------------------------------------
Yvonne Dennis
Vice President
By: /s/ SABUR MOINI
--------------------------------------
Sabur Moini
Assistant Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ TED A. DUNN
--------------------------------------
Title: Assistant Vice President
-----------------------------------
THE BANK OF CALIFORNIA, N.A.
By: /s/ SCOTT LANE
--------------------------------------
Title: Vice President
-----------------------------------
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD. LOS ANGELES AGENCY
By: /s/ CURT M. BIREN
--------------------------------------
Title: Vice President
----------------------------------
UNITED STATES NATIONAL BANK OF
OREGON
By: /s/ JOYCE P. DORSETT
--------------------------------------
Title: Corporate Booking Credit Officer
-----------------------------------
BANQUE PARIBAS
By: /s/ ALAN McLINTOCK
--------------------------------------
Title: General Manager, Western Region
-----------------------------------
By: /s/ STEVE LI
--------------------------------------
Title: Associate
-----------------------------------
(Signatures continue)
- 11 -
<PAGE> 12
MELLON BANK, N.A.
By: GARY SEGAL
----------------------------------------
Title: Vice President
-------------------------------------
UNION BANK
By: ANN M. YASUDA
----------------------------------------
Title: Vice President
-------------------------------------
- 12 -
<PAGE> 13
EXHIBIT L
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
---- ---------- ---------
<S> <C> <C>
Bank of America National
Trust and Savings
Association $ 40,000,000 20.0000000%
Continental Bank N.A. 40,000,000 20.0000000
Banque Paribas 13,333,333 6.6666667
Mellon Bank, N.A. 13,333,333 6.6666667
PNC Bank, National Association 20,000,000 10.0000000
The Bank of California, N.A. 20,000,000 10.0000000
The Long-Term Credit Bank
of Japan, Ltd.
Los Angeles Agency 20,000,000 10.0000000
Union Bank 13,333,334 6.6666667
United States National Bank
of Oregon 20,000,000 10.0000000
------------ -----------
TOTAL $200,000,000 100.000000%
</TABLE>
- 1 -
<PAGE> 1
EXHIBIT 10.26
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
is made and dated as of February 21, 1995 (the "SECOND AMENDMENT") among MAC
FRUGAL'S BARGAINS - CLOSE-OUTS INC., a Delaware corporation, WEST COAST
LIQUIDATORS, INC., a California corporation, PNS STORES, INC., a California
corporation (individually a "BORROWER" and collectively the "BORROWERS"), the
lenders named on the signature pages hereof (the "LENDERS"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("BOFA"), as administrative agent for the
Lenders and the Issuing Banks (in such capacity, the "ADMINISTRATIVE AGENT") and
BANK OF AMERICA ILLINOIS (formerly named Continental Bank, N.A.), as co-agent
(in such capacity, the "CO-AGENT"), and amends that certain Amended and Restated
Credit Agreement dated as of October 5, 1993, among the Borrowers, the Lenders,
the Administrative Agent and the CoAgent, as amended by a First Amendment to
Amended and Restated Credit Agreement dated as of August 10, 1994 (as so
amended, the "CREDIT AGREEMENT").
RECITAL
WHEREAS, the Borrowers have requested that the Lenders, the
Administrative Agent and the Co-Agent amend certain provisions of the Credit
Agreement, and the Lenders, Administrative Agent and the Co-Agent are willing to
do so on the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereby agree
as follows:
1. Terms. All terms used herein shall have the same
meanings as in the Credit Agreement unless otherwise defined herein. All
references to the Credit Agreement shall mean the Credit Agreement as hereby
amended.
2. Amendments to Credit Agreement.
2.1 Section 2.1A of the Credit Agreement shall be amended by
deleting "following the date of the First Amendment" in the last paragraph
thereof and inserting "commencing 9/30/94" in lieu thereof.
- 1 -
<PAGE> 2
2.2 Clause (ii) of the proviso to Section 6.5 of the Credit
Agreement is amended by deleting "$60,000,000" and inserting "$70,000,000" in
lieu thereof.
3. Representations and Warranties. The Borrowers represent and
warrant to Lenders, Administrative Agent and Co-Agent that, on and as of the
date hereof, and after giving effect to this Second Amendment:
3.1 Authorization. The execution, delivery and performance of
this Second Amendment have been duly authorized by all necessary corporate
action by the Borrowers and this Second Amendment has been duly executed and
delivered by the Borrowers.
3.2 Binding Obligation. This Second Amendment is the legal,
valid and binding obligation of Borrowers, enforceable against the Borrowers in
accordance with its terms.
3.3 No Legal Obstacle to Credit Agreement. The execution,
delivery and performance of this Second Amendment will not (a) contravene the
terms of the Borrowers' certificate of incorporation, by-laws or other
organization document; (b) conflict with or result in any breach or
contravention of the provisions of any contract to which the Borrowers are a
party, or the violation of any law, judgment, decree or governmental order, rule
or regulation applicable to Borrowers, or (c) result in the creation under any
agreement or instrument of any security interest, lien, charge, or encumbrance
upon any of the assets of the Borrowers. No approval or authorization of any
governmental authority is required to permit the execution, delivery or
performance by the Borrowers of this Second Amendment, or the transactions
contemplated hereby.
3.4 Incorporation of Certain Representations. The
representations and warranties of the Borrowers set forth in Section 4 of the
Credit Agreement are true and correct in all respects on and as of the date
hereof as though made on and as of the date hereof, except as to such
representations made as of an earlier specified date.
3.5 Default. No Potential Event of Default or Event of Default
under the Credit Agreement has occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this Second
Amendment shall be subject to the compliance by the Borrowers with their
agreements herein contained, and to the delivery of the following to the
Administrative Agent in form and substance satisfactory to the Administrative
Agent, Co-Agent and the Lenders:
- 2 -
<PAGE> 3
4.1 Secretary's Certificate. A certificate, signed by the
Secretary or an Assistant Secretary of each Borrower and dated the date of this
Second Amendment, attaching a certified copy of corporate resolutions
authorizing the execution, delivery and performance of this Second Amendment,
and as to the incumbency and specimen signature of the person or persons
authorized to execute and deliver this Second Amendment and any instrument or
agreement required hereunder on behalf of each Borrower.
4.2 Other Evidence. Such other evidence with respect to each
Borrower or any other person as the Administrative Agent or any Lender may
reasonably request in connection with this Second Amendment and the compliance
with the conditions set forth herein.
5. Miscellaneous.
5.1 Effectiveness of the Credit Agreement and the Loan
Documents. Except as hereby expressly amended, the Credit Agreement and each
other Loan Document shall each remain in full force and effect, and are hereby
ratified and confirmed in all respects on and as of the date hereof.
5.2 Waivers. This Second Amendment is limited solely to the
matters expressly set forth herein and is specific in time and in intent and
does not constitute, nor should it be construed as, a waiver or amendment of any
other term or condition, right, power or privilege under the Credit Agreement or
under any agreement, contract, indenture, document or instrument mentioned
therein; nor does it preclude or prejudice any rights of the Administrative
Agent, Co-Agent or the Lenders thereunder, or any exercise thereof or the
exercise of any other right, power or privilege, nor shall it require the
Requisite Lenders to agree to an amendment, waiver or consent for a similar
transaction or on a future occasion, nor shall any future waiver of any right,
power, privilege or default hereunder, or under any agreement, contract,
indenture, document or instrument mentioned in the Credit Agreement, constitute
a waiver of any other default of the same or of any other term or provision.
5.3 Counterparts. This Second Amendment may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This Second Amendment shall
not become effective until the Borrowers, the Lenders, Administrative Agent and
the Co-Agent shall have signed a copy hereof and the same shall have been
delivered to the Administrative Agent.
- 3 -
<PAGE> 4
5.4 Jurisdiction. This Second Amendment shall be governed by
and construed under the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed and delivered as of the date first written above.
MAC FRUGAL'S BARGAINS - CLOSE-OUTS
INC.
By: /s/ PHILIP L. CARTER
---------------------------------
Name: Philip L. Carter
Title: Executive Vice President,
Chief Financial Officer
WEST COAST LIQUIDATORS, INC.
By: /s/ PHILIP L. CARTER
---------------------------------
Name: Philip L. Carter
Title: Executive Vice President,
Chief Financial Officer
PNS STORES, INC.
By: /s/ PHILIP L. CARTER
---------------------------------
Name: Philip L. Carter
Title: Executive Vice President,
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent
By: /s/ KAY S. WARREN
--------------------------------
Kay S. Warren
Vice President
(Signatures continue)
- 4 -
<PAGE> 5
BANK OF AMERICA ILLINOIS (formerly
named Continental Bank, N.A.), as
Co-Agent
By: /s/ KAY S. WARREN
------------------------------
Kay S. Warren
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ YVONNE C. DENNIS
------------------------------
Vice President
By: /s/ SABUR MOINI
------------------------------
Sabur Moini
Assistant Vice President
BANK OF AMERICA ILLINOIS (formerly
named Continental Bank, N.A.)
By: /s/ YVONNE C. DENNIS
------------------------------
Vice President
By: /s/ SABUR MOINI
------------------------------
Sabur Moini
Assistant Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ TED A. DUNN
------------------------------
Title: Assistant Vice President
----------------------------
(Signatures continued)
- 5 -
<PAGE> 6
THE BANK OF CALIFORNIA, N.A.
By: SCOTT LANE
---------------------------
Title: Vice President
------------------------
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD. LOS ANGELES AGENCY
By: CURT M. BIREN
---------------------------
Title: Vice President
------------------------
UNITED STATES NATIONAL BANK OF
OREGON
By: /s/ JANET JORDAN
---------------------------
Title: Vice President
------------------------
BANQUE PARIBAS
By: JOHN N. CATE
---------------------------
Title: GVP
------------------------
By: RAYMOND T. BAXTER
---------------------------
Title: GVP
------------------------
MELLON BANK, N.A.
By: /s/ A. K. MARSH
---------------------------
Title: Vice President
------------------------
UNION BANK
By: /s/ ANN M. YASUDA
---------------------------
Title: Vice President
------------------------
- 6 -
<PAGE> 1
EXHIBIT 10.30
MACFRUGAL'S BARGAIN-CLOSE-OUTS INC.
401(K) SAVINGS AND RETIREMENT PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE PAGE
------- ----
<S> <C> <C>
I NAME AND PLAN PURPOSES 1
II DEFINITIONS 1
III ELIGIBILITY AND PARTICIPATION 14
IV TRUST FUND AND CONTRIBUTIONS 15
V PARTICIPANT CONTRIBUTIONS 17
VI ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 22
VII VESTING 24
VIII PAYMENT OF BENEFITS 25
IX TOP-HEAVY PLAN RULES 30
X OPERATION AND ADMINISTRATION OF THE PLAN 32
XI PLAN AMENDMENTS 35
XII MERGER OF COMPANY, MERGER OF PLAN 36
XIII APPLICATION FOR BENEFITS 37
XIV LIMITATIONS ON CONTRIBUTIONS 38
XV RESTRICTIONS ON ALIENATION 41
XVI PLAN TERMINATION AND DISCONTINUANCE OF 44
CONTRIBUTIONS
XVII MISCELLANEOUS MATTERS 45
</TABLE>
i
<PAGE> 3
ARTICLE I
NAME AND PLAN PURPOSES
1.1 NAME AND PLAN PURPOSES. Effective July 1, 1972, Pic 'N' Save
Corporation established the Pic 'N' Save Corporation Profit Sharing Plan (the
"Plan"). This instrument amends and restates the Plan effective January 1,
1995. Effective June 10, 1992, Pic 'N' Save Corporation changed its corporate
name to MacFrugal's Bargains-Close-outs Inc. Effective January 1, 1995, the
Plan's name will be the MacFrugal's Bargains-Close-outs Inc. Savings and
Retirement Plan.
The Plan is intended to constitute a tax-qualified profit sharing plan
for purposes of Code Section 401(a) and shall be maintained and administered
for the exclusive benefit of Plan Participants and their Beneficiaries.
Effective January 1, 1995, the Plan is amended to contain a cash or deferred
arrangement under Code Section 401(k), which shall be maintained and
administered for the exclusive benefit of Participants and their Beneficiaries.
ARTICLE II
DEFINITIONS
2.1 ACCOUNT. "Account" or "Accounts" means the Company
Contributions Account, the Deferrals Account, the Matching Contributions
Account and the Rollover Account maintained for each Participant.
2.2 AFFILIATED COMPANY. "Affiliated Company" means:
(a) Any corporation that is included in a controlled group of
corporations, within the meaning of Section 414(b) of the Code, of which group
the Company is also a member;
(b) Any trade or business that is under common control with the
Company within the meaning of Section 414(c) of the Code; and
(c) Any service organization that is included in an affiliated
service group, within the meaning of Section 414(m) of the Code, of which
affiliated service group the Company is also a member.
For purposes of applying the limitations of Article XIV, whether or not an
entity is an Affiliated Company shall be determined by applying the percentage
modifications contained in Code Section 415(h).
2.3 AGGREGATION GROUP.
(a) "Aggregation Group" means:
(i) Each plan of the Company or an Affiliated Company in
which a Key Employee was a Participant at any time during the Testing
Period (regardless of whether the plan has been terminated); and
1
<PAGE> 4
(ii) Each other plan of the Company or an Affiliated
Company which enables any plan described in Subparagraph (i) to meet
the requirements of Code Sections 401(a)(4) or 410.
(b) Any plan not required to be included in an Aggregation Group
under the rules of Paragraph (a) may be treated as being part of the group if
the group would continue to meet the requirements of Code Sections 401(a)(4)
and 410 with the plan being taken into account.
(c) Each plan maintained by the Company or an Affiliated Company
required to be included in an Aggregation Group shall be treated as a Top-Heavy
Plan if the Aggregation Group is a Top-Heavy Group.
2.4 ALTERNATIVE PAYEE. "Alternate Payee" means any Spouse, former
Spouse, child or other dependent of a Participant who is recognized by a
domestic relations order as having a right to receive all, or a portion of, the
benefits payable with respect to the Participant.
2.5 ANNIVERSARY DATE. "Anniversary Date" means the last day of
each Plan Year.
2.6 ANNUAL ADDITIONS. For any Limitation Year, "Annual Additions"
includes the amount of Company Contributions, Deferrals and Fail Safe
Contributions and forfeitures credited to his Account, and any amounts
allocated to an account established under a funded welfare benefit plan or a
defined benefit plan to provide medical benefits with respect to the
Participant after retirement.
2.7 AVERAGE CONTRIBUTION PERCENTAGE. "Average Contribution
Percentage" means the average (expressed as a percentage to the nearest one
hundredth of one percent) of the Contribution Percentages of the Participants
in a group.
