<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1995
------------
or
( ) TRANSITION PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________________ to ___________________
Commission file number 0-14674
-------
ANDOVER TOGS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-5677957
- ------------------------------- ---------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
One Penn Plaza, New York, New York 10119
- --------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 244-0700
--------------
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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES x NO
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 4,458,315 shares of common
stock, $.10 par value, of the Registrant were outstanding as of July 1, 1995.
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- -----------------------------------
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY 31, 1995
- -----------------------------------------------------
INDEX
- -------------------------------------------------------------------------------
Page
Part I - FINANCIAL INFORMATION
---------------------
Item 1. - Consolidated Financial Statements:
Balance Sheets
May 31, 1995 (unaudited) and November 30, 1994
and May 31, 1994 (unaudited) 1
Statements of Operations (unaudited)
Six months ended May 31, 1995 and 1994 2
Three months ended May 31, 1995 and 1994 3
Statements of Stockholders' Equity (unaudited)
Six months ended May 31, 1995 and 1994 4
Statements of Cash Flows (unaudited)
Six months ended May 31, 1995 and 1994 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
Part II - OTHER INFORMATION
-----------------
Item 6. - Exhibits and reports on Form 8-K 10-12
SIGNATURES 13
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31, November 30, May 31,
ASSETS 1995 1994 1994
- ------ ------------- ----------------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 861,000 $ 584,000 $ 223,000
Accounts receivable -
net (Note 3) 6,971,000 12,659,000 7,641,000
Inventories (Notes 2,3) 24,477,000 13,972,000 18,462,000
Deferred income taxes 225,000 248,000 342,000
Other current assets 753,000 224,000 772,000
----------- ------------ -----------
Total current assets 33,287,000 27,687,000 27,440,000
PROPERTY, PLANT AND EQUIPMENT -
Net (Note 3) 8,148,000 8,554,000 8,925,000
RESTRICTED FUNDS 360,000 360,000 360,000
OTHER ASSETS 294,000 279,000 521,000
COST IN EXCESS OF ASSETS
ACQUIRED (Note 4) 803,000 - -
----------- ------------ ------------
TOTAL $ 42,892,000 $ 36,880,000 $ 37,246,000
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
CURRENT LIABILITIES:
Notes payable-bank (Notes 3,4) $ 5,400,000 $ 2,400,000 $ -
Accounts payable 8,868,000 4,632,000 7,693,000
Accrued expenses and other
current liabilities 3,014,000 3,049,000 2,838,000
Current portion of long-term
debt and obligations under
capital leases 1,519,000 1,520,000 1,484,000
----------- ----------- ------------
Total current liabilities 18,801,000 11,601,000 12,015,000
LONG-TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES (Note 5) 4,410,000 5,238,000 5,948,000
OTHER LIABILITIES 102,000 61,000 84,000
DEFERRED INCOME TAXES 947,000 1,025,000 1,126,000
----------- ----------- ------------
Total liabilities 24,260,000 17,925,000 19,173,000
----------- ----------- ------------
STOCKHOLDERS' EQUITY
Common stock 464,000 454,000 454,000
Additional paid-in capital 11,135,000 10,870,000 10,870,000
Retained earnings 7,673,000 8,271,000 7,389,000
Less treasury stock, at cost (640,000) (640,000) (640,000)
----------- ----------- ------------
Total stockholders' equity 18,632,000 18,955,000 18,073,000
----------- ----------- ------------
TOTAL $ 42,892,000 $ 36,880,000 $ 37,246,000
============ ============ =============
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1995 AND 1994
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
NET SALES $ 33,767,000 $ 26,951,000
COST OF GOODS SOLD (Note 2) 27,427,000 21,264,000
------------- -------------
GROSS PROFIT 6,340,000 5,687,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,746,000 6,596,000
------------- -------------
- -
OPERATING LOSS (406,000) (909,000)
INTEREST EXPENSE 475,000 353,000
------------- -------------
LOSS BEFORE INCOME TAX BENEFIT (881,000) (1,262,000)
- -
INCOME TAX BENEFIT (283,000) (505,000)
------------- -------------
NET LOSS $ (598,000) $ (757,000)
============= =============
LOSS PER SHARE $(.14) $(.17)
====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,410,000 4,385,300
============= =============
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1995 AND 1994
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
NET SALES $18,751,000 $15,724,000
COST OF GOODS SOLD (Note 2) 15,149,000 12,137,000
----------- -----------
GROSS PROFIT 3,602,000 3,587,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,717,000 3,300,000
----------- -----------
OPERATING (LOSS) INCOME (115,000) 287,000
INTEREST EXPENSE 226,000 190,000
----------- -----------
(LOSS) EARNINGS BEFORE (BENEFIT)
