<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 2, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21296
PACIFIC SUNWEAR OF CALIFORNIA, INC.
CALIFORNIA 95-3759463
(State of Incorporation) (I.R.S. Employer Identification No.)
5200 EAST LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
(Address of principal executive offices) (Zip code)
(714) 693-8066
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share, at August 20, 1998 was 21,048,866.
<PAGE> 2
PACIFIC SUNWEAR OF CALIFORNIA, INC.
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 2, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements:
Balance Sheets as of August 2, 1998 (unaudited) and
February 1, 1998............................................. 3
Statements of Operations (unaudited) for the second
quarter and first half ended August 2, 1998 and
August 3, 1997............................................... 4
Statements of Cash Flows (unaudited) for the first half
ended August 2, 1998 and August 3, 1997...................... 5
Notes to Financial Statements.................................. 6-8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2. Changes in Securities and Use of Proceeds...................... 12
Item 3. Defaults Upon Senior Securities................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 5. Other Information.............................................. 13
Item 6. Exhibits and Reports on Form 8-K............................... 13
SIGNATURE PAGE................................................. 14
</TABLE>
2
<PAGE> 3
PACIFIC SUNWEAR OF CALIFORNIA, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1998 1998
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 12,961,692 $ 14,781,566
Short-term investments (Note 2) -- 12,742,666
Accounts receivable 1,607,251 1,009,839
Merchandise inventories 47,843,515 32,122,341
Prepaid expenses, includes $3,156,263 and $2,832,739 of
prepaid rent, respectively 4,960,956 4,364,537
Prepaid income tax 1,216,213 --
Deferred taxes 1,916,935 1,916,935
------------ ------------
Total current assets 70,506,562 66,937,884
PROPERTY AND EQUIPMENT:
Leasehold improvements 42,117,225 36,327,054
Furniture, fixtures and equipment 39,186,686 29,416,189
------------ ------------
81,303,911 65,743,243
Less accumulated depreciation and amortization (22,554,994) (20,342,749)
------------ ------------
Net property and equipment 58,748,917 45,400,494
OTHER ASSETS:
Goodwill, net of accumulated amortization of $599,239
and $440,297, respectively 7,764,504 7,923,446
Deposits and other assets 1,535,168 1,404,234
------------ ------------
Total other assets 9,299,672 9,327,680
------------ ------------
Total assets $138,555,151 $121,666,058
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,657,739 $ 8,916,915
Accrued liabilities (Note 6) 7,450,190 8,834,161
Income taxes payable -- 1,068,276
------------ ------------
Total current liabilities 24,107,929 18,819,352
DEFERRED COMPENSATION 1,912,075 1,114,374
DEFERRED RENT 4,316,826 3,746,246
DEFERRED TAXES 1,423,029 1,423,029
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01; authorized, 5,000,000; none issued
and outstanding
Common stock, par value $.01; authorized 50,625,000 shares; issued
and outstanding, 20,808,554 and 20,617,337 shares, respectively 208,086 206,173
Additional paid-in capital 65,647,847 63,271,086
Retained earnings 40,939,359 33,085,798
------------ ------------
Total shareholders' equity 106,795,292 96,563,057
------------ ------------
Total liabilities and shareholders' equity $138,555,151 $121,666,058
============ ============
</TABLE>
See accompanying notes
3
<PAGE> 4
PACIFIC SUNWEAR OF CALIFORNIA, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SECOND QUARTER ENDED FOR THE FIRST HALF ENDED
---------------------------- ----------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $73,203,194 $48,326,141 $134,365,444 $87,258,877
Cost of goods sold, including
buying, distribution and
occupancy costs 48,627,331 32,477,214 90,182,545 59,702,842
----------- ----------- ------------ -----------
Gross margin 24,575,863 15,848,927 44,182,899 27,556,035
Selling, general and
administrative expenses 16,594,562 11,379,171 31,742,087 21,321,703
----------- ----------- ------------ -----------
Operating income 7,981,301 4,469,756 12,440,812 6,234,332
Interest income 219,346 293,888 539,749 389,590
----------- ----------- ------------ -----------
Income before income tax 8,200,647 4,763,644 12,980,561 6,623,922
expense
Income tax expense (Note 5) 3,234,000 1,884,000 5,127,000 2,620,000
----------- ----------- ------------ -----------
Net income $ 4,966,647 $ 2,879,644 $ 7,853,561 $ 4,003,922
=========== =========== ============ ===========
Net income per share, basic
(Note 4) $ 0.24 $ 0.15 $ 0.38 $ 0.21
----------- ----------- ------------ -----------
Net income per share, diluted
(Note 4) $ 0.23 $ 0.14 $ 0.36 $ 0.20
----------- ----------- ------------ -----------
Weighted average shares
outstanding, basic (Note 4) 20,763,818 19,458,122 20,719,587 18,862,090
=========== =========== ============ ===========
Weighted average shares
outstanding, diluted (Note 4) 21,626,768 20,161,268 21,567,493 19,580,443
=========== =========== ============ ===========
</TABLE>
See accompanying notes
4
<PAGE> 5
PACIFIC SUNWEAR OF CALIFORNIA, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FIRST HALF ENDED
------------------------
AUGUST 2, AUGUST 3,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,853,561 $ 4,003,922
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,649,891 3,048,192
Change in:
Accounts receivable (597,412) (317,939)
Merchandise inventories (15,721,174) (11,793,785)
Prepaid expenses (596,419) (98,042)
Deposits and other assets (155,934) (283,851)
Accounts payable 7,740,824 5,711,840
Accrued liabilities (1,383,971) (78,325)
Income taxes and deferred income taxes (588,437) 404,960
Deferred rent 570,580 254,879
Deferred compensation 797,701 410,265
------------- ------------
Net cash provided by operating activities 2,569,210 1,262,116
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short term investments -- (19,718,780)
Short term investment maturities 12,742,666 --
Investment in property and equipment (17,814,372) (9,003,746)
------------- ------------
Net cash used in investing activities (5,071,706) (28,722,526)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 30,085,073
Cash paid in lieu of fractional shares due to 3-for-2
stock split (28,929) --
Proceeds from exercise of stock options 711,551 336,543
------------- ------------
Net cash provided by financing activities 682,622 30,421,616
------------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS: (1,819,874) 2,961,206
CASH AND CASH EQUIVALENTS, beginning of period 14,781,566 9,962,626
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 12,961,692 $ 12,923,832
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ -- $ 2,381
Income taxes $ 5,715,437 $ 2,215,040
</TABLE>
- - -------------------------------------------------------------------------------
Non-cash transaction: During the first half ended August 2, 1998 and August 3,
1997, the Company recorded an increase to additional paid-in capital of
$1,696,052 and $857,758, respectively, related to tax benefits associated with
the exercise of non-qualified stock options.
See accompanying notes
5
<PAGE> 6
PACIFIC SUNWEAR OF CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are unaudited except for the
February 1, 1998 balance sheet. These statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
The Company's fiscal year is the 52- or 53-week period which ends on the
Sunday closest to the end of January. "Fiscal 1998" is a 52-week period which
ends January 31, 1999.
In the opinion of management, all adjustments consisting only of normal
recurring entries necessary for a fair presentation have been included. The
preparation of financial statements in conformity with generally accepted
accounting principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported expenses during the reported