2.8 AVERAGE DEFERRAL PERCENTAGE. "Average Deferral Percentage"
means the average (expressed as a percentage to the nearest one hundredth of
one percent) of the Deferral Percentages of the Participants in a group.
2.9 BENEFICIARY. "Beneficiary" means the person or persons
designated in Article VIII to receive the interest of a deceased Participant.
2.10 BOARD OF DIRECTORS. "Board of Directors" or "Board" means the
Board of Directors of MacFrugal's Bargains-Close-outs Inc.
2.11 BREAK IN SERVICE.
(a) "Break in Service" means a Computation Period in which the
Employee does not complete more than 500 Hours of Service. In the event of a
Plan Year of less than twelve months, the 500 hour requirement shall be reduced
by multiplying it by a fraction, the numerator of which is the number of months
in that Plan Year (rounded to the nearest month) and the denominator of which
is twelve.
(b) An Employee described in Paragraph (c) below shall be credited
with Hours of Service as calculated in accordance with Paragraphs (d) and (e)
below.
2
<PAGE> 5
(c) The provisions of Paragraphs (d) and (e) shall apply with
respect to an Employee who is absent from work without pay for any period:
(i) By reason of the pregnancy of the Employee;
(ii) By reason of the birth of a child of the Employee;
(iii) By reason of the placement of a child with the
Employee in connection with the adoption of the child by the Employee;
or
(iv) For purposes of caring for the child for a period
beginning immediately following the birth or placement.
(d) The number of Hours of Service to which an Employee described
in Paragraph (c) shall be credited with shall be the number which otherwise
would normally have been credited to the Employee but for the absence, or, if
the number above is not capable of being determined, eight Hours of Service per
day of the absence. Provided that the total number of hours treated as Hours
of Service under this Paragraph shall not exceed 501 and that these Hours of
Service shall be taken into account solely for purposes of determining whether
or not the Employee has incurred a Break in Service.
(e) The Hours described in Paragraph (d) shall be credited to the
Computation Period in which the absence from work begins, if the Employee would
be prevented from incurring a Break in Service in that Computation Period
solely because the period of absence is treated as Hours of Service under this
Section, or in any other case, in the immediately following Computation Period.
(f) The provisions above shall not apply unless the Employee
provides such timely information as the Committee may reasonably require to
establish that the absence is for reasons described in Paragraph (c) and the
number of days for which there was such an absence.
2.12 CODE. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.13 COMMITTEE. "Committee" means the MacFrugal's Bargains-
Close-outs Inc. Profit Sharing Plan Committee described in Article X.
2.14 COMPANY. "Company" means, unless the context indicates
otherwise, Pic 'N' Save Corporation and MacFrugal's Bargains-Close-outs Inc.
effective June 10, 1992 or any successor entity and any other Affiliated
Companies (or similar entities) which may be included within the coverage of
the Plan with the consent of the Board of Directors.
2.15 COMPANY CONTRIBUTIONS. "Company Contributions" means all
amounts paid by the Company into the Trust Fund. Except where the context
indicates to the contrary, Company Contributions shall not include Deferrals
and Fail-Safe Contributions.
2.16 COMPANY STOCK. "Company Stock" means shares of common stock
of the Company that constitute "employer securities" under Code Section 409(1).
3
<PAGE> 6
2.17 COMPENSATION. "Compensation" means the amount indicated on
the Form W-2 issued to a Participant. Except as otherwise expressly provided
in this Plan to the contrary, the term "Compensation" shall include those
amounts which represent Deferrals and elective deferrals with respect to a plan
of Company qualified under Code Section 125 and shall not include:
(a) Amounts attributable to personal usage of Company cars under
Treasury Regulations Section 1.61-21;
(b) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the Participant either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(c) Disqualifying dispositions of incentive stock options under
Code Section 421(b); and
(d) Company reimbursed moving expenses.
In no event will the amount of Compensation taken into account on behalf of any
Participant exceed $222,220. Commencing January 1, 1994, in no event will the
amount of compensation taken into account on behalf of any Participant exceed
$150,000. This dollar amount shall be adjusted at the same time and in the
same manner as under Code Section 401(a)(17)(B).
2.18 COMPUTATION PERIOD. "Computation Period" means the relevant
twelve consecutive month period for determining whether the Employee is to be
credited with a Year of Service, Year of Participation or a Break in Service.
For purposes of determining vesting, each Employee's Computation Period shall
be the Plan Year.
For purposes of determining eligibility to participate, an Employee's
initial Computation Period shall be the twelve consecutive month period
commencing with his Employment Commencement Date. The Employee's second
Computation Period shall be the Plan Year that includes the first anniversary
of his Employment Commencement Date. All subsequent Computation Periods shall
also be the Plan Year.
2.19 CONTRIBUTION PERCENTAGE. "Contribution Percentage" means the
ratio (expressed as a percentage to the nearest one hundredth of one percent)
of the Matching Contributions under the Plan made on behalf of the Participant
for the Plan Year to the Participant's Compensation (determined without regard
to the limitation on amounts paid or payable by reason of services performed
after the date an Employee ceases to be a Participant and prior to the date an
Employee becomes a Participant) for the Plan Year.
2.20 COVERED EMPLOYEES. "Covered Employees" means those Employees
who have satisfied all of the requirements for eligibility to participate in
the Plan for all or any portion of the Plan Year, including an Employee who
becomes a Participant but elects not to make any Deferrals and an Employee who
cannot defer because of the limitations imposed under Code Section 415.
2.21 DEFERRALS. "Deferrals" means the pre-tax contributions made
by Participants pursuant to an election made under the provisions of Article V.
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2.22 DEFERRALS ACCOUNT. "Deferrals Account" means the individual
account maintained in the books and records of the Trust Fund for the purpose
of recording the Participant's Deferrals, any Fail-Safe Contributions made on
his behalf, and the earnings thereon.
2.23 DEFERRAL PERCENTAGE. "Deferral Percentage" means the ratio
(expressed as a percentage to the nearest one hundredth of one percent) of
Deferrals and Fail-Safe Contributions made on behalf of a Participant for the
Plan Year to the Participant's Compensation (determined without regard to the
limitation on amounts paid or payable by reason of services performed after the
date an Employee ceases to be a Participant and prior to the date an Employee
becomes a Participant) for the Plan Year. The Deferral Percentage of a
Participant who makes no Deferrals and is allocated no Fail-Safe Contributions
shall be zero. The computation of the Average Deferral Percentage in the case
of Family Members shall be done in accordance with the regulations under Code
Section 401(k).
2.24 DETERMINATION DATE. "Determination Date" means, with respect
to any Plan Year, the last day of the preceding Plan Year. In the case of the
first Plan Year, "Determination Date" shall mean the last day of that Plan
Year.
2.25 DIRECT ROLLOVER. "Direct Rollover" means a payment by the
Plan to the Eligible Retirement Plan specified by the Distributee.
2.26 DISABILITY. "Disability" means a condition causing an
individual to be unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that can be
expected to result in death or that has lasted or can be expected to last for a
continuous period of not less than twelve months.
No Participant shall be deemed to have incurred a Disability as a
result of an injury or illness incurred as a result of the commission of a
felony, an intentionally self-inflicted injury or alcoholism or substance
abuse.
2.27 DISTRIBUTEE. "Distributee" means an Employee, former
Employee or the surviving spouse of an Employee or former Employee or a former
spouse of an Employee or former Employee who is the Alternate Payee of a
Qualified Domestic Relations Order.
2.28 EFFECTIVE DATE. "Effective Date" means January 1, 1995.
2.29 ELIGIBLE RETIREMENT PLAN. "Eligible Retirement Plan" means an
individual retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 403(b) or a qualified trust
described in Code Section 401(a) that accepts the Distributee's Eligible
Rollover Distribution. In the case of an Eligible Rollover Distribution of a
surviving spouse, an Eligible Retirement Plan means an individual retirement
account described in Code Section 408(a) or an individual retirement annuity
described in Code Section 403(b).
2.30 ELIGIBLE ROLLOVER DISTRIBUTION. "Eligible Rollover
Distribution" means any distribution of all or any portion of the balance to
the Account of the Distributee, except that an Eligible Rollover Distribution
does not include:
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(a) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated Beneficiary
or for a specified period of ten years or more;
(b) any distribution to the extent such distribution is required
under Code Section 401(a)(9); and
(c) the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
2.31 EMPLOYEE. "Employee" means each person currently employed by
the Company, any portion of whose income is subject to withholding of income
tax or for whom social security retirement contributions are made by the
Company and any other person qualifying as a common law employee of the
Company. "Employee" also means leased Employees within the meaning of Code
Section 414(n)(2).
2.32 EMPLOYMENT COMMENCEMENT DATE. "Employment Commencement Date"
means the date on which an Employee first performs an Hour of Service.
2.33 ENTRY DATE. "Entry Date" means the January 1 or July 1 next
following the date on which an Employee satisfies the participation
requirements of Section 3.1.
2.34 ERISA. "ERISA" means the Employee Retirement Income Security
Act of 1974.
2.35 EXCESS AGGREGATE CONTRIBUTION. "Excess Aggregate
Contributions" means the difference between:
(a) The Matching Contributions allocated to the Highly Compensated
Employee for the Plan Year (determined prior to the application of Subsections
5.7(c)(i) and (ii)); and
(b) The amount determined by multiplying the Highly Compensated
Employee's Contribution Percentage (after the application of Subsections
5.7(c)(i) and (ii)) by his Compensation.
2.36 EXCESS CONTRIBUTIONS. "Excess Contributions" means the
difference between:
(a) The Deferrals allocated to the Highly Compensated Employee for
the Plan Year (determined prior to the application of Sections 5.6(a)(i) and
(ii)); and
(b) The amount determined by multiplying the Highly Compensated
Employee's Deferral Percentage (after the application of Sections 5.6(a) and
(b)) by his Compensation.
2.37 FAIL-SAFE CONTRIBUTIONS. "Fail-Safe Contributions" means
those Company Contributions made pursuant to Section 5.9 that are designed to
insure compliance with the Average Deferral Percentage Tests of Section 5.3.
2.38 FAMILY MEMBER. "Family Member" means the Spouse, lineal
ascendants and descendants, and the spouses of the lineal ascendants and
descendants of any individual who is a Five
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Percent Owner or a Highly Compensated Employee in the group consisting of the
ten Highly Compensated Employees paid the greatest compensation during the
year.
For purposes of applying the various nondiscrimination rules
applicable to this Plan the Family Member shall not be considered a separate
Employee and any compensation paid to the Family Member (and any applicable
contribution or benefit on behalf of the Family Member) shall be treated as if
it were paid to (or on behalf of) the Five Percent Owner or Highly Compensated
Employee.
2.39 FIVE PERCENT OWNER.
(a) "Five Percent Owner" means any person who owns or is
considered as owning within the meaning of Code Section 318 (not including any
beneficial interest in shares held by the Plan) more than five percent of the
outstanding stock of the Company or the total combined voting power of all
stock of the Company.
(b) For purposes of applying the ownership rules of this Section,
Code Sections 414(b),(c) and (m) shall not apply. The constructive ownership
rules of Code Section 318(a)(2)(C) shall be applied by substituting "five
percent" for "50%" where it appears therein. If an Employee's ownership
interest varies during a Plan Year, his ownership interest shall be the largest
interest owned at any time during the year.
2.40 FORFEITURE. "Forfeiture" means the nonvested portion of a
Participant's Accounts that are forfeited as of the date of his Severance.
2.41 FORFEITURE SUSPENSE ACCOUNT. "Forfeiture Suspense Account"
means the account (if any) established and maintained in accordance with the
provisions of Article XIV for the purpose of holding and accounting for
allocations of excess Annual Additions.
2.42 HIGHLY COMPENSATED EMPLOYEE.
(a) "Highly Compensated Employee" means any Employee who, during
the year or the preceding year:
(i) Was at any time a Five Percent Owner;
(ii) Received compensation from the Company and all
Affiliated Companies in excess of $90,803, as indexed for inflation;
(iii) Received compensation from the Company and all
Affiliated Companies in excess of $60,535 and was in the top 20% of
all Employees when ranked on the basis of compensation paid during the
year ("Top-Paid Group"). For this purpose, all of an Employee's
Compensation shall be taken into account, including amounts in excess
of $222,220 and $150,000 after December 31, 1993; or
(iv) Was at any time an Officer of the Company or any
Affiliated Companies.
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(b) In the case of the Plan Year for which the relevant
determination is being made, an Employee described in Subparagraphs (ii),
(iii), or (iv) of Paragraph (a) above shall not be treated as described therein
unless the Employee is a member of the group consisting of the 100 Employees
paid the greatest compensation during the year for which the determination is
being made.
(c) For purposes of this Section the amount of an Employee's
compensation shall be determined in accordance with Code Section 414(q)(7),
which includes the Employee's pre-tax contributions to a cash or deferred
arrangement under Code Section 401(k) or to a cafeteria plan under Code Section
125.
(d) For purposes of determining the number of Employees in the
Top-Paid Group (described in Paragraph (a)(iii) above), the following Employees
shall be excluded:
(i) Employees who have not completed six months of
service;
(ii) Employees who normally work less than 17-1/2 hours
per week;
(iii) Employees who normally work during not more than six
months during any year;
(iv) Employees who have not attained age twenty-one;
(v) Except to the extent provided in regulations,
Employees who are included in a unit of Employees covered by an
agreement which the Secretary of Labor finds to be a collective
bargaining agreement between Employee representatives and the Company;
and
(vi) Employees who are nonresident aliens and who receive
no earned income (within the meaning of Code Section 911(d)(2)) from
the Company and all Affiliated Companies which constitutes income from
sources within the United States (within the meaning of Code Section
861(a)(3)).
(e) A former Employee shall be treated as a Highly Compensated
Employee if he was a Highly Compensated Employee when he separated from service
or he was a Highly Compensated Employee at any time after attaining age
fifty-five.
2.43 HOUR OF SERVICE.
(a) "Hour of Service" of an Employee means each hour for which he
is paid or is entitled to payment by the Company or an Affiliated Company:
(i) For the performance of services as an Employee;
(ii) Attributable to a period of time during which he
performs no duties (irrespective of whether his employment has been
terminated) due to vacation, holiday, illness, incapacity (including
pregnancy or disability), layoff, jury duty, military duty, or a leave
of absence. However, no such hours shall be credited to an Employee
if the payment or entitlement:
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(A) Is made or due under a plan maintained solely
for the purpose of complying with applicable worker's
compensation, unemployment compensation, disability insurance
laws; or
(B) Is a payment which solely reimburses the
Employee for his medical or medically-related expenses
incurred by him; or
(iii) For which he is entitled to back pay, irrespective of
mitigation of damages, whether awarded or agreed to by the Company or
an Affiliated Company, provided that he has not previously been
credited with an Hour of Service with respect to the hour under
Subparagraph (i) or (ii) above.