PROVISION FOR INCOME TAXES (341,000) 97,000
(BENEFIT) PROVISION FOR INCOME TAXES (110,000) 82,000
------------ -----------
NET (LOSS) EARNINGS $ (231,000) $ 15,000
============ ===========
LOSS PER SHARE $ (.05) $ -
========= ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,458,300 4,358,300
========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MAY 31, 1995 AND 1994
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------- Paid-in Retained -----------------
Shares Amount Capital Earnings Shares Amount Total
------ ------- ----------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
MAY 31,1995
BALANCE
DECEMBER 1, 1994 4,542,990 $ 454,000 $10,870,000 $8,271,000 184,675 $(640,000) $18,955,000
Issuance of stock 100,000 10,000 265,000 275,000
Net loss (598,000) (598,000)
--------- --------- ----------- ---------- ------- --------- -----------
BALANCE
MAY 31, 1995 4,642,990 $ 464,000 $11,135,000 $7,673,000 184,675 $(640,000) $18,632,000
========= ========= =========== ========== ======= ========= ===========
SIX MONTHS ENDED
MAY 31, 1994
BALANCE
DECEMBER 1, 1993 4,542,990 $ 454,000 $10,870,000 $8,146,000 184,675 $(640,000) $18,830,000
Net income (757,000) (757,000)
--------- --------- ----------- ---------- ------- --------- -----------
BALANCE
MAY 31, 1994 4,542,990 $ 454,000 $10,870,000 $7,389,000 184,675 $(640,000) $18,073,000
========= ========= =========== ========== ======= ========= ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 1995 AND 1994
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (598,000) $ (757,000)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amoritization 667,000 697,000
Deferred income taxes (56,000) (73,000)
Changes in assets and liabilities, net of acquisition:
Decrease in accounts receivable 5,688,000 3,032,000
Increase in inventories (6,910,000) (7,250,000)
Increase in other assets (936,000) (237,000)
Increase in accounts payable 4,236,000 3,717,000
Increase (decrease) in accrued expenses
and other liabilities 6,000 ( 360,000)
------------ ------------
Net cash provided by (used in)
operating activities 2,097,000 (1,231,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition (3,834,000) -
Capital expenditures (157,000) ( 68,000)
------------- ------------
Net cash used in investigating
activities (3,991,000) ( 68,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in notes payable - bank 3,000,000 -
Increase in long-term borrowings - 250,000
Repayments of long-term debt (829,000) (823,000)
------------ ------------
Net cash provided by (used in)
financing activities 2,171,000 (573,000)
------------- ------------
NET INCREASE (DECREASE) IN CASH 277,000 (1,872,000)
CASH, BEGINNING OF PERIOD 584,000 2,095,000
------------- -----------
CASH, END OF PERIOD $ 861,000 $ 223,000
============= ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 472,000 $ 337,000
============= ===========
Income taxes $ 166,000 $ 83,000
============= ===========
SCHEDULE OF NON CASH INVESTING ACTIVITIES:
Aquisition:
Fair value of assets acquired $ 4,109,000
Common stock issued 275,000
------------
Total cash paid for the net assets acquired $ 3,834,000
============
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- -----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated balance sheets as of May 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows
for the periods presented have been prepared by the Company without audit. In
the opinion of management, all adjustments consisting of only normal
recurring adjustments necessary for a fair presentation of the financial
position of the Company, the results of its operations, and cash flows have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report to Shareholders for the
year ended November 30, 1994.
The results of operations for the period ended May 31, 1995 are not
necessarily indicative of the operating results for the full year.
Per share information is computed by dividing the net (loss) earnings amounts
by the weighted average number of shares of common stock outstanding during
each period.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
May 31, November 30, May 31,
1995 1994 1994
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Raw materials $ 6,768,000 $ 3,458,000 $ 5,912,000
Work in process 5,489,000 4,597,000 4,826,000
Finished goods 12,220,000 5,917,000 7,724,000
----------- ----------- -----------
$24,477,000 $13,972,000 $18,462,000
=========== =========== ===========
</TABLE>
3. NOTES PAYABLE - BANK
Effective May 31, 1995 the Company and its lenders renewed its loan agreement
that provides for a $22,000,000 line of credit and a $7,000,000 letter of
credit facility, subject to maximum aggregate borrowings of $26,000,000.
Related loans bear interest at prime plus 1/2%. The Company is expected to
maintain a 5% compensating balance on outstanding loans. The Company has
pledged its accounts receivable, import inventories under letters of credit,
and certain personal property and equipment as collateral.
4. ACQUISITION
On February 27, 1995, the Company acquired the inventory, trade names,
customer orders and certain items of machinery and equipment of Dobie
Industries, Inc. ("Dobie"), a manufacturer of children's and ladies apparel.
The purchase price was approximately $3,695,000 in cash, subject to final
adjustments; 100,000 shares of the Company's common stock, valued at
$275,000; and a warrant to purchase 50,000 additional shares of stock at
$2.50 per share. The cash portion of the purchase
-6-
<PAGE>
price was obtained by utilizing the Company's existing line of credit.
Under certain conditions the holders of the 100,000 shares have the right to
require the Company to purchase the 100,000 shares at $5.00 per share at the
expiration of five years. Additionally the purchase price includes contingent
payments of up to $4,000,000 over the next five years based on the Company's
consolidated future operations.
The acquisition has been accounted for as a purchase, and the assets are
included in the Company's Consolidated Financial Statements beginning
February 27, 1995. The purchase price has been allocated to the assets of
Dobie based on estimated fair values. The purchase price and cost associated
with the acquisition exceeded the fair value of Dobie's assets by
approximately $812,000, which has been assigned to cost in excess of assets
acquired. The cost in excess of assets acquired is being amortized over 15
years.
5. LONG TERM DEBT
The term note agreement between the Company and its banks contain certain
financial covenants. The Company was in violation of one of its covenants at
May 31, 1995 and has obtained a waiver.
-7-
<PAGE>
ANDOVER TOGS, INC. AND SUBSIDIARIES
- -----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Quarter Ended May 31, 1995 vs. 1994
Net sales for the three months ended May 31, 1995 were $18,751,000 an increase
of $3,027,000 or 19.3%, from the comparable 1994 period's net sales of
$15,724,000. The increase in sales volume was due to the Dobie acquisition.
The Company expects competition to continue to be intense and customers to
continue to buy conservatively. The Dobie acquisition reflects the Company's
continuing efforts to increase its sales penetration by expanding its
distribution.
Gross profit as a percentage of net sales decreased to 19.2% from 22.8% in the
comparable 1994 three-month period. Pricing pressures remain intense and the
Company is unable to pass through cost increases to its customers. The Company
has accepted business at lower margins in order to maintain market share. The
Company does not expect any improvement in its profit margins in 1995.
Selling, general and administrative expenses for the three months ended May 31,
1995 were $3,717,000 or 19.8% of sales as compared to $3,300,000 or 21.0% of
sales for the three months ended May 31, 1994. The increase of $417,000 was
attributable to the Dobie acquisition including certain transition expenses.
The increase in interest expense for the three month period of $36,000 is a
reflection of higher short term borrowing levels due to increased inventory
levels and higher interest rates, which were offset in part by the reduction of
long term debt.
Six Months Ended May 31, 1995 vs. 1994
Net sales for the six months ended May 31, 1995 were $33,767,000 an increase of
$6,816,000 or 25.3% from the comparable 1994 period's net sales of $26,951,000.
The increase in sales volume was primarily attributable to the Company recapture
of some of the sales it lost in fiscal 1994 and the sales volume of the Dobie
acquisition.
Gross profit as a percentage of net sales decreased to 18.8% from 21.1% in the
comparable 1994 six-month period for similar reasons as noted in the three month
period.
Selling, general and administrative expenses for the six months ended May 31,
1995 were $6,746,000 or 20.0% of sales as compared to $6,596,000 or 24.5% for
the six months ended May 31, 1994. The net increase of $150,000 was attributable
to the addition of the Dobie acquisition including certain transition expenses,
net of decreases of approximately $128,000 of reduced payrolls, related
benefits, and commission expenses and approximately $174,000 as a reduction of
rent expense due to a new lease. The decrease as a percentage of sales is a
result of the increased sales volume in the six month period.
The increase in interest expense for the six month period of $122,000 is a
reflection of higher short term borrowing levels due to increased inventory
levels and higher interest rates, which were offset in part by the reduction of
long term debt.
-8-
<PAGE>
FINANCIAL CONDITION
The Company's working capital at May 31, 1995 decreased $1,600,000 to
$14,486,000 compared to $16,086,000 at November 30, 1994, due primarily to
principal payments of long-term debt and the Company's net loss for the period.
In addition, the working capital decreased approximately $537,000 related to the
acquisition of Dobie. The Company's long-term debt decreased $1,538,000 at May
31, 1995 compared to May 31, 1994.
Inventory at May 31, 1995 was approximately $6,015,000 higher than May 31, 1994
primarily as a result of production of Fall goods to meet higher bookings for
Fall 1995, inclusive of the Dobie acquisition. In conjunction with the increase
in inventory and the Dobie acquisition, notes payable bank increased $5,400,000.