Notwithstanding the foregoing, no Employee shall be entitled to credit for more
than 501 Hours of Service for any single continuous period during which he
performs no duties, whether or not the period occurs in a single Computation
Period;
(b) All Hours of Service determined under the rules of Paragraph
(a) shall be credited to the Computation Period during which the employment or
compensated absence occurred, rather than the Computation Period in which the
payment occurred. The provisions of this Paragraph (b) shall be applied in a
manner consistent with the provisions of Department of Labor Regulation Section
2530.200b-2;
(c) Notwithstanding the above rules, the Committee may specify the
use of one or more equivalencies specified below. However, in the event that
different equivalencies are used for different classifications of Employees,
the manner in which they are applied must not discriminate in favor of Highly
Compensated Employees, and the equivalencies must be applied on a uniform basis
to the Employees in each class. The permitted equivalencies are as follows:
(i) Ten Hours of Service for each day during which the
Employee completes at least one Hour of Service;
(ii) Forty-five Hours of Service for each week during
which the Employee completes at least one Hour of Service;
(iii) Ninety-five Hours of Service for each semi-monthly
payroll period during which the Employee completes at least one Hour
of Service; and
(iv) 190 Hours of Service for each month during which the
Employee completes at least one Hour of Service;
(d) Unless the Board of Directors shall expressly determine
otherwise, and except as may be expressly provided otherwise in this Plan, an
Employee shall not receive credit for his Hours of Service completed with an
Affiliated Company prior to the effective date on which the entity became an
Affiliated Company.
2.44 INVESTMENT MANAGER. "Investment Manager" means a person
described in Section 3(38) of ERISA.
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2.45 KEY EMPLOYEE. "Key Employee" means any Employee or former
Employee who, at any time during the Testing Period, is or was:
(a) An Officer of the Company;
(b) One of the ten Employees having annual compensation from the
Company of more than the limitation in effect under Code Section 415(c)(1)(A)
and owning (or considered as owning within the meaning of Code Section 318)
during the Testing Period both more than 1/2% interest and the largest
interests in the Company;
(c) A Five Percent Owner of the Company; or
(d) A One Percent Owner of the Company having an annual
compensation from the Company of more than $150,000.
The term "Key Employee" shall include his Beneficiaries. Also, for this
purpose, an Employee's Compensation shall be the amount indicated on the Form
W-2 issued to him for the calendar year ending with or within the Plan Year.
For purposes of Paragraph (b), if two Employees have the same interest in the
Company, the Employee having the greatest annual compensation from the Company
shall be treated as having the larger interest.
2.46 LEAVE OF ABSENCE. "Leave of Absence" means any unpaid
personal leave from active employment duly authorized by the Company under the
Company's standard personnel practices. All persons under similar
circumstances shall be treated in a uniform and nondiscriminatory manner in the
granting of Leaves of Absence.
An Employee shall not be deemed to have incurred a Break in Service
while on a Leave of Absence, provided he returns to employment on or before the
date on which the leave expires. In the event an Employee does not return to
employment on or before the end of the leave, he shall be deemed to have
incurred a Severance as of the first day of his leave, unless his failure to
return was caused by the Employee's death or Disability during the leave or the
provisions of Section 2.10 apply.
2.47 LIMITATION YEAR. In connection with the adoption of this
Plan, the Company hereby elects a "Limitation Year" corresponding to the Plan
Year for purposes of the limitations on contributions set forth in Article XIV.
2.48 MATCHING CONTRIBUTIONS. "Matching Contributions" means the
contribution, if any, made to the Plan by the Company pursuant to Section 4.3
2.49 MATCHING CONTRIBUTIONS ACCOUNT. "Matching Contributions
Account" means the individual account maintained in the books and records of
the Trust Fund for the purpose of recording the Participant's allocated share
of Matching Contributions and Forfeitures, and the earnings thereon.
2.50 NON-KEY EMPLOYEE. "Non-Key Employee" means any Employee who
is not a Key Employee. The term "Non-Key Employee" shall include his
Beneficiaries.
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2.51 NORMAL RETIREMENT AGE. "Normal Retirement Age" means the
later of the Participant's 65th birthday or the fifth anniversary of the date
on which the individual commenced participation in the Plan.
2.52 OFFICER. "Officer" means any Employee who was at any time an
officer of the Company and received Compensation from the Company greater than
50% of the amount in effect under Code Section 415(b)(1)(A) for the year.
However, no more than the lesser of fifty Employees or the greater of three
Employees or 10% of the Employees shall be treated as Officers.
If no officer is described in the paragraph above, then the highest
paid officer of the Company shall be treated as being described therein. For
purposes of the paragraph above, all Leased Employees (within the meaning of
Section 414(n) of the Code) and all part-time Employees shall be taken into
account, and the number of Employees shall be the greatest number at any time
during the relevant period.
2.53 ONE PERCENT OWNER. "One Percent Owner" means any person who
would be described in Section 2.32 above if "one percent" were substituted for
"five percent" each place where it appears therein.
2.54 PARTICIPANT. "Participant" means any Employee who has
satisfied the participation eligibility requirements and has been enrolled in
this Plan in accordance with the provisions of Article III. "Participant" does
not include an Employee who has incurred a Severance and either does not have a
Vested Interest, has been paid the full amount of his Vested Interest.
2.55 PLAN. "Plan" means the Pic 'N' Save Profit Sharing Plan.
Effective June 10, 1992, "Plan" means the MacFrugal's Bargains-Close-outs Inc.
Profit Sharing Plan. Effective January 1, 1995, "Plan" means the MacFrugal's
Bargains-Close-outs Inc. 401(k) Savings and Retirement Plan.
2.56 PLAN ADMINISTRATOR. "Plan Administrator" means the
administrator of the Plan within the meaning of Section 3(16)(A) of ERISA,
which shall be MacFrugal's Bargains-Close-outs Inc.
2.57 PLAN YEAR. "Plan Year" means the twelve month period ending
on December 31.
2.58 QUALIFIED DOMESTIC RELATIONS ORDER. "Qualified Domestic
Relations Order" means a judgment, decree, or order (including approval of a
property settlement agreement) that:
(a) Creates or recognizes the existence of an Alternate Payee's
right to, or assigns to an Alternate Payee the right to, receive all or a
portion of the benefits payable with respect to a Participant;
(b) Relates to the provision of child support, alimony payments,
or marital property rights to a Spouse, child, or other dependent of a
Participant;
(c) Is made pursuant to a State domestic relations law (including
a community property law); and
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(d) Clearly specifies:
(i) The name and last known mailing address (if any) of
the Participant and the name and mailing address of each Alternate
Payee covered by the order;
(ii) The amount or percentage of the Participant's
benefits to be paid to each Alternate Payee, or the manner in which
the amount or percentage is to be determined;
(iii) The number of payments or period to which the order
applies; and
(iv) Each plan to which the order applies.
2.59 REEMPLOYMENT COMMENCEMENT DATE. In the case of an Employee
who incurs a Severance and who is subsequently reemployed by the Company or an
Affiliated Company, the term "Reemployment Commencement Date" shall also mean
the first day following the Severance on which the Employee performs an Hour of
Service for the Company or an Affiliated Company.
2.60 ROLLOVER ACCOUNT. "Rollover Account" means the individual
Account maintained in the books and records of the Trust Fund for the purpose
of recording the Participant's rollover contributions, if any, under Section
5.14, and the earnings thereon.
2.61 SEVERANCE. "Severance" means the termination of an Employee's
employment, in any capacity, with the Company or its Affiliated Companies, by
reason of his retirement, death, resignation, dismissal, or otherwise.
2.62 SPOUSE. "Spouse" means the person to whom a Participant is
married as of the relevant date.
2.63 TESTING PERIOD. "Testing Period" means the Plan Year
containing the Determination Date and the preceding four Plan Years.
2.64 TOP-HEAVY GROUP. "Top-Heavy Group" means any Aggregation
Group if the sum (as of the Determination Date) of the present value of the
cumulative accrued benefits for Key Employees under all defined benefit plans
included in the group and the aggregate of the account balances of Key
Employees under all defined contribution plans included in the group, exceeds
60% of a similar sum determined for all Employees.
2.65 TOP-HEAVY PLAN.
(a) "Top-Heavy Plan" means, with respect to any Plan Year:
(i) Any defined benefit plan if, as of the Determination
Date, the present value of the cumulative accrued benefits under the
plan for Key Employees exceeds 60% of the present value of the
cumulative accrued benefits under the plan for all Employees.
(A) For purposes of this Paragraph (a), the
present value of an Employee's accrued benefit under a defined
benefit plan shall be determined by using the interest rate
and the mortality assumptions specified in that plan. The
same actuarial
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assumptions shall be used in measuring accrued benefits under
all defined benefit plans.
(B) The accrued benefit of any Employee (other
than a Key Employee) shall be determined under the method that
is used for accrual purposes for all plans of the Company and
all Affiliated Companies or if there is no such method, as if
the benefit accrued no more rapidly than the slowest accrual
rate permitted under Code Section 411(b)(1)(C).
(C) The date on which the accrued benefit of each
Employee in a defined benefit plan is measured (with respect
to each Determination Date) shall be the date used for
computing costs under the minimum funding standards of Code
Section 412, determined as if he had terminated service as of
that date.
(ii) Any defined contribution plan if, as of the
Determination Date, the aggregate of the account balances of Key
Employees under the plan exceeds 60% of the present value of the
aggregate of the account balances of all Employees under the plan.
The date on which the account balance of each Employee in a defined
contribution plan is measured (with respect to each Determination
Date) shall be the last day of the relevant plan year.
(b) For purposes of this Section, the accrued benefit and account
balances of a Participant shall include amounts attributable to Participant
contributions (whether or not the contributions are includible in income).
Furthermore, the same date shall be used for valuing benefits under all plans.
2.66 TRUST AND TRUST FUND. "Trust" or "Trust Fund" means the trust
created for funding purposes under the Plan.
2.67 TRUSTEE. "Trustee" means the entity or one or more persons
acting as trustee of the Trust Fund.
2.68 UNION MEMBERS. "Union Members" means members of a collective
bargaining unit who are covered by a collective bargaining agreement that does
not specifically provide for coverage of the Employees under this Plan,
provided the matter of retirement benefits was the subject of good faith
bargaining between the Company and the collective bargaining unit.
2.69 VALUATION DATE. "Valuation Date" means the date as of which
the Trustee shall determine the value of the assets of the Trust Fund for
purposes of determining the value of any Account, which shall be each December
31 and such other dates as may be determined by rules prescribed by the
Committee.
2.70 VESTED INTEREST. "Vested Interest" means that portion of a
Participant's Accounts in which he has a nonforfeitable (vested) interest,
determined pursuant to the provisions of Article VII.
2.71 YEAR OF PARTICIPATION. "Year of Participation" means a
Computation Period during which the Employee is a participant in the Plan and
completes at least 1,000 Hours of Service. In the event of a Plan Year of less
than twelve months, the 1,000 hour requirement shall be reduced
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by multiplying it by a fraction the numerator of which is the number of months
in that Plan Year (rounded to the nearest month) and the denominator of which
is twelve.
In the case of an Employee who does not have any Vested Interest,
Years of Participation completed before a period of consecutive Breaks in
Service will not be taken into account under the Plan if the number of his
consecutive Breaks in Service equals or exceeds the greater of five or the
aggregate number of such Years of Participation. The aggregate number of Years
of Participation shall not include any Years of Participation disregarded by
reason of any prior Breaks in Service.
In no event will an Employee earn more than one Year of Participation
with respect to services performed in a single Computation Period.
2.72 YEAR OF SERVICE. "Year of Service" means a Computation Period
during which the Employee completes a year of employment with the Company,
regardless of the number of Hours of Service completed.
In the case of an Employee who does not have any Vested Interest,
Years of Service completed before a period of consecutive Breaks in Service
will not be taken into account under the Plan if the number of his consecutive
Breaks in Service equals or exceeds the greater of five or the aggregate number
of such Years of Service. The aggregate number of Years of Service shall not
include any Years of Service disregarded by reason of any prior Breaks in
Service.
In no event will an Employee earn more than one Year of Service with
respect to services performed in a single Computation Period.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY TO PARTICIPATE.
(a) Each Employee who was a Participant in the Plan on the
Effective Date shall continue as a Participant under the Plan. Every Employee
of the Company hired on or after January 2, 1994 who has attained age
twenty-one and has completed one Year of Service shall become a Participant in
the Plan as of the first Entry Date occurring coincident with or immediately
following the Employee's completion of such Year of Service.
(b) Notwithstanding (a) above, Employees who are not full-time
personnel, as defined in the Company's policies and procedures, and Union
Members are not eligible to receive an allocation of the Company Contribution,
if any, and may not make Deferrals under the Plan. Employees who are not
eligible under this paragraph and become full-time personnel during a Plan Year
will commence participation in the Plan as of the first Entry Date occurring
coincident with or immediately following such change in employment status.
Employees who are Participants in the Plan but cease to be full-time personnel
during a Plan Year shall cease Deferrals as of the date of such change in
status, but will be entitled to a Matching Contribution, if any, on all
Deferrals made prior to the change in status. Notwithstanding the above, the
Company, in its sole and absolute discretion, may adopt procedures that provide
for entry into the Plan upon a change in employment
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status more rapidly than provided above or may adopt procedures that provide
for termination of participation at a later date than provided above, so long
as such procedures are applied on a consistent and non-discriminatory fashion.
3.2 PARTICIPATION FOLLOWING SEVERANCE. In the case of an Employee
whose Entry Date occurs after the Employee incurred a Severance, the Employee
shall commence participation in this Plan as of the later of his Entry Date or
his Reemployment Commencement Date following the Severance, unless his prior
service is disregarded under the rules of 2.71.
A Participant who incurs a Severance and is thereafter reemployed by
the Company shall be entitled to recommence participation in the Plan as of his
Reemployment Commencement Date following the Severance, unless his prior
service is disregarded under the rules of 2.71.
3.3 DURATION OF PARTICIPATION. Each Employee who has commenced
participation in the Plan in accordance with the provisions of Section 3.1
shall continue to be a Participant until he has incurred a Severance.
3.4 PARTICIPATION BEYOND NORMAL RETIREMENT AGE. Participants who
have attained their Normal Retirement Age will continue to participate in the
Plan to the same extent as those Participants who have not yet attained their
Normal Retirement Age.