The Company does not traditionally make material commitments to purchase piece
goods without corresponding orders. The Company generally does not have long
term commitments other than under its lease for its New York premises and the
financings associated with its manufacturing facilities.
Effective May 31, 1995 the Company and its lenders renewed it $22,000,000
revolving credit facility and its $7,000,000 letter of credit facility subject
to a maximum aggregate borrowings of $26,000,000. The facilities are secured by
the Company's accounts receivable, imported inventory under letters of credit
and certain property and equipment. The Company also has a term note agreement
that contains certain financial covenants. The Company was in violation of one
of these covenants at May 31, 1995 and has obtained a waiver.
The Company believes that cash generated from operations and available
borrowings will be sufficient to meet anticipated working capital needs.
-9-
<PAGE>
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
On June 13, 1995, the Company held its annual meeting of
stockholders. The matters submitted to vote of the Company's
stockholders were (i) the election of five directors; (ii)
approval of the 1995 Stock Option Plan and (iii) ratification
of the appointment of Deloitte & Touche as independent
auditors for the Company's fiscal year ending November 30,
1995. All of management's nominees for directors were elected
at the meeting as follows:
<TABLE>
<CAPTION>
Withhold
For Authority
<S> <C> <C>
George S. Blumenthal 3,987,575 5,383
Peter A. Cohen 3,987,575 5,383
William L. Cohen 3,987,300 5,658
Donald D. Shack 3,987,575 5,383
Monte Wolfson 3,987,575 5,383
</TABLE>
The stockholders approved the 1995 Stock Option Plan as
follows:
For 3,368,059 Against 106,939 Abstain 4,606
The stockholders approved the ratification of Deloitte &
Touche as independent auditors as follows:
For 3,900,074 Against 1,573 Abstain 1,311
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
-10-
<PAGE>
Exhibit
Number Description
- ------ ------------
3(a) Certificate of Incorporation of the Company, incorporated by
reference to Exhibit 3(a) to Registration Statement on Form
S-1 (SEC File No. 33- 5363) of the Company (the "Form S-1").
3(b) Certificate of Merger of Andover Togs, Inc., a New York
corporation, into and with Andover Togs, Inc., a Delaware
corporation, incorporated by reference to Exhibit 3(b) to
the Form S-1.
3(c) Certificate of Amendment of Certificate of Incorporation,
filed June 1, 1987, incorporated by reference to Exhibit
3(a) to the Company's quarterly report on Form 10-Q dated
May 31, 1994 (the "May 1994 10-Q").
3(d) By-laws of the Company, as amended through November 12,
1986, incorporated by reference to Exhibit 3(b) to the May
1994 10-Q.
4(a) Specimen of certificate for shares of Common Stock of the
Company, incorporated by reference to Exhibit 4(a) to the
Form S-1.
4(b) The Company's Incentive Stock Option Plan, as amended April
20, 1987, incorporated by reference to Exhibit 4(a) to the
Registration Statement on Form S-8 (SEC File No. 33-33963)
as filed with the Securities and Exchange Commission on
March 22, 1990.
4(c) The Company's Non-Qualified Stock Option Plan, as amended
May 21, 1987 and April 9, 1992, incorporated by reference to
Exhibit 4(a) to the Amendment to the Registration Statement
on Form S-8 (SEC File No. 33-33963) as filed with the
Securities and Exchange Commission on November 2, 1992.
4(d) Common Stock Purchase Warrant, dated February 27, 1995,
issued to Dobie Industries, Inc., incorporated by reference
to Exhibit 4(d) to the Company's annual report on Form 10-K
for the year ended November 30, 1994 (the "1994 10-K").
4(e) Registration Rights Agreement, dated February 27, 1995, by
and between the Company and Dobie Industries, Inc.,
incorporated by reference to exhibit 4(e) to the 1994 10-K.
-11-
<PAGE>
*4(f) The Company's 1995 Stock Option Plan.
*27 Financial Data Schedule.
- -----------------
* Filed herewith
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on March 14, 1995 to report the
acquisition by the Company on February 27, 1995 of the inventory, customer
orders, trademarks and other intellectual property and certain machinery and
equipment of Dobie Industries, Inc., a New York corporation.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANDOVER TOGS, INC.
(Registrant)
Date July 11, 1995 By /s/ William L. Cohen
--------------------- ------------------------------
Chairman of the Board and
President
Date July 11, 1995 By /s/ Alan Kanis
--------------------- -----------------------------
Treasurer and Chief Financial
and Accounting Officer
-13-
<PAGE>
ANDOVER TOGS, INC.
1995 STOCK OPTION PLAN
ARTICLE 1
PURPOSE AND SCOPE OF THE PLAN
1.1 Purpose. This Stock Option Plan (the 'Plan') is to advance the
interests of Andover Togs, Inc. (the 'Company') and its stockholders by
assisting the Company in attracting and maintaining strong management and
consulting personnel upon whose judgment the success of the Company depends. The
Plan is also intended to enable the Company to reward the efforts, abilities and
industries of such officers, directors, employees and consultants who render
employment and other services which contribute materially to the success of the
Company's business. By encouraging ownership in the Company, the Company seeks
to increase the incentives of its employees, officers, directors and consultants
for enhancing shareholder value.
1.2 Definitions. For purposes of the Plan, unless the context otherwise
indicates, the following definitions shall be applicable:
(a) 'Board' or 'Board of Directors' means the Board of Directors of the
Company, as constituted from time to time.
(b) 'Code' shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
(c) 'Commission' means the Securities and Exchange Commission.
(d) 'Committee' means the Stock Option Committee of the Company which
shall be composed of not less than two persons appointed by the Board of
Directors, each of whom shall be (i) a 'disinterested person' as that term is
defined in Rule 16b-3(c)(2)(i) of the General Rules and Regulations under the
Exchange Act and (ii) an 'outside director' within the meaning of Section 162(m)
of the Code and the rules and regulations promulgated thereunder.
(e) 'Consultant' means an individual who is not an Employee but who has
been retained by the Company to render services as an independent contractor.
(f) 'Director' means any person who is a member of the Board of
Directors whether or not such person is an Employee.
(g) 'Employee' means and includes any person who is an employee of the
Company (including officers and directors who are also employees) or of any
Subsidiary.
(h) 'Exchange Act' means the Securities Exchange Act of 1934, as
amended.
(i) 'Executive Officer' means and includes any 'named executive officer'
as defined in Item 402(a)(ii)(3) of Regulation S-K under the Exchange Act of
1934, as amended.
(j) 'Exercise Price' means the price designated by the Committee at
which a Share may be purchased upon exercise of an Option as the same may be
adjusted pursuant to Article 5 hereof.
(k) 'Fair Market Value' of a Share means (i) if the Shares are quoted on
the Nasdaq National Market or listed on a national securities exchange, the
closing price on such market or such exchange, (ii) if the Shares are not quoted
on the Nasdaq National Market or listed on a national securities exchange, the
mean between the closing bid and asked prices of publicly-traded Shares in the
over-the-counter market as reported on the Nasdaq system or by any nationally
recognized quotation service selected by the Company, or (iii) if the Shares are
not then publicly-traded, as determined by the Committee.
(l) 'Grant Date,' as used with respect to a particular Option, means the
date an Option is granted by the Committee pursuant to the Plan.
(m) 'Grantee' means an individual to whom an Option, or portion thereof,
is granted by the Committee pursuant to the Plan.
1
<PAGE>
(n) 'Incentive Stock Option' means an Option intended to qualify under
Section 422 of the Code.
(o) 'Non-Qualified Stock Option' means an Option, or portion thereof
which has been designated by the Committee as a non-qualified stock option or an
Option, or portion thereof, which does not qualify as an Incentive Stock Option.
(p) 'Option' means an option to purchase Shares granted pursuant to
Article 2 and Article 4 of the Plan.
(q) 'Option Agreement' means a written agreement between a Grantee and
the Company evidencing an Option, consistent with the provisions of Article 2
and Article 4 of the Plan.
(r) 'Outside Director' means a Director who is not an Employee and who
does not own 5% or more of the outstanding Shares.
(s) 'Service' means the term of employment of an Employee or the
retention of a Consultant by the Company or any Subsidiary or the term during
which of an individual serves as a director of the Company.
(t) 'Shares' or 'Shares of Stock' means shares of common stock, $.10 par
value per share, of the Company. Shares may consist of authorized but unissued
Shares or Shares which have been previously issued and reacquired by the
Company.
(u) 'Subsidiary' means and includes any corporation more than 50% of
whose voting stock is beneficially owned or controlled by the Company.
1.3 Administration. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee, in its sole
discretion, from time to time, shall determine the Directors, Employees and
Consultants from among those eligible to whom, and the time or times at which,
Options shall be granted, and the number of Shares to be subject to each Option.
In making such determinations the Committee may take into account
recommendations made by management, the nature and length of Service rendered by
the prospective Grantee, his or her level of compensation, his or her past,
present and potential contributions to the Company and such factors as the
Committee shall in its discretion deem relevant. Subject to the express
provisions of the Plan and any consents required by any applicable laws
affecting the Plan and Options, the Committee shall have complete authority to
interpret and construe the Plan, to prescribe, amend and rescind rules and
regulations related to it, to determine the terms and provisions of the
respective Option Agreements and to make all other determinations necessary or
advisable for the administration of the Plan. The determinations of the
Committee on the matters referred to in this Section 1.3 shall be conclusive.