ARTICLE IV
TRUST FUND AND CONTRIBUTIONS
4.1 TRUST FUND. Pursuant to the terms of the Plan, the Company
established a trust, with the Trustee as the trustee thereunder. The Trustee
has agreed to hold and administer in trust all amounts accumulated under the
Plan under the terms of this Plan.
4.2 COMPANY CONTRIBUTIONS.
(a) The Company shall contribute to the Trust Fund an amount equal
to the Participant Deferrals under Article V, an additional amount determined
by the Board of Directors in its discretion equal to the Matching Contribution,
if any, under Section 4.3 and an additional amount, if any, determined by the
Board of Directors in its discretion.
(b) In no event shall the amount of the contribution by the
Company under this Plan (including Deferrals) exceed the maximum allowable
deduction available to the Company for its fiscal year under Section 404 of the
Code.
(c) The Company Contribution on behalf of a Plan Year shall be
made within the time prescribed by law for filing the Company's federal income
tax return (including extensions) for the Company's fiscal year corresponding
to the Plan Year.
(d) No contribution shall be made by the Company at any time when
its allocation would be precluded by the limitations of Article XIV.
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(e) All contributions by the Company under this Plan may be made
in kind, including Company Stock, or in cash, or in both, and shall be made
directly to the Trustee and may be made on any date or dates selected by the
Company.
4.3 IRREVOCABILITY. In no event shall any of the assets of the
Plan revert to the Company except as provided in this Section.
(a) In the case of a Company Contribution which is made by reason
of a mistake of fact, at the Company's election, the contribution shall be
returned to the Company within one year after it is made.
(b) All Company Contributions to the Plan are hereby conditioned
on the initial qualification of the Plan under Code Section 401(a). If the
Plan receives an adverse determination with respect to its initial
qualification, at the Company's election, the Plan may be revoked and all such
contributions (and assets derived therefrom) shall be returned to the Company
within one year after the date of denial of the qualification of the Plan by
the Internal Revenue Service. An application for a determination letter
regarding the tax-qualified status of the Plan shall be filed with the Internal
Revenue Service within the time prescribed by law for filing the Company's
return for the taxable year in which the Plan was adopted, or such later date
as the Internal Revenue Service may prescribe.
(c) All Company Contributions to the Plan are hereby conditioned
on their deductibility under Code Section 404, without regard to Subsection
(a)(5) thereof. To the extent a deduction is disallowed, at the Company's
election, any such contribution shall be returned to the Company within one (1)
year after the disallowance. For this purpose, a contribution shall have been
deemed to have been disallowed if it was made by the Company with the intention
that it be deductible, but the Company does not claim the deduction on its tax
return because it determines that the contribution is not legally deductible.
In such a case, the date of the disallowance shall be deemed to be the earlier
of the date of the filing of the tax return or the date on which the Company
verifies to the Trustee that the contribution was not deductible.
(d) In the case where amounts are held in a Forfeiture Suspense
Account under Article XIV that may not be allocated to the Accounts of
Participants when the Plan is terminated, the excess amounts may revert to the
Company in accordance with the regulations under Code Section 415.
4.4 INVESTMENTS IN EMPLOYER SECURITIES AND EMPLOYER REAL PROPERTY.
To the extent permitted in ERISA, the assets of the Plan may be invested,
primarily or exclusively, in employer securities including Company Stock (as
defined in Section 407 of ERISA).
4.5 INVESTMENT DIRECTION BY PARTICIPANTS. Pursuant to such rules
and procedures as may be prescribed by the Committee, Participants may direct
the investment of the assets in some or all of their Accounts.
4.6 AGE FIFTY-FIVE INVESTMENT OPTION. Notwithstanding Section 4.5
above, each Participant who has attained age fifty-five may direct the Trustee
to segregate his Company Contributions Account and invest his Account in a
conservative investment fund established by the Committee. Any such election
shall be made with the consent of the Participant's spouse, if any, in
accordance with the terms of Section 8.7. All elections under this Section
shall be made at the
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<PAGE> 19
times designated by the Committee and in accordance with the rules and
procedures established by the Committee in its sole and absolute discretion.
ARTICLE V
PARTICIPANT CONTRIBUTIONS
5.1 DEFERRAL ELECTION.
(a) Prior to the first day of each Plan Year, each Participant
(and each individual who will become a Participant in that Plan Year) may elect
to defer the receipt of a portion of his Compensation for that Plan Year and to
have the deferred amount contributed directly by the Company to the Plan.
(b) In the case of an Employee who becomes a Participant in the
Plan during the Plan Year, the Employee shall be entitled, as of the date he
commences participation in the Plan, to elect to defer the receipt of a portion
of his Compensation for the remainder of that Plan Year and to have the
deferred amount contributed by the Company directly to the Plan.
(c) The Committee shall prescribe such rules and procedures as it
deems necessary or appropriate regarding the deferral election under this
Section. These rules may provide that deferral elections may be made on a more
frequent basis or at other times than as set forth above.
5.2 AMOUNT SUBJECT TO A DEFERRAL ELECTION.
(a) The amount of a Participant's Compensation that may be
deferred subject to the election provided in Section 5.1 shall be a fixed
dollar amount or a whole percentage of the Participant's Compensation, of at
least 1% and not to exceed 10% of his Compensation. The Committee may
prescribe rules under which the maximum amount that may be deferred by a
Participant who is a Highly Compensated Employee shall be a lesser percentage
of his Compensation than the maximum amount that may be deferred by a
Participant who is not a Highly Compensated Employee.
(b) Notwithstanding anything in this Plan to the contrary, the
maximum amount that a Participant may defer in a single calendar year under the
Plan when combined with any other elective deferrals of the Participant under
any other qualified plan or plans is limited to $9,240. This amount shall be
adjusted for increases in the cost-of-living, as determined under Section
402(g) of the Code.
(c) Amounts that are deferred pursuant to a deferral election
under Section 5.1 shall be treated as Company Contributions for purposes of
Code Sections 401(k) and 414(h).
5.3 AVERAGE DEFERRAL PERCENTAGE TESTS. The Committee shall
monitor the Deferrals by Participants to insure that, at all times, either the
Average Deferral Percentage for Highly Compensated Employees for the Plan Year
is not more than the Average Deferral Percentage for all other Covered
Employees multiplied by 1.25 or the excess of the Average Deferral Percentage
of the group of Highly Compensated Employees over that of all other Covered
Employees is not more than two percentage points, provided that the Average
Deferral Percentage for the group of Highly
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<PAGE> 20
Compensated Employees is not more than twice the Average Deferral Percentage
for all other Covered Employees. The Company shall maintain records sufficient
to demonstrate satisfaction of the requirements of this Section.
5.4 PROSPECTIVE REDUCTIONS OF DEFERRALS. The Committee may, if it
so decides in its discretion, determine prior to the end of the Plan Year
whether or not the Average Deferral Percentage tests of Section 5.3 are
satisfied. If, pursuant to these estimations by the Committee, the tests will
not be satisfied, the Committee may elect, in its discretion, to reduce the
Deferrals on behalf of Highly Compensated Employees, or undertake such other
actions as it deems necessary to insure that favorable income tax treatment is
available to Participants under Code Section 401(k).
In the event that the Deferrals by the Highly Compensated Employees
are reduced by Committee action, such reductions will be accomplished in the
manner described in Section 5.6.
5.5 DISTRIBUTIONS OF EXCESS DEFERRALS. In the event a Participant
deferred more than the maximum permitted under Section 5.2(b) above ("Excess
Deferrals"), whether under only this Plan, or under this Plan and another plan,
the Participant may request the Committee to distribute such Excess Deferrals,
together with earnings under Section 5.11, under this Section. Any Excess
Deferrals shall be distributed no later than April 15 following the calendar
year in which the Excess Deferral was contributed to the Plan. A Participant
may request a distribution of his Excess Deferrals by making a claim to the
Committee in accordance with the rules and procedures adopted by the Committee.
Any claim under this Section shall be:
(a) In writing;
(b) Submitted to the Committee no later than March 1 following the
close of the calendar year in which the Excess Deferral was made;
(c) Accompanied by the Participant's written statement that if
such amounts are not distributed, such Excess Deferral, when added to amounts
deferred under other plans or arrangements described in Code Sections 401(k),
408(k) or 403(b), exceeds the limit imposed on the Participant by Code Section
402(g) for the calendar year in which the Excess Deferral was made.
5.6 DISTRIBUTIONS OF EXCESS CONTRIBUTIONS. In the event that the
Plan fails to satisfy the Average Deferral Percentage Tests of Section 5.3 as
of the last day of the Plan Year and the Company does not make a Fail-Safe
Contribution under Section 5.9, remedial action shall be taken under this
Section.
If the Company elects not to make a Fail-Safe Contribution, the
Company shall distribute all Excess Contributions, together with earnings under
Section 5.11, in accordance with this Section.
(a) In the event that the Company is required to distribute Excess
Contributions, the Company shall first rank the Highly Compensated Employees
participating in the Plan by Deferral Percentage in descending order. The
Company shall then reduce the amount of Deferrals made on behalf of Highly
Compensated Employees starting with the highest Deferral Percentage until the
first of the following occurs:
(i) The Plan satisfies the limitations set forth in
Section 5.3; or
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<PAGE> 21
(ii) The Deferral Percentage for such Highly Compensated
Employee is reduced to a percentage that equals the Deferral
Percentage of the Highly Compensated Employee with the next highest
Deferral Percentage. The Company shall then repeat the application of
this Section until the Plan satisfies the limitation set forth in
Section 5.3.
(c) Notwithstanding the foregoing, in no event shall the Excess
Contributions exceed the Deferrals made on behalf of a Highly Compensated
Employee for a Plan Year.
(d) The Committee shall undertake action to insure that the
distribution of Excess Contributions will be made within 2-1/2 months after the
end of the Plan Year for which the contributions were made, but in no event
later than the last day of the Plan Year following the Plan Year in which the
Excess Contributions were made.
(e) The amount of the distributions of Excess Contributions of
Family Members shall be determined in accordance with the regulations under
Code Section 401(k).
5.7 SPECIAL RULES APPLICABLE TO MATCHING CONTRIBUTIONS.
(a) Any Matching Contributions made under this Plan shall satisfy
one or both of the numerical tests set forth in Section 5.3, by substituting
"Average Contribution Percentage" for "Average Deferral Percentage" each place
it appears. In applying those tests, the Plan shall comply with the rules of
Treasury Regulation Section 1.401(m)-2, which precludes multiple use of the
alternative limitation contained in Section 5.3 above. Pursuant to regulations
under Code Section 401(m), a Participant's Deferrals and Fail-Safe
Contributions on his behalf may be taken into account for purposes of this
Section.
(b) In the event that the Company maintains two or more plans that
must be treated as a single plan for purposes of Code Sections 401(a)(4) and
410, all such plans shall be treated as a single plan for purposes of this
Section, and all of the Matching Contributions shall be aggregated if a Highly
Compensated Employee participates in more than one plan that provides for
Matching Contributions.
(c) In the event that the Plan fails to satisfy the tests of this
Section, the Company shall distribute all Excess Aggregate Contributions,
together with earnings thereon under Section 5.11 in accordance with this
Section. If the Company is required to distribute Excess Aggregate
Contributions, the Company shall rank the Highly Compensated Employees
participating in the Plan by Contribution Percentage in descending order. The
Company shall then reduce the amount of Matching Contributions made on behalf
of Highly Compensated Employees starting with the highest Contribution
Percentage until the first of the following occurs:
(i) The Plan satisfies the limitations set forth in
Section 5.7(a); or
(ii) The Contribution Percentage for such Highly
Compensated Employee is reduced to a percentage that equals the
Contribution Percentage of the Highly Compensated Employee with the
next highest Contribution Percentage. The Company shall then repeat
the application of this Section until the Plan satisfies the
limitation set forth in Section 5.7(a).
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<PAGE> 22
(d) Notwithstanding the foregoing, in no event shall the Excess
Aggregate Contributions exceed the Matching Contributions made on behalf of a
Highly Compensated Employee for a Plan Year.
(e) The amount of the Excess Aggregate Contributions shall be
determined after first determining the amount of Excess Deferrals under Section
5.5 and then determining the amount of Excess Contributions under Section 5.6.
Should any Highly Compensated Employee have Excess Deferrals or Excess
Contributions in any Plan Year and have Matching Contributions allocated to the
Highly Compensated Employee's Accounts based upon such amounts, any such
Matching Contributions shall be deemed to be Excess Aggregate Contributions for
that Plan Year.
(f) Excess Aggregate Contributions shall be taken into account in
applying the limitations of Article XIV and the maximum deduction the Company
may take for contributions to the Plan, even though those amounts are
distributed from the Plan.
(g) The Company shall maintain records sufficient to demonstrate
satisfaction of the requirements of this Section 5.7.
5.8 TERMINATION, CHANGE, OR RESUMPTION OF DEFERRALS. The
Committee shall prescribe such rules as it deems necessary or appropriate
relating to procedures for the termination, resumption, or change in the rate
of a Participant's Deferrals to the Plan. These rules may require prior
written notice to the Committee from the Participant before any such action may
be taken with respect to a Participant's Deferrals, and may impose a minimum
period of suspension in the case of a Participant who terminates his Deferrals.
5.9 FAIL-SAFE CONTRIBUTIONS. In addition to those amounts which
may be contributed to the Trust Fund by the Company under Sections 4.2 and 5.1,
the Company may, in the sole discretion of the Board of Directors, contribute
such additional amounts to the Deferral Accounts of various Participants as it
deems necessary or appropriate for any Plan Year to insure satisfaction of
either the Average Deferral Percentage test set forth in Section 5.3 or the
Average Contribution Percentage tests set forth in Section 5.7. Fail-Safe
Contributions shall be treated as a Deferral for all purposes under the Plan
except that such contributions shall not be eligible for a Matching
Contribution allocation under Section 6.2(c).
5.10 PAYMENT OF DEFERRALS. Deferrals shall be collected by the
Company only through payroll deductions. The Company shall remit the Deferrals
to the Trustee as soon as administratively practicable.
5.11 EARNINGS ADJUSTMENT. The distribution of an Excess Deferral
under Section 5.5, an Excess Contribution under Section 5.6 or an Excess
Aggregate Contribution under Section 5.7 shall be adjusted for income or loss.
The income or loss attributable to such amounts shall include a pro rata share
of income or loss in the Plan Year in which the Excess Deferral, Excess
Contribution or Excess Aggregate Contribution was made (the "Contribution Year
Income") and a pro rata share of income or loss for the period between the end
of the Plan Year in which the Excess Deferral, Excess Contribution or Excess
Aggregate Contribution was made and the date of distribution under Section 5.5,
5.6 or 5.7 (the "Distribution Year Income").
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<PAGE> 23
(a) The Contribution Year Income shall be determined by
multiplying the income or loss for the Plan Year allocable to the Participant's
Deferrals or Matching Contributions by a fraction, the numerator of which is
the Excess Deferral, Excess Contribution or Excess Aggregate Contribution and
the denominator of which is the total balance of the Participant's Account
attributable to Deferrals or Matching Contributions.
(b) The Distribution Year Income shall be determined by
multiplying 10% of the Contribution Year Income by the number of calendar
months that elapsed since the end of the Plan Year in which the Excess
Deferral, Excess Contribution or Excess Aggregate Contribution was made. For
purposes of determining the number of calendar months that have elapsed since
the end of the Plan Year in which the Excess Deferral, Excess Contribution or
Excess Aggregate Contribution was made, a distribution occurring on the first
fifteen days of a calendar month shall be deemed made on the last day of the
preceding month. A distribution occurring after the fifteenth day of a
calendar month shall be deemed made on the first day of the next succeeding
calendar month.
5.12 SPECIAL RULES.
(a) Any distribution made under Section 5.5, 5.6 or 5.7 may be
made without any notice or consent otherwise required by Article VIII. Any
distribution under Sections 5.5, 5.6 or 5.7, however, will not be taken into
account for purposes of the minimum distribution rules of Section 8.3.
(b) A Deferral may be taken into account under Section 5.3 for a
Plan Year only if the Deferral relates to Compensation that, but for the
election to make the Deferral, either would have been received by the
Participant for the Plan Year or is attributable to services performed by the
Participant in the Plan Year and would have been received by the Participant
within 2 1/2 months after the close of the Plan Year.
(c) All elective deferrals made under two or more plans that are
aggregated for purposes of Code Sections 401(a)(4) or 410(b) (other than Code
Section 410(b)(2)(A)(ii)) shall be treated as though made under a single plan.
All plans that are permissibly aggregated under Code Section 401(k) must also
satisfy the requirements of Code Sections 401(a)(4) and 410(b) as though they
were a single plan.
(d) For purposes of Section 5.3, the Deferral Percentage for
Family Members is the greater of:
(i) The Deferral Percentage determined by combining the
amount of Deferrals and Compensation of all Family Members who are
Highly Compensated Employees without regard to aggregation of all
Family Members; or
(ii) The Deferral Percentage determined by combining the
Deferrals and Compensation of all Family Members.
Except as provided in this Section, the Deferrals and Compensation of all
Family Members are disregarded in determining the Average Deferral Percentage
for Highly Compensated Employees and all other Covered Employees.
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<PAGE> 24
(e) For purposes of Section 5.6, if the Deferral Percentage for a
Highly Compensated Employee is determined under Subparagraph (d)(ii) above,
Excess Contributions shall be determined for all Family Members in accordance
with the leveling method described in Section 1.401(k)-1(f)(2) of the Treasury
Regulations and the Excess Contributions so determined shall be allocated among
the Family Members in proportion to the Deferrals of each Family Member that
has been combined.
(f) For purposes of Section 5.6, if the Deferral Percentage for a
Highly Compensated Employee is determined under sub-paragraph (d)(i) above,
Excess Contributions shall be determined in accordance with the leveling method
described in Section 1.401(k)-1(f)(2) of the Treasury Regulations, but not
below the Deferral Percentages of eligible Family Members who are not Highly
Compensated Employees. Excess Contributions shall be determined under Section
5.6 without regard to family aggregation. If further reduction is necessary,
Excess Contributions shall be determined using the Deferrals of all eligible
Family Members and shall be allocated among Family Members in proportion to
their Deferrals.
5.13 OTHER BENEFITS. With the exception of Matching Contributions,
no other Company provided benefit, including, but not limited to, benefits
under a defined benefit plan, nonelective Company contributions to a defined
contribution plan, the availability, cost or amount of health benefits,
vacations or vacation pay, life insurance, dental plans, legal service plans,
loans (including plan loans), financial planning services, subsidized
retirement benefits, stock options, property subject to Code Section 83 and
dependent care assistance shall be directly or indirectly conditioned upon any
Employee's election to make Deferrals under the Plan.
5.14 ROLLOVER CONTRIBUTIONS. The Committee may prescribe rules
authorizing any Participant to make a Rollover to the Plan under this Section.
A Rollover will not be permitted, however, unless it satisfies the applicable
requirements of Section 402(a)(5) of the Code or Section 11.2 of the Plan. A
Rollover permitted under this Section shall not be considered a Deferral for
purposes of the rules of Articles V, VIII, or XIV.
ARTICLE VI
ALLOCATIONS TO PARTICIPANTS' ACCOUNTS
6.1 PARTICIPANTS' COMPANY CONTRIBUTIONS ACCOUNT. The Committee
shall open and maintain a separate Company Contributions Account, a Matching
Contributions Account, a Rollover Account (if applicable) and a Deferrals
Account for each Participant.
6.2 ALLOCATION OF COMPANY CONTRIBUTIONS. The Company Contribution
for each Plan Year shall be allocated to the Accounts of each Participant
according to the following rules:
(a) A Participant's Deferrals shall be allocated to his Deferrals
Account.
(b) Fail-Safe Contributions shall be made only on behalf of those
Participants who do not qualify as Highly Compensated Employees. Unless the
Board of Directors for the Company determines that the Fail-Safe Contributions
be allocated in a different manner, Fail-Safe Contributions shall be allocated
to the Deferrals Account of those Participants who are not Highly Compensated
Employees, have completed a Year of Service during the Plan Year and are
employed by the
22
<PAGE> 25
Company on the last day of the Plan Year in the proportion of the Participant's
Deferrals during the Plan Year compared to the aggregate Deferrals of all
Participants receiving an allocation under this Section.
(c) Unless the Board of Directors determines that the Matching
Contribution be allocated in a different manner, Matching Contributions shall
be allocated among the Matching Contributions Accounts of those Participants
who are employed on the last day of the Plan Year and have made Deferrals
during the Plan Year in the proportion that his Deferrals during that Plan Year
bears to the aggregate Deferrals of all Participant's during that Plan Year.
(d) The Company Contribution, if any, for each Plan Year shall be
allocated among those Participants that are employed on the last day of the
Plan Year in the proportion that each such Participant's Compensation during
that Plan Year bears to the aggregate Compensation of all Participants during
that Plan Year.
(e) For purposes of making the allocations of Company
Contributions under this Article, any Company Contributions made with respect
to a particular Plan Year that are made after the end of the year but on or
before the Company's federal income tax return due date (including extensions)
shall be considered as having been made on the last day of the Plan Year.
(f) Allocations made pursuant to this Section shall not be made
until after the allocations required by Sections 6.3, 6.5, and 14.5 have been
made.
6.3 REVALUATION OF PARTICIPANTS' ACCOUNTS.
(a) Within sixty days after each Valuation Date, and within sixty
days after the removal or resignation of the Trustee, the Trustee shall value
the assets of the Trust on the basis of fair market values. Upon receipt of
the valuations from the Trustee, and as soon as is administratively practical,
the Committee shall revalue the Accounts of each Participant as of the
applicable Valuation Date so as to reflect a proportionate share in any
increase or decrease in the fair market value of the assets in the Trust Fund,
determined by the Trustee as of that date as compared with the value of the
assets in the Trust Fund determined as of the immediately preceding Valuation
Date.
(b) The increase or decrease shall be allocated to each Account in
the proportion that the cumulative amount previously allocated to the Account
bears to the total of the amounts previously allocated to all Accounts,
adjusted for any contributions to or distributions from the Account since the
immediately preceding Valuation Date.
(c) Notwithstanding the above, in the event the Accounts of
Participants are invested on a segregated basis, the investment gain or loss
attributable to the segregated investments shall be allocated to the
corresponding Accounts. Any expenses incurred solely by reason of a segregated
Account shall be borne by that Account.
(d) This allocation of profits or losses and appreciation or
depreciation shall be made prior to the allocations under Sections 6.2, 6.5,
and 14.5.
6.4 FORFEITURES. Any amount of a Participant's Matching
Contributions Account or Company Contributions Account that is forfeited shall
be used first, to restore the Accounts of
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<PAGE> 26
former Participants under Section 8.13, second, to reduce the Company Matching
Contributions under Section 4.3, third, to pay administrative expenses of the
Plan as defined in Section 10.10 and finally, carried forward and applied in
future Plan Years under this Section.
6.5 MISCELLANEOUS ALLOCATION RULES.
(a) The Committee and the Trustee may establish accounting
procedures for the purpose of making the allocations, valuations, and
adjustments to Participants' Accounts provided for in this Article.
(b) The Company, the Committee and Trustee do not in any manner or
to any extent whatsoever warrant, guarantee or represent that the value of a
Participant's Account shall at any time equal or exceed the amount previously
contributed thereto.
(c) Any benefits payable under this Plan shall be paid or provided
for solely from the Trust Fund. Neither the Company, the Committee, nor the
Trustee assume any responsibility for the sufficiency of the assets of the
Trust to provide the benefits payable hereunder.
ARTICLE VII
VESTING
7.1 GENERAL RULE. The vested interest of each Participant in his
Company Contributions Account shall be determined on the basis of each
Participant's Years of Participation, in accordance with the following
schedule:
<TABLE>
<CAPTION>
YEARS OF PARTICIPATION VESTED PERCENTAGE
<S> <C>
1 10%
2 25%
3 45%
4 70%
5 or more 100%
</TABLE>
7.2 SPECIAL VESTING RULES.
(a) Notwithstanding Section 7.1 above, the Participant shall
become 100% vested in his Company Contributions Account in the event of his
death, Disability, or attainment of his Normal Retirement Age during a
Participant's period of employment with the Company.
(b) In the case of any Participant who has incurred five
consecutive Breaks in Service, his Years of Participation, if any, after the
Breaks in Service shall not be taken into account for purposes of determining
the Participant's Vested Interest in his Accounts that accrued before the
Breaks in Service.
(c) For purposes of Section 7.1 above, Years of Participation
completed prior to the Effective Date will be taken into account.
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<PAGE> 27
7.3 FORFEITURES DUE TO ACTS OF DISHONESTY. In the event that a
Participant's employment with the Company is terminated as a result of the
Participant's commission of an act of theft or the fraudulent use of credit
cards, the vested interest of each Participant in his Company Contributions
Account shall be 0% if the Participant has completed less than five Years of
Service and 100% if the Participant has completed five or more Years of
Service. As used in this Section, "act of dishonesty" includes the theft,
embezzlement or misappropriation of Company funds or assets, and the fraudulent
use of credit cards and other theft or fraud determined by the Committee.
The Committee will determine whether an event has occurred that would
result in a forfeiture under this Section, and any forfeiture will be deemed to
occur on the last day of the Plan Year in which a final determination is made.
7.4 PARTICIPANT'S VESTED INTEREST IN OTHER ACCOUNTS. A
Participant shall always be 100% vested in his Deferrals Account, Matching
Contributions Account and Rollover Account.
ARTICLE VIII
PAYMENT OF BENEFITS
8.1 COMMENCEMENT OF BENEFITS. Except as otherwise provided in
this Article, a Participant's benefit shall not be distributed prior to his
Severance. The Participant's benefit will be distributed in a single lump sum
as soon as administratively practicable following his Severance.
8.2 SPECIAL TIMING RULES. Unless the Participant elects
otherwise, distribution of his Vested Interest will commence not later than one
year after the close of the Plan Year in which the Participant separates from
service by reason of the attainment of Normal Retirement Age, Disability, or
death or which is the fifth Plan Year following the Plan Year in which the
Participant otherwise separates from service. The rule in the previous
sentence shall not apply if the Participant is reemployed by the Company before
the distribution is required to begin.
8.3 LATEST PAYMENT DATE. Except as provided below, payment of the
Participant's Accounts under the Plan shall begin in no event later than his
"Latest Payment Date," which is the sixtieth day after the close of the Plan
Year in which the latest of the following events occurs:
(a) The Participant's Normal Retirement Age;
(b) The tenth anniversary of the date on which he commenced
participation in the Plan; or
(c) The termination of his employment with the Company.
If it is not possible to make payment to a Participant by his Latest
Payment Date because the amount of his benefit cannot be ascertained by that
date, or because the Committee has been unable to locate the Participant after
making reasonable efforts to do so, the payment shall be made no later than
sixty days after the earliest date on which the amount of the payment can be
ascertained or the date on which the Participant is located (whichever is
applicable).
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<PAGE> 28
8.4 REQUIRED BEGINNING DATE. The entire interest of each
Participant shall be distributed to the Participant not later than his Required
Beginning Date. "Required Beginning Date" means April 1 of the calendar year
following the calendar year in which the Participant attains age 70-1/2,
whether or not he has yet incurred a Severance.
8.5 ELECTION TO DEFER DISTRIBUTION. A Participant may elect to
defer the commencement of his Vested Interest to a date later than his Latest
Payment Date set forth in Section 8.3, but the Participant may not defer the
commencement of his Vested Interest beyond his Required Beginning Date
specified in Section 8.4. Any such election shall be made by submitting to the
Committee a written statement, signed by the Participant, which sets forth the
date on which the Participant wants the payment of his Vested Interest to
commence.
8.6 CONSENT TO RECEIVE EARLY DISTRIBUTION.
(a) A distribution shall not occur prior to the Participant's
Normal Retirement Age where the present value of the Participant's Vested
Interest (either at the time of distribution or at the time of any prior
distribution) exceeds $3,500 unless the Participant elects within ninety days
prior to the distribution to receive the distribution in a manner consistent
with the regulations under Code Section 417.
(b) Failure to consent to the distribution shall be deemed an
election to defer the distribution until the earlier of the Participant's death
or the Participant's Normal Retirement Age.
(c) This consent requirement shall not apply in the case of the
death of the Participant or the termination of the Plan, provided neither the
Company nor any Affiliated Companies maintain any other defined contribution
plan, other than an employee stock ownership plan. If the Participant does not
consent to an immediate distribution, his benefit shall be transferred to the
other defined contribution plan.