1.4 Eligibility for Participation. Any Director, Employee or Consultant
shall be eligible to receive Options granted under the Plan.
1.5 Shares Subject to the Plan. Subject to adjustment as hereinafter
provided, no more than 225,000 Shares may be issued pursuant to Options granted
under the Plan. If any Option shall expire or terminate for any reason without
having been exercised in full, the unpurchased Shares subject thereto shall
again be available for the purposes of the Plan.
1.6 Duration of the Plan. Unless previously terminated by the Committee or
the Board of Directors, the Plan will terminate on April 1, 2005. Such
termination will not terminate any Option then outstanding.
ARTICLE 2
TERMS AND CONDITIONS OF OPTIONS
2.1 Options and Option Agreements. Each Option granted under the Plan shall
be subject to all of the applicable terms and conditions of the Plan and shall
be evidenced by an Option Agreement. The Option Agreement shall contain such
terms and conditions not inconsistent with the Plan as the Committee may deem
appropriate, including, among other things, when and to what extent the Option
is exercisable, the number of Shares that may be purchased upon exercise of an
Option, the Exercise
2
<PAGE>
Price, and the conditions to the exercise of any Option. The Option Agreement
may also designate the Option as a Non-Qualified Stock Option or an Incentive
Stock Option.
2.2 Exercisability and Term. (a) Except as otherwise provided below, the
Committee shall determine the term of each Option and whether the Option shall
be exercisable in full or in installments and, if in installments, the number of
installments. No Option, however, may remain outstanding for more than 10 years
after the Grant Date.
(b) Except as otherwise provided herein, an Option granted under the
Plan may be exercised from time to time during its term for the full number of
Shares then purchasable upon exercise of the Option or from time to time for any
part thereof; provided, however, that no Option may be exercised in part with
respect to fewer than 25 Shares, except to purchase the remaining Shares then
purchasable under such Option.
(c) Except as otherwise provided below, Options shall terminate
immediately upon the termination of the Service of the Grantee. Options granted
under the Plan shall not, however, be affected by any change of Service so long
as the Grantee continues to be a Director, Employee or Consultant.
(d) If a Grantee dies while he or she is a Director, Employee or
Consultant or within three months after the termination of such Grantee's
Service by reason of his or her retirement with the written consent of the
Company, such Option may be exercised within three months after such Grantee's
death by his or her personal representative or by the person or persons to whom
the Grantee's rights under the Option pass by will or by the applicable laws of
descent and distribution; provided, however, that no Option may be exercised
after its expiration and provided further than such Option may only be exercised
for the number of Shares which could have been purchased by the Grantee on the
date of such termination.
(e) If a Grantee voluntarily retires or quits his or her Service with
the written consent of the Company, or if the Service of the Grantee is
terminated by the Company for reasons other than cause, such Grantee may
exercise his or her Option within three months following such termination of
Service; provided, however, that no Option may be exercised after its expiration
and provided further that the Grantee may only exercise his or her Option for
the number of Shares which he or she could have purchased as of the date of such
termination.
(f) Nothing herein shall impose upon the Company the obligation to
continue the Service of any Grantee. The rights of the Company to terminate the
Service of a Grantee shall not be diminished or affected by reason of the
granting of an Option.
2.3 Exercise Price. The Exercise Price for Options shall be determined by
the Committee at the time the Option is granted, but shall not be less than 80%
of the Fair Market Value of the Shares on the Grant Date provided, however, that
the Exercise Price per Share subject to an Incentive Stock Options shall equal
at least 100% of the Fair Market Value of a Share on the Grant Date.
2.4 Nontransferability. No Option granted under the Plan shall be
transferable by the Grantee otherwise than by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Grantee solely
by such Grantee.
2.5 Method of Exercise. A Grantee electing to exercise an Option shall
exercise such Option by delivering to the Company written notice of such
election to exercise, specifying the number of Shares such Grantee has elected
to purchase, together with the Exercise Price for the Shares being purchased in
accordance with the terms of Section 2.6 below.
2.6 Payment for Shares. The Exercise Price shall become immediately due and
payable upon exercise of the Option and payment thereof shall be made to the
Company as follows: (i) in cash (including check, bank draft or money order) or
(ii) at the discretion of the Committee, by delivering to the Company Shares of
Stock already owned by the Grantee and having a Fair Market Value on the date of
the exercise equal to the Exercise Price or a combination of such Shares and
cash, or (iii) by any other proper method specifically approved by the
Committee.
2.7 Limitation on Aggregate Shares. The number of Shares with respect to
which Options may be granted under the Plan to any Executive Officer in any
fiscal year of the Company shall not exceed
3
<PAGE>
100,000 Shares and the number of Shares with respect to which Options may be
granted under the Plan to any individual who is not an Executive Officer in any
fiscal year of the Company shall not exceed 75,000 Shares.
2.8 Incentive Stock Option Limitations. Options granted under the Plan may
be Non-Qualified Stock Options or Incentive Stock Options, as specified by the
Committee; provided, however, that no Incentive Stock Option may be granted to
any Grantee who, at the time of grant, owns stock of the Company (or any
Subsidiary) representing more than 10% of the total combined voting power of all
classes of stock of the Company (or such Subsidiary). Options shall be
exercisable at such time or times as the Committee shall determine; provided,
however, that the aggregate Fair Market Value of the Shares (measured on the
Grant Date) with respect to which Incentive Stock Options are exercisable for
the first time by any Grantee during any calendar year (under all stock options
plans of the Company) may not exceed $100,000.
ARTICLE 3
LOANS AND FINANCIAL ACCOMMODATIONS TO GRANTEES
3.1 Purpose. In order to assist the Grantee with the acquisition of Shares
of Stock pursuant to the exercise of an Option granted under the Plan, including
the payment of any taxes resulting from such exercise, the Board may, in its
discretion, whenever, in the judgment of the Board, such assistance is permitted
by applicable law and may reasonably be expected to benefit the Company,
authorize, either at the time of the grant of the Option or thereafter (a) the
extension of a loan to the Grantee by the Company, or (b) the guarantee by the
Company of a loan obtained by the Grantee from a third party.
3.2 Terms of Loan or Guarantee. The Committee or Board shall determine the
terms of any loan or guarantee made pursuant to this Article 3, including the
interest rate and other terms of repayment thereof, and whether such loan or
guarantee shall be secured or unsecured. Each loan shall be evidenced by a
promissory note having a maximum term to maturity of not more than sixty (60)
months. The maximum amount of any loan or guarantee shall be the Exercise Price
for Shares purchased upon exercise of an Option plus (a) related interest
payments and (b) the amount of tax liability incurred by the Grantee as a result
of the exercise of an Option.
3.3 Use of Loaned or Guaranteed Funds. No amount loaned to a Grantee and no
amount repayment of which is guaranteed by the Company shall be used for any
purpose other than payment of (i) the Exercise Price of Shares acquired on the
exercise of an Option granted or to be granted under the Plan and (ii) taxes
attributable to such exercise.
ARTICLE 4
GRANT OF OPTIONS TO MEMBERS OF THE COMMITTEE AND TO
OUTSIDE DIRECTORS WHO ARE NOT MEMBERS OF THE COMMITTEE
4.1 Application of the Plan to Members of the Committee and to Outside
Directors Who Are Not Members of the Committee. Except as provided in this
Article 4, all terms and conditions of the Plan govern the grant of options to
members of the Committee and to Outside Directors who are not members of the
Committee.
4.2 Eligibility for Participation. Members of the Committee and Outside
Directors are only eligible to receive options pursuant to Section 4.3 below.
Members of the Committee are not eligible to receive Options pursuant to Section
1.3 for a period of one year after the termination of their Service on the
Committee.
4.3 Annual Grant of Options. Each member of the Committee and each Outside
Director who is not a member of the Committee shall be granted an Option to
purchase 2,500 Shares (as adjusted pursuant to Section 5.1) on April 1 of each
year during the term of the Plan so long as on such date he is a member of the
Committee or an Outside Director. The provisions of this Section 4.3 shall not
be amended more than once every twelve months.
4.4 Exercisability and Term of Options. An option granted to a member of
the Committee or to an Outside Director shall become exercisable with respect to
25% of the Shares covered thereby
4
<PAGE>
commencing one year after the Grant Date of such Option and as to an additional
25% of the Shares covered by the Option upon each of the three succeeding
anniversary dates of the Grant Date. Options granted to members of the Committee
and to Outside Directors shall expire seven years from their respective Grant
Date.
4.5 Option Price. The Exercise Price for Options granted to members of the
Committee and to Outside Directors pursuant to Section 4.3 shall be 100% of the
Fair Market Value of the Shares on the Grant Date.
ARTICLE 5
GENERAL PROVISIONS
5.1 Adjustments upon Changes in Capitalization. (a) The aggregate number
and class of Shares for which Options may be granted under the Plan, the number
and class of Shares covered by each outstanding Option and the Exercise Price
per Share thereof (but not the total price) and each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, split-up or consolidation of Shares or any
like capital adjustment or reclassification of Shares or the payment of any
stock dividends, or any other increase or decrease in the number of Shares of
the Company outstanding, without receipt of consideration by the Company.