8.7 DISTRIBUTIONS UPON DEATH.
(a) In the event of the death of a Participant, his benefit under
the Plan shall be paid to his surviving Spouse. If the surviving spouse is
still alive, payment to another Beneficiary will be made only if:
(i) The Spouse of the Participant consents in writing to
the designation of a specific Beneficiary;
(ii) The election designates a Beneficiary (or a form of
benefits) which may not be changed without spousal consent (or the
spousal consent expressly permits designations without any requirement
of further consent by the Spouse); and
(iii) The Spouse's consent acknowledges the effect of the
designation and is witnessed by a Plan Representative or a notary
public; or
(iv) It is established to the satisfaction of a Plan
Representative that the consent required by Subparagraph (i) above may
not be obtained because there is no Spouse, because
26
<PAGE> 29
the Spouse cannot be located, or because of such other circumstances
as may be set forth in regulations under Code Section 417(a)(2);
"Plan Representative" means the person or persons designated by the Committee
to perform the duties specified herein.
(b) Any consent by a Spouse (or establishment that the consent of
a Spouse may not be obtained) under the above provisions of this Section shall
be effective only with respect to that Spouse.
(c) If a Participant dies before distribution of his benefit has
begun, his entire benefit shall be distributed within five years of his death.
8.8 DESIGNATION OF BENEFICIARY. In the case where a deceased
Participant failed to designate a Beneficiary, the Committee is unable to
locate a designated Beneficiary, the Beneficiary predeceased the Participant,
or the designation of the Beneficiary by the Participant is legally
ineffective, any distribution on behalf of a Participant shall be paid to the
person or persons included in the highest priority category among the
following:
(a) The Participant's surviving Spouse;
(b) The Participant's surviving children, including adopted
children;
(c) The Participant's surviving parents;
(d) The Participant's surviving brothers and sisters (whether
whole or half-blood); or
(e) The Participant's estate.
8.9 DISTRIBUTIONS OF DEFERRALS.
(a) Notwithstanding anything in this Plan to the contrary, the
amount of a Participant's Deferrals may not be distributed prior to the
occurrence of the earliest of any of the events described below:
(i) Separation from service, death, or disability;
(ii) Termination of the Plan without establishment of a
successor plan;
(iii) Sale of substantially all of the assets used by the
Company in a trade or business (applicable only to the transferred
Employees); or
(iv) Sale of the Company's interest in a subsidiary
corporation (applicable only to the transferred Employees).
(b) The Committee may prescribe rules and procedures which permit
a Participant to make withdrawals of his Deferrals prior to termination of
employment if the Participant has attained
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age 59-1/2 or incurs a Hardship under the rules of Section 8.13 below. In the
case of a Hardship distribution, only the amount of the Participant's Deferrals
may be distributed.
(c) A Participant shall not be entitled to make withdrawals of his
Deferrals, other than as provided in this Section. Any distribution made
pursuant to Paragraph (b) above shall be subject to the spousal consent rules
of Section 8.7 above. The Committee shall prescribe such rules as it deems
necessary regarding the timing of payments under this Section.
8.10 VALUATION OF ACCOUNTS. All distributions to Participants or
their Beneficiaries shall be based on the amount of the Participant's Accounts
as of the Valuation Date immediately preceding the date on which the
Participant's Vested Interest is distributed.
8.11 PAYEES UNDER LEGAL DISABILITIES. If any payee under the Plan
is a minor, or if the Committee reasonably believes that any payee is legally
incapable of giving a valid receipt and discharge for any payment due him, the
Committee may have the payment, or any part thereof, made to the person (or
persons or institution) whom it reasonably believes is caring for or supporting
the payee.
8.12 NOTICE REGARDING TAX TREATMENT OF DISTRIBUTIONS. The Plan
Administrator shall provide a written explanation regarding the Code provisions
relating to the tax treatment of distributions to each distributee receiving a
distribution any portion of which may be rolled over tax-free to another
tax-qualified retirement plan or to an individual retirement account.
8.13 DISTRIBUTIONS TO PARTIALLY VESTED PARTICIPANTS.
(a) In the event that a distribution of Company Contributions is
made to a Participant at a time when he is not fully vested in such amounts,
the nonvested portion of the Participant's Account shall be forfeited as of the
date of the distribution.
(b) A Participant who received a distribution described in
Paragraph (a) above may recontribute the amount of the distribution he received
as of that date. The repayment must be made not later than the fifth
anniversary of the date of the withdrawal. In the case of a distribution upon
Severance, the repayment must be made not later than the earlier of the fifth
anniversary of the Employee's Reemployment Commencement Date or the date on
which the Participant incurs five consecutive Breaks in Service.
(c) If the Participant repays the amount of the distribution
within the prescribed time period, the amount of his Account balance shall be
completely restored. Neither the amount recontributed nor the Account balance
(previously forfeited) shall be adjusted for gains, losses, or interest in the
interim period.
(d) If the Participant does not repay the amount of the
distribution and he incurs a second Severance prior to becoming fully vested,
the amount to be distributed to him shall be equal to the sum of the amount in
his Account as of the date of the second distribution and the amount previously
distributed to him multiplied by his vested percentage, minus the amount
previously distributed to him.
(e) Forfeitures shall be used as provided in Section 6.4.
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8.14 HARDSHIP DISTRIBUTIONS. Pursuant to such rules and procedures
as may be prescribed by the Committee, Participants may be entitled to receive
a distribution upon incurrence of a Hardship only in accordance with the
provisions of this Section. The distribution must both be made on account of
an immediate and heavy financial need (as determined under Paragraph (a) below)
and be necessary to satisfy that need (as determined under Paragraph (b)
below).
(a) The determination of whether a Participant has an immediate
and heavy financial need will be made on the basis of all relevant facts and
circumstances. The need may still qualify even if it was reasonably
foreseeable or was voluntarily incurred by the Participant. A distribution on
account of any of the following reasons will automatically qualify:
(i) Medical expenses (described in Section 213(d) of the
Code) incurred by the Participant, his Spouse, or dependent (as
defined in Code Section 152);
(ii) Purchase (excluding mortgage payments) of a principal
residence of the Participant;
(iii) Payment of tuition for the next semester or quarter
of post-secondary education for the Participant, or for his Spouse,
children, or dependents; or
(iv) Need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage on his
principal residence.
(b) Except as is provided below, the determination as to whether a
distribution is necessary to satisfy an immediate and heavy financial need is
determined on the basis of the facts and circumstances. A distribution will
not satisfy this requirement to the extent the amount of the distribution:
(i) Is in excess of the amount required to relieve the
financial need; or
(ii) The need may be satisfied from other resources that
are reasonably available to the Participant.
(c) A distribution will qualify under Paragraph (b) above if the
Committee reasonably relies upon the Participant's representation that the need
cannot be relieved:
(i) Through reimbursement or compensation by insurance or
otherwise;
(ii) By reasonable liquidation of the Participant's
assets, to the extent the liquidation itself would not cause an
immediate and heavy financial need. For this purpose, the
Participant's resources shall include those of his Spouse and minor
children that are reasonably available to him;
(iii) By cessation of his pre-tax or post-tax contributions
to the Plan;
(iv) By other distributions or nontaxable loans from plans
maintained by the Company or any other employer; or
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(v) By borrowing from commercial sources on reasonable
commercial terms.
(d) A distribution will automatically be deemed to meet the
requirements of Paragraph (b) above if all of the following conditions are
satisfied:
(i) The distribution is not in excess of the immediate
and heavy financial need of the Participant;
(ii) The Participant has obtained all distributions, other
than hardship distributions, and all nontaxable loans currently
available under all tax-qualified retirement plans maintained by the
Company;
(iii) The Plan, and all other tax-qualified retirement
plans maintained by the Company, provide that the Participant's
pre-tax and post-tax contributions will be suspended for at least
twelve months after receipt of the hardship distribution. The
Participant will still be treated as being eligible to participate in
the Plan for purposes of the Average Deferral Tests of Section 5.3;
and
(iv) The Plan, and all other tax-qualified retirement
plans maintained by the Company, preclude the Participant from making
pre-tax contributions for the calendar year following the calendar
year in which the hardship distribution was made in excess of the
amount determined under the following sentence. The Participant's
maximum contribution for such next calendar year will be the maximum
pre-tax contribution allowed for that calendar year, reduced by the
amount of the Participant's pre-tax contributions for the prior
calendar year.
8.15 DISTRIBUTIONS MADE AFTER DECEMBER 31, 1992. With respect to
any distribution from the Plan commencing on or after January 1, 1993, any
Distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
ARTICLE IX
TOP-HEAVY PLAN RULES
9.1 APPLICABILITY. Notwithstanding any provision in this Plan to
the contrary, the provisions of this Article shall apply in the case of any
Plan Year in which the Plan is determined to be a Top-Heavy Plan.
9.2 SPECIAL VALUATION RULES.
(a) For purposes of determining the present value of the
cumulative accrued benefit of any Employee, or the amount of the account
balance of any Employee, such present value or amount shall be increased by the
aggregate distributions made with respect to the Employee under the plan during
the five year period ending on the Determination Date. The preceding rule
shall also apply to distributions under a terminated plan that, if it had not
been terminated, would have been required to be included in the Aggregation
Group that includes the Plan.
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(b) Any rollover or similar transfer initiated by the Employee and
made after December 31, 1983 to a plan shall not be taken into account with
respect to the transferee plan for purposes of determining whether the plan is
a Top-Heavy Plan (or whether any Aggregation Group which includes the plan is a
Top-Heavy Group).
(c) If any individual is a Non-Key Employee with respect to any
plan for any plan year, but the individual was a Key Employee with respect to
the plan for any prior plan year, or has not performed any services for the
Company or an Affiliated Company at any time during the five year period ending
on the Determination Date, any accrued benefit for the individual (and the
account balance of the individual) shall not be taken into account for purposes
of determining whether or not the plan is a Top-Heavy Plan.
9.3 MINIMUM CONTRIBUTIONS.
(a) Except as provided below, the minimum contribution for each
Participant who is a Non-Key Employee who is employed on the last day of the
Plan Year shall be not less than three percent of his Compensation, regardless
of the number of Hours of Service he completes that Plan Year or his level of
Compensation.
(b) The minimum required contribution under Paragraph (a) above
shall be reduced by the Company contributions and forfeitures allocated to the
Participant, in any other defined contribution plan included in the Aggregation
Group that includes the Plan.
(c) Subject to the following rules, the percentage set forth in
Paragraph (a) above shall not be required to exceed the percentage at which
contributions (including any Deferrals) are made (or are required to be made)
under the Plan for the year for the Key Employee for whom the percentage is the
highest for the year. For purposes of this Paragraph, all defined contribution
plans required to be included in an Aggregation Group shall be treated as one
plan. The rules of this Paragraph shall not apply to any plan required to be
included in an Aggregation Group if the plan enables a defined benefit plan to
meet the requirements of Code Sections 401(a)(4) or 410.
(d) The requirements of this Section must be satisfied without
taking into account contributions under chapters 2 or 21 of the Code, title II
of the Social Security Act, or any other Federal or State law.
(e) In the event a Participant is covered by both a defined
contribution and a defined benefit plan maintained by the Company, both of
which are determined to be Top-Heavy, the minimum benefit shall be provided
under this Plan, which shall be a contribution of at least five percent of
Compensation.
9.4 MAXIMUM ANNUAL ADDITION.
(a) Except as set forth below, in the case of any Top-Heavy Plan,
the rules of Sections 14.4(c)(i) and 14.4(d)(i) shall be applied by
substituting "1.0" for "1.25".
(b) The rule set forth in Paragraph (a) above shall not apply if
the Plan would not be a Top-Heavy Plan if "90%" were substituted for "60%" each
place it appears in Section 2.65 and the required minimum contribution under
Section 9.3(a) above would be satisfied if it were applied by
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substituting "four percent" for "three percent" each place it appears therein.
Notwithstanding the provisions of the preceding sentence, in the case of an
Employee covered by both this Plan and a Top-Heavy defined benefit plan
maintained by the Company, the minimum contribution/benefit shall be provided
solely under this Plan, which shall be applied by substituting "7-1/2%" for
"three percent" each place it appears in Section 9.3(a).
(c) The rules of Paragraph (a) shall not apply with respect to any
Employee for any Plan Year as long as there are no Annual Additions allocated
to the Employee under a defined contribution plan maintained by the Company or
accruals by the Employee under a defined benefit plan maintained by the
Company.
9.5 NON-ELIGIBLE EMPLOYEES. The rules of Sections 9.3 and 9.4
shall not apply to any Employee included in a unit of Employees covered by an
agreement which the Secretary of Labor finds to be a collective bargaining
agreement between Employee representatives and one or more employers, if there
is evidence that retirement benefits were the subject of good faith bargaining
between the Employee representatives and the Company or whose employment was
terminated before the Plan became Top-Heavy.
ARTICLE X
OPERATION AND ADMINISTRATION OF THE PLAN
10.1 NAMED FIDUCIARIES. For purposes of this Section, "Named
Fiduciaries" has the meaning of Section 402(a) of ERISA.
(a) The Board of Directors shall be the Named Fiduciary with
respect to adopting amendments to the Plan and appointing or removing the
Trustee, an Investment Manager, and the members of the Committee.
(b) The Trustee shall be the Named Fiduciary with respect to the
management and investment of the assets of the Plan, except to the extent that
the Trustee is subject to the directions of an Investment Manager, the
Committee, or Participants.
(c) The Committee shall be the Named Fiduciary with respect to all
of the administrative matters relating to the Plan, except to the extent the
management and investment of the assets of the Plan is the responsibility of
the Trustee, an Investment Manager, or the Participants.
10.2 COMPOSITION OF COMMITTEE. The Committee shall be made up of a
minimum of three members. The members of the Committee (who need not be
Participants or even Employees) shall be appointed by the Board of Directors of
the Company and shall hold office until termination of such status in
accordance with the provisions of this Article.
Any member of the Committee may resign at any time by giving written
notice to the other members and to the Board of Directors of the Company,
effective as therein stated. Any member of the Committee may be removed by the
Board of Directors of the Company at any time. In the case of a Committee
member who is also an Employee of the Company, his status as a Committee
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member shall terminate as of the effective date of the termination of his
employment, except as otherwise provided by the Board of Directors.
Upon the death, resignation, or removal of any Committee member, the
Board of Directors of the Company may appoint a successor. Notice of
appointment of a successor member shall be given by the Company in writing to
the Trustee and to the other members of the Committee.
10.3 COMMITTEE POWERS. The Committee shall have all powers
necessary to supervise the administration of the Plan and control its
operations. In addition to any powers and authority conferred on the Committee
elsewhere in the Plan or by law, the Committee shall have the following powers
and authority:
(a) To allocate fiduciary responsibilities among the Named
Fiduciaries and to designate one or more other persons to carry out fiduciary
responsibilities, however, no allocation or delegation under this Paragraph
shall be effective until the person or persons to whom the responsibilities
have been allocated or delegated agree to assume the responsibilities or with
respect to Trustee Responsibilities (within the meaning of Section 405(c) of
ERISA);
(b) To employ such legal, actuarial, medical, accounting, clerical
and other assistance as it may deem appropriate in carrying out the provisions
of this Plan, including one or more persons to render advice with regard to any
responsibility any Committee member or any other fiduciary may have under the
Plan;
(c) To establish rules and procedures for the conduct of the
Committee's business and the administration and effectuation of this Plan;
(d) To administer, interpret, construe and apply this Plan and to
decide all questions which may arise or which may be raised under this Plan.