(b) Subject to any required action by its stockholders, if the Company
shall be the surviving corporation in any merger or consolidation, except as
otherwise provided below, any Option granted hereunder shall be adjusted so as
to pertain and apply to the securities to which the holder of the number of
Shares of the Company subject to the Option would have been entitled in such
merger or consolidation.
(c) Upon the dissolution or liquidation of the Company or upon a merger
or consolidation of the Company in a transaction in which all or substantially
all of the stockholders of the Company receive cash, securities of another
company or other consideration in exchange for their Shares of Stock, whether or
not the Company is the surviving corporation, or upon a sale of all or
substantially all of the assets of the Company, any Option granted hereunder
shall terminate, but the Grantee may, immediately prior to any such transaction
exercise his or her Option, in whole or in part, as to the full number of Shares
which he or she would otherwise have been entitled to purchase during the
remaining term of the Option irrespective of any installment features. If such
transaction consists in part of a tender offer for the Company's Shares, the
Committee may, prior to or simultaneous with the closing of such tender offer,
elect to accelerate all or any portion of an Option and cancel such Option upon
payment to the respective Grantees of an amount equal to the amount by which the
cash and other consideration to be paid to public stockholders in such tender
offer exceeds the Exercise Price multiplied by the number of Shares remaining
subject to such Option. Notwithstanding the foregoing, the Company may elect not
to permit a Grantee to exercise his or her Option immediately prior to any such
event in accordance with the foregoing, but in lieu thereof the Company may, in
its discretion and immediately prior to any such dissolution, liquidation,
merger, consolidation or sale substitute or cause to be substituted a new option
for his or her Option, such new option to be applicable to the stock of the
surviving or acquiring corporation or any of its affiliates and to be on terms
no less favorable to the Grantee than those contained in his or her prior
Option.
(d) Adjustment and elections under this Section 5.1 shall be made by the
Committee whose determination as to what adjustments shall be made and the
extent thereof shall be final, binding and conclusive.
5.2 Privileges of Stock Ownership. No Grantee shall be entitled to the
privileges of stock ownership as to any Shares of Stock not actually issued and
delivered to him or her.
5.3 Securities Regulations. Unless at the time of the exercise of an Option
and the issuance of the Shares purchased by a Grantee pursuant thereto there
shall be in effect as to such Shares a Registration Statement under the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission, the Grantee exercising such Option shall deliver to the Company at
the time of exercise, a certificate certifying that he or she is acquiring the
Shares issuable to him or her upon such exercise for the purpose of investment
and not with a view to their sale or distribution. The Company shall not be
5
<PAGE>
required to issue or deliver certificates for Shares until there shall have been
compliance with all applicable laws, rules and regulations, including rules and
regulations of the Commission.
5.4 Suspension, Amendment and Termination of the Plan. (a) The Committee
may at any time suspend, amend or terminate the Plan, provided that the approval
of the Board of Directors of the Company will be required for any amendment
which will:
(i) increase the maximum number of Shares which may be issued pursuant
to Options; or
(ii) change the provisions of Section 1.4; or
(iii) change the provisions of Section 4.2; or
(iv) extend the term of Options.
(b) The power of the Committee to amend the Plan under this Section 5.4
is subject in certain instances to the requirements of the Exchange Act and
other provisions of applicable law which may require stockholder approval of
such amendments in order to achieve the Company's objectives and the purposes of
the Plan.
(c) Unless the Plan shall theretofore have been terminated by the
Committee or the Board of Directors, the Plan shall terminate April 1, 2005. No
Option may be granted during the term of any suspension of the Plan or after
termination of the Plan. The amendment or termination of the Plan shall not,
without the written consent of the Grantee, alter or impair any rights or
obligations of such Grantee under any Option theretofore granted.
5.5 Amendment of Outstanding Options. The Committee may amend or modify any
Option in any manner to the extent that the Committee would have had the
authority under the Plan initially to grant or prescribe the terms of such
Option; provided that, except as expressly contemplated elsewhere herein or in
any agreement evidencing such Option, no such amendment or modification shall
impair the rights of any Grantee under any outstanding Option without the
consent of such Grantee.
5.6 Section 16 of the Exchange Act. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.
5.7 Governing Law. This Plan and the Committee's actions in respect thereof
shall be governed and construed in accordance with the substantive law of the
State of Delaware.
5.8 Effective Time. This Plan shall become effective upon approval thereof
by the holders of a majority of the Company's Shares present and entitled to
vote at a meeting of the Company's stockholders duly held.
6
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