The decisions of the Committee shall be binding upon all persons, to the
maximum extent permitted under ERISA;
(e) To determine the manner in which the assets of this Plan shall
be disbursed;
(f) To direct the Trustee how to invest the Trust Fund; and
(g) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate or convenient in the efficient
administration of the Plan.
10.4 REPORTING AND DISCLOSURE. The Plan Administrator shall be
responsible for the reporting and disclosure of information required to be
reported or disclosed pursuant to ERISA or any other applicable law.
10.5 MULTIPLE FIDUCIARY CAPACITIES. Any person or group of persons
may serve in more than one fiduciary capacity with respect to the Plan.
10.6 FUNDING POLICY. At periodic intervals, not less frequently
than annually, the Committee shall determine a funding policy for the Plan
consistent with the objectives of the Plan. In establishing the funding
policy, the Committee shall review and take into account the short term and
long term financial objectives and liquidity requirements of the Plan,
determined by reference
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to the age and tenure characteristics of the Participants, the current and
projected market conditions and such other considerations as appear pertinent
under the circumstances. These considerations shall be made with a view toward
the realization by the Plan of its maximum investment potential consistent with
prudent asset management and the need to pay benefits in accordance with the
terms of the Plan.
10.7 PROHIBITION AGAINST CERTAIN ACTIONS. In administering this
Plan, the Committee shall not discriminate in favor of any class of Employees
and in particular, it shall not discriminate in favor of Highly Compensated
Employees. The Committee shall not cause the Plan to engage in any transaction
that constitutes a nonexempt Prohibited Transaction under Section 4975(c) of
the Code or Section 406(a) of ERISA. Any member of the Committee who is also a
Participant shall not be qualified to act or vote on any matter relating solely
to himself.
10.8 COMMITTEE PROCEDURE.
(a) A majority of the members of the Committee as constituted at
any time shall constitute a quorum, and any action authorized by a majority of
the members present at any meeting or in writing without a meeting shall
constitute the actions of the Committee.
(b) The Committee may designate one or more of its members
("Designated Members") as authorized to execute any document or documents on
behalf of the Committee, in which event the Committee shall notify the Trustee
of this action and the name or names of the Designated Members.
10.9 INDEMNIFICATION.
(a) To the extent permitted by law, the Company shall indemnify
each member of the Board of Directors and of the Committee, and any other
Employee of the Company with duties under the Plan, against expenses (including
any amount paid in settlement) reasonably incurred by him in connection with
any claims against him by reason of his conduct in the performance of his
duties under the Plan, except in relation to matters as to which he acted
fraudulently or in bad faith in the performance of his duties.
(b) Notwithstanding the provisions of Paragraph (a) above, the
Company shall have the right to select counsel and to control the prosecution
or defense of the suit. Furthermore, the Company shall not indemnify any
person for any amount incurred through any settlement or compromise of any
action unless the Company consents in writing to the settlement or compromise.
The Company shall not unreasonably withhold such consent.
(c) Payment of the indemnity, fees, or other expenses shall be
made solely from the assets of the Company, and shall not be paid, directly or
indirectly, from the assets of the Plan.
10.10 COMPENSATION OF COMMITTEE MEMBERS AND PLAN EXPENSES.
(a) Members of the Committee shall serve without compensation
unless the Board of Directors shall otherwise determine. In no event shall any
member of the Committee who receives full-time pay from the Company receive
compensation from the Plan for his services as a member of the Committee,
except for reimbursement of expenses properly and actually incurred.
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(b) The expenses incurred in the establishment and administration
of the Plan, including, but not limited to, the expenses incurred by the
members of the Committee in exercising their duties, shall be borne by the
Plan, to the extent they are not paid by the Company.
10.11 BONDING. Members of the Committee and all other Employees
having responsibilities under the Plan shall be bonded to the extent required
by Section 412 of ERISA or any other applicable law.
10.12 DUTY OF CARE. The Fiduciaries of the Plan, including the
Trustee, the Committee, and any Investment Manager, shall act in accordance
with the following standards of care and fiduciary responsibility imposed under
ERISA (to the extent they are applicable).
(a) Each Fiduciary shall discharge his duties with respect to the
Plan and the Trust Fund solely in the interest of the Participants and
Beneficiaries, for the exclusive purposes of providing benefits to Participants
and their Beneficiaries and defraying reasonable expenses of administering the
Plan. Each Fiduciary shall discharge his duties with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims in accordance
with the Plan and Trust documents, insofar as those documents are consistent
with the provisions of ERISA. Subject to the exception for "eligible
individual account plans" under Section 404(a)(2) of ERISA, each Fiduciary
shall diversify the investments of the Plan so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so.
(b) A Fiduciary shall be liable for a breach of fiduciary
responsibility by another Fiduciary if:
(i) He participates knowingly in, or knowingly undertakes
to conceal an act or omission of the other Fiduciary, knowing the act
or omission is a breach;
(ii) By his failure to fulfill his fiduciary
responsibilities, he has enabled the other fiduciary to commit a
breach; or
(iii) He has knowledge of a breach by the other Fiduciary,
unless he makes reasonable efforts under the circumstances to remedy
the breach.
ARTICLE XI
PLAN AMENDMENTS
11.1 AMENDMENTS.
(a) The Board of Directors may at any time, and from time to time,
amend the Plan and any Trust Agreement thereunder by an instrument in writing
executed in the name of the Company.
(b) Except as otherwise provided by law, no amendment shall be
made at any time the effect of which would be:
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(i) To cause any assets of the Trust Fund, at any time
prior to the satisfaction of all liabilities with respect to
Participants and their Beneficiaries, to be used for or diverted to
purposes other than providing benefits to the Participants and their
Beneficiaries, and defraying reasonable expenses of administering the
Plan;
(ii) To have any retroactive effect so as to decrease the
accrued benefit of any Participant (within the meaning of Section
411(d)(6) of the Code); or
(iii) To increase or alter the responsibilities or
liabilities of a Trustee, a Committee member or an Investment Manager
without his written consent.
11.2 EFFECT OF AMENDMENTS.
(a) All amendments to the Plan are effective only on the date on
which the amendments are adopted, unless a different effective date is
expressly provided by resolution of the Board of Directors of the Company, or
unless the amendment shall by its own express terms become effective at another
date.
(b) Unless and to the extent expressly stated to the contrary in
the terms of any amendment, the amendment shall not be construed to enlarge the
rights of any Participant (or the Beneficiary of a Participant) whose
employment terminated prior to the effective date of the amendment.
ARTICLE XII
MERGER OF COMPANY, MERGER OF PLAN
12.1 EFFECT OF REORGANIZATION OR TRANSFER OF ASSETS.
(a) In the event of a consolidation, merger, sale, liquidation, or
other transfer of substantially all of the operating assets of the Company to
any other company, the ultimate successor to the business of the Company
("Successor") shall automatically be deemed to have elected to continue this
Plan in full force and effect, in the same manner as if the Plan had been
adopted by resolution of its board of directors.
(b) The presumption set forth in Paragraph (a) above shall not
apply if the Successor, by resolution of its board of directors, elects not to
so continue this Plan in effect. In such a case, the Plan shall terminate as
of the effective date set forth in the board resolution.
12.2 PLAN MERGER RESTRICTION.
(a) This Plan shall not in whole or in part merge or consolidate
with, or transfer its assets and/or liabilities to any other plan unless each
affected Participant in this Plan would receive a benefit immediately after the
merger, consolidation, or transfer (if the Plan then terminated) which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan had then
terminated).
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(b) Provided the requirements set forth in Paragraph (a) above are
satisfied, the Committee may direct that the Plan may merge, consolidate with,
or transfer its assets and/or liabilities to another tax-qualified retirement
plan.
ARTICLE XIII
APPLICATION FOR BENEFITS
13.1 APPLICATION FOR BENEFITS.
(a) The Committee may require any person claiming benefits under
the Plan ("Claimant") to submit an application for such benefits, together with
such other documents and information as the Committee may require.
(b) Within ninety days following receipt of the application and
all necessary documents and information, the Committee's authorized delegate
reviewing the claim shall furnish the Claimant with written notice of the
decision rendered with respect to the application.
(c) Should special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the
Claimant prior to the expiration of the initial ninety day period. The notice
shall indicate the special circumstances requiring an extension of time and the
date by which a final decision is expected to be rendered. In no event shall
the period of the extension exceed ninety days from the end of the initial
ninety day period.
(d) In the case of a denial of the Claimant's application, the
written notice shall set forth:
(i) The specific reasons for the denial;
(ii) References to the Plan provisions upon which the
denial is based;
(iii) A description of any additional information or
material necessary for perfection of the application (together with an
explanation of why the material or information is necessary); and
(iv) An explanation of the Plan's claim review procedure.
13.2 APPEALS.
(a) In order to appeal the decision rendered with respect to his
application for benefits or with respect to the amount of his benefits, the
Claimant must follow the appeal procedures set forth in this Section.
(b) The appeal must be made, in writing:
(i) In the case where the claim is expressly rejected,
within sixty-five days after the date of notice of the decision with
respect to the application, or
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(ii) In the case where the claim has neither been approved
nor denied within the applicable period provided in Section 13.1
above, within sixty-five days after the expiration of the period.
(c) The Claimant may request that his application be given full
and fair review by the Committee. The Claimant may review all pertinent
documents and submit issues and comments in writing in connection with the
appeal.
(d) The decision of the Committee shall be made promptly, and not
later than sixty days after the Committee's receipt of a request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not later than
120 days after receipt of the request for review.
(e) The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner calculated to be
understood by the Claimant with specific reference to the pertinent Plan
provisions upon which the decision is based.
13.3 EXHAUSTION OF REMEDIES. No legal action for benefit under the
Plan may be brought unless and until the Claimant has exhausted his remedies
under this Article.
ARTICLE XIV
LIMITATIONS ON CONTRIBUTIONS
14.L GENERAL RULE.
(a) Notwithstanding anything to the contrary contained in this
Plan, the total Annual Additions under this Plan to a Participant's Account(s)
for any Plan Year shall not exceed the lesser of:
(i) $30,000 or such greater amount as may be permitted
pursuant to Section 415(d)(1) of the Code ("Dollar Limitation"); or
(ii) 25% of the Participant's annual Compensation
("Percentage Limitation").
Because the Limitation Year is also the Plan Year, in the case of a Plan Year
of less than twelve months duration, the Dollar Limitation shall be prorated by
multiplying it by a fraction, the numerator of which is the number of months in
the short Plan Year and the denominator of which is twelve.
(b) The Dollar Limitation shall be adjusted annually for increases
in the cost of living, effective January 1 of the year for which the adjustment
is made, and which adjustment applies to the Limitation Year ending with or
within that calendar year.
14.2 SPECIAL DEFINITION OF COMPENSATION. For purpose of this
Article a Participant's "Compensation" includes:
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(a) His wages, salaries, fees for professional services, and other
amounts received for personal services actually rendered in the course of
employment with the Company (including, but not limited to, commissions paid to
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, and bonuses);
(b) Amounts described in Code Sections 104(a)(3), 105(a) and
105(h) (relating to medical care), but only to the extent that these amounts
are includible in the Participant's gross income;
(c) Amounts paid or reimbursed by the Company for moving expenses
incurred by a Participant, but only to the extent that these amounts are not
deductible by the Participant under Code Section 217; and
(d) The amount includible in the gross income of the Participant
upon making the election described in Code Section 83(b).
(e) For purposes of this Article a Participant's "Compensation"
does not include:
(i) Contributions made by the Company to a plan of
deferred compensation to the extent that, before the application of
the Code Section 415 limitations to that plan, the contributions are
not includible in his gross income for the taxable year in which the
amounts were contributed;
(ii) Distributions from a plan of deferred compensation,
regardless of whether the amounts are includible in the gross income
of the Participant when distributed. However, any amounts received by
the Participant pursuant to an unfunded nonqualified plan shall be
considered as Compensation for the year the amounts are includible in
the gross income of the Participant;
(iii) Amounts realized from the exercise of a qualified or
nonqualified stock option, or when restricted stock (or property) held
by the Participant either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture; and
(iv) Other amounts that receive special tax benefits, such
as premiums for group term life insurance (but only to the extent that
the premiums are not includible in the gross income of the
Participant).
14.3 OTHER DEFINED CONTRIBUTION PLANS. If the Company or an
Affiliated Company is contributing to any other defined contribution plan for
its Employees, some or all of whom may be Participants in this Plan, then each
Participant's Annual Additions in the other plan shall be aggregated with the
Participant's Annual Additions under this Plan for the purposes of applying the
limitations of Section 14.1. This rule shall apply whether or not the plan has
been terminated.
14.4 DEFINED BENEFIT PLANS.
(a) If the Company or an Affiliated Company is contributing to a
defined benefit plan for its Employees, some or all of whom may be Participants
in this Plan, then in addition to the limitations contained in Section 14.1 of
this Plan, the "Combined Plan Fraction" shall not exceed 1.0. This rule shall
apply whether or not the plan has been terminated.
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<PAGE> 42
(b) "Combined Plan Fraction" means a fraction which is the sum of
the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction.
In the event that the Combined Plan Fraction would exceed 1.0:
(i) The amount in the numerator of the Defined
Contribution Plan Fraction shall be reduced in accordance with the
applicable regulations, then, if necessary;
(ii) The limit otherwise applicable to the Participant
under any or all defined benefit plans shall be accordingly reduced.
(c) "Defined Contribution Plan Fraction" means a fraction the
numerator of which is the sum of all Annual Additions to the Participant's
accounts under all defined contribution plans of the Company and all Affiliated
Companies and the denominator of which is the sum of the lesser of the
following amounts determined separately with respect to the current Plan Year
and each prior year of service:
(i) The product of 1.25 multiplied by the Dollar
Limitation of Section 14.1(a)(i); or
(ii) The product of 1.4 multiplied by the Percentage
Limitation of Section 14.1(a)(ii) with respect to the Participant for
the year.
(d) "Defined Benefit Plan Fraction" means a fraction the numerator
of which is the projected annual benefit of the Participant determined as of
the close of the year under all defined benefit plans of the Company and all
Affiliated Companies and the denominator of which is the lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation applicable to defined benefit plans for the year; or
(ii) The product of 1.4 multiplied by the percentage of
compensation limitation applicable to defined benefit plans with
respect to the Participant.
14.5 EXCESS ANNUAL ADDITIONS. If the Annual Additions to a
Participant's Accounts under this Plan would exceed the applicable limitations
set forth above in this Article, the excess amount shall be subject to the
following rules.
(a) If the Participant had made any after-tax contributions to the
Plan, or to any other defined contribution plan that is maintained by the
Company or an Affiliated Company during the Plan Year, these contributions and
the earnings thereon shall be returned to the Participant to the extent of any
excess Annual Additions.
(b) If excess Annual Additions remain, amounts which give rise to
the excess Annual Additions under this Plan shall be transferred to a
Forfeiture Suspense Account.
(c) Any amounts held in the Forfeiture Suspense Account shall be
allocated to the Accounts of Participants as of the next succeeding Accounting
Date in accordance with the formula for allocating Company Contributions
provided in Section 6.2.
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<PAGE> 43
(d) The Forfeiture Suspense Account shall be exhausted before any
Company or Participant Contributions shall be allocated to the Accounts of
Participants subsequent to the date upon which the residue excess described in
Paragraph (b) is credited to the Forfeiture Suspense Account.
(e) The Trustee shall segregate any amounts held in the Forfeiture
Suspense Account from the other assets of the Plan and shall place the cash
portions thereof in an interest-bearing account in any bank or savings and loan
institution, including the Trustee's own banking department (if applicable).
Any amounts held in the Forfeiture Suspense Account shall not participate in
any allocation of Forfeitures, or net income or loss of other assets of the
Trust Fund under Article VI.
(f) In the event the Plan shall terminate at a time when all
amounts in the Forfeiture Suspense Account have not been allocated to the
Accounts of the Participants, the amounts in the Forfeiture Suspense Account
shall be applied as follows:
(i) The amount in the Forfeiture Suspense Account shall
first be allocated, as of the Plan termination date, to Participants
on the same basis as specified in Section 6.2 for allocating Company
Contributions, with the allocation to be made to the maximum extent
permissible under the limitations of this Article; and
(ii) If after those allocations have been made, any
further amounts remain in the Forfeiture Suspense Account, the residue
shall revert to the Company in accordance with the applicable
provisions of the Code, ERISA, and the regulations thereunder.
ARTICLE XV
RESTRICTIONS ON ALIENATION
15.1 GENERAL RESTRICTIONS AGAINST ALIENATION. Benefits under the
Plan may not be assigned or alienated. The preceding sentence shall not apply
with respect to a "Qualified Domestic Relations Order" described below.
15.2 IMPERMISSIBLE TERMS. A domestic relations order is not a
Qualified Domestic Relations Order if it requires the Plan to provide any type
or form of benefit, or any option not otherwise provided under the Plan, the
Plan to provide increased benefits (determined on the basis of actuarial value)
or the payment of benefits to an Alternate Payee that are required to be paid
to another Alternate Payee under a previous Qualified Domestic Relations Order.
15.3 SPECIAL RULES. A domestic relations order will not be
considered to fail to satisfy the requirements of a Qualified Domestic
Relations Order with respect to any payment made before a Participant has
separated from service solely because the order requires that payment of
benefits be made to an Alternate Payee:
(a) In the case of any payment before a Participant has separated
from service, on or after the date on which the Participant attains (or would
have attained) Earliest Retirement Age. "Earliest Retirement Age" means the
earlier of:
41
<PAGE> 44
(i) The date on which the Participant is entitled to a
distribution; or
(ii) The later of the date the Participant attains age
fifty or the earliest date on which the Participant could begin
receiving benefits if he separated from service.
(b) As if the Participant had retired on the date on which such
payment is to begin under the order (based on the balances in the Participant's
Accounts at that time).
(c) In any form in which the benefits may be paid under the Plan
to the Participant.
However, if the participant dies before his Earliest Retirement Age, the
Alternate Payee is entitled to benefits only if the Qualified Domestic
Relations Order requires survivor benefits to be paid to the Alternate Payee.
15.4 PROCEDURES. In the case of any domestic relations order
received by the Plan the Plan Administrator shall promptly notify the
Participant and any Alternate Payee of the receipt of the order and the Plan's
procedures for determining the qualified status of domestic relations orders.
Within a reasonable period after the receipt of the order, the Plan
Administrator shall determine whether or not the order is a Qualified Domestic
Relations Order and shall notify the Participant and each Alternate Payee of
the determination. The Plan Administrator shall establish reasonable
procedures to determine the qualified status of domestic relations orders and
to administer distributions under Qualified Domestic Relations Orders.
15.5 SEGREGATION OF FUNDS. During any period in which the issue of
whether a domestic relations order is a Qualified Domestic Relations Order is
being determined (by the Plan Administrator, by a court of competent
jurisdiction, or otherwise), the Plan Administrator shall separately account
for the amounts which would have been payable to the Alternate Payee during the
period if the order had been determined to be a Qualified Domestic Relations
Order.
If within the eighteen month period beginning with the date on which
the first payment would be required to be made under the domestic relations
order, the order (or modification thereof) is determined to be a Qualified
Domestic Relations Order, the Plan Administrator shall pay the segregated
amounts (including any interest thereon) to the person or persons entitled
thereto;
If within the eighteen month period beginning with the date on which
the first payment would be required to be made under the domestic relations
order it is determined that the order is not a Qualified Domestic Relations
Order or the issue as to whether the order is a Qualified Domestic Relations
Order is not resolved then the Plan Administrator shall pay the segregated
amounts (including any interest thereon) to the person or persons who would
have been entitled to the amounts if there had been no order, or restore the
amount to the Participant's Account.
Any determination that an order is a Qualified Domestic Relations
Order that is made after the close of the eighteen month period shall be
applied prospectively only.
15.6 EXPENSES OF QUALIFIED DOMESTIC RELATIONS ORDER. The Committee
may charge the Accounts of a Participant the administrative costs and legal
fees incurred in connection with a Qualified Domestic Relations Order.
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<PAGE> 45
15.7 AUTHORIZED PARTICIPANT LOANS. Notwithstanding any other
provision of this Plan, the Committee may prescribe rules authorizing loans
from the Plan to Participants. These rules shall be designed to insure that
these loans satisfy the requirements below and of Code Sections 4975(d)(1) and
72(p), and any other provision of law that is, or may become applicable.
(a) The loans must be available to all Participants on a
reasonably equivalent basis and must not be made available to Highly
Compensated Employees in amounts greater than the amounts made available for
other Employees.
(b) The loan must bear a reasonable rate of interest, but not to
exceed the maximum permitted under any applicable state usury law.
(c) The loans must be adequately secured. If the loan is secured
by the Participant's Vested Interest, the amount of the security must be at
least twice the amount of the loan. Participants will be precluded from
receiving withdrawals prior to Severance, to the extent the withdrawals would
reduce the Participant's Vested Interest (remaining in the Plan) below an
amount equal to twice the outstanding balance on the loan.
(d) The maximum amount of the loan may not exceed the lesser of:
(i) $50,000.00, reduced by the highest outstanding
balance of loans from the Plan to the Participant during the one year
period ending on the day before the date on which the loan is made; or
(ii) 1/2 of the value of the Participant's Vested Interest.
(e) The Committee shall require the Spouse of the Participant to
consent in writing to the loan (in a manner consistent with the regulations
under Code Section 417) within the ninety day period before granting the loan.
For this purpose, any renegotiation, extension, renewal, or other modification
of the loan will be treated as a new loan.
(i) The consent of the Spouse, once given, is irrevocable.
(ii) This consent shall be both to the use of the
Participants' Vested Interest as security for the loan and to satisfy
the repayment obligation if the Participant defaults.
(iii) The spousal consent shall be witnessed by a Plan
representative or a notary public.
(iv) In the event the loan is extended, modified, or
otherwise renegotiated, the Spouse must consent to that change.
(f) Upon the Participant's Severance, the entire outstanding
balance of the loan shall become immediately due and payable (including
interest accrued thereon). If the Participant has not repaid the entire amount
of the loan at the time his benefit becomes distributable, his benefit shall be
reduced by the outstanding balance of the loan at the time his benefit is
distributed.
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<PAGE> 46
(g) The loan must state the date upon which the loan must be
repaid, which may not exceed five years, except where the proceeds of the loan
are used to purchase the principal residence of the Participant, in which case
the term of the loan may not exceed fifteen years. In all cases, however, the
loan shall require substantially level amortization payment (no less frequently
than quarterly) over the term of the loan.
(h) In connection with the making of any loan to a Participant,
the Participant will be required to execute such documents as may be required
by the Committee or Trustee (e.g., a consent to have adequate withholdings made
from the Participant's paychecks to fully amortize the loan over its term).
(i) The Committee may charge the Participant the administrative
costs incurred in making the loan.
(j) A denial of an application for a loan shall be treated the
same as a claim for benefits under Article XIII (relating to claims procedure).
(k) Pursuant to such rules and procedures as may be prescribed by
the Committee, the amount of interest that a Participant pays on the loan shall
be allocated to his Account.
ARTICLE XVI
PLAN TERMINATION AND
DISCONTINUANCE OF CONTRIBUTIONS
16.1 PLAN TERMINATION. The Company may terminate the Plan and the
Trust Agreement at any time by an instrument in writing executed in the name of
the Company by an officer or officers duly authorized to execute such an
instrument, and delivered to the Trustee. The rights of all affected
Participants (who are employed by the Company on the date of the termination)
to the balances in their Accounts as of the date of termination of the Plan,
shall automatically become fully vested as of that date.
16.2 DISCONTINUANCE OF CONTRIBUTIONS. On and after the effective
date of a discontinuance of Company Contributions, the rights of all affected
Participants (who are employed by the Company on the date of the
discontinuance) to the balances in their Accounts shall automatically become
fully vested as of that date.
16.3 COMPARABLE PLANS. The provisions of Sections 16.1 and 16.2
shall not apply in the event that the Company establishes as successor plan
that is comparable to this Plan.
16.4 PARTIAL TERMINATION. In the event of a partial termination of
the Plan within the meaning of Code Section 411(d)(3), the balances in the
Accounts of the affected Participants (who are employed by the Company on the
date of the partial termination) shall become fully vested as of that date.
This Section is intended to satisfy only the requirements of Code Section 411
and is not intended to create, nor shall it be construed as creating, any
contractual rights whatsoever.
44
<PAGE> 47
ARTICLE XVII
MISCELLANEOUS MATTERS
17.1 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for, or an inducement to, or a condition of, the employment of
any Employee. Nothing contained in this Plan or the Trust shall be deemed to
give any Employee the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge any Employee at any time.
No Employee, nor any other person, shall have any right to or interest in any
portion of the Trust Fund other than as specifically provided in this Plan.
17.2 MAILING OF PAYMENTS. All payments under the Plan shall be
delivered in person or mailed to the last address of the Participant (or, in
the case of the death of the Participant, to the last address of his
Beneficiary furnished pursuant to this Section. Each Participant shall be
responsible for furnishing the Committee with his correct current address and
the correct current name and address of his Beneficiary.
17.3 NOTICES AND COMMUNICATIONS.
(a) All applications, notices, designations, elections, and other
communications from Participants shall be in writing, on forms prescribed by
the Committee and shall be mailed or delivered to the office designated by the
Committee, and shall be deemed to have been given when received by that office.
(b) Each notice, report, remittance, statement and other
communication directed to a Participant or Beneficiary shall be in writing and
may be delivered in person or by mail. An item shall be deemed to have been
delivered and received by the Participant three days after the date on which it
is deposited in the United States Mail with postage prepaid, addressed to the
Participant or Beneficiary at his last address of record with the Committee.
17.4 INTERPRETATION. Article and Section headings are for
convenient reference only and shall not be deemed to be part of the substance
of this instrument or in any way to enlarge or limit the contents of any
Article or Section. Unless the context clearly indicates otherwise, masculine
gender shall include the feminine, the singular shall include the plural, and
the plural the singular.
The provisions of this Plan shall in all cases be interpreted in a
manner that is consistent with this Plan satisfying:
(a) The requirements of Code Section 401(a) for qualification as a
tax-qualified employee stock ownership plan;
(b) The requirements of Section 4975(e)(7) of the Code for
eligibility for the prohibited transaction exemption provided under Code
Section 4975(d)(3); and
(c) The applicable requirements of ERISA.
45
<PAGE> 48
17.5 COUNTERPARTS. This Plan document may be executed in any
number of identical counterparts, each of which shall be deemed a complete
original in itself and may be introduced in evidence or used for any other
purpose without the production of any other counterparts.
IN WITNESS WHEREOF, MacFrugal's Bargains-Close-outs Inc. has caused
this instrument to be executed by its duly authorized officer, effective as of
January 1, 1995.
MACFRUGAL'S BARGAIN-CLOSE-OUTS INC.
BY: /s/ DANIEL L. FELSENTHAL
-----------------------------------
ITS: Vice President, Finance
-----------------------------
46
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES OF MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
1. PNS Stores, Inc.
State of Incorporation: California
Business Names: Pic 'N' Save
Mac Frugal's Bargains - Close-outs
2. West Coast Liquidators, Inc.
State of Incorporation: California
Business Names: None
<PAGE> 1
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Mac Frugal's Bargains - Close-outs Inc.
Dominguez, California:
We consent to the incorporation by reference in Registration Statement
No. 33-43661 on Form S-8 and Registration Statement No. 33-55130 of Mac Frugal's
Bargains - Close-outs Inc. on Form S-8 of our report dated March 14, 1995,
appearing in this Annual Report on Form 10-K of Mac Frugal's Bargains -
Close-outs Inc. and subsidiaries for the year ended January 29, 1995.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-1995
<PERIOD-START> JAN-31-1994
<PERIOD-END> JAN-29-1995
<CASH> 6,674
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 182,102
<CURRENT-ASSETS> 203,659
<PP&E> 283,559
<DEPRECIATION> 105,339
<TOTAL-ASSETS> 386,376
<CURRENT-LIABILITIES> 159,647
<BONDS> 0
<COMMON> 829
0
0
<OTHER-SE> 216,052
<TOTAL-LIABILITY-AND-EQUITY> 386,376
<SALES> 682,083
<TOTAL-REVENUES> 682,083
<CGS> 358,338
<TOTAL-COSTS> 358,338
<OTHER-EXPENSES> 253,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,373
<INCOME-PRETAX> 64,272
<INCOME-TAX> 25,388
<INCOME-CONTINUING> 38,884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,884
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 0
</TABLE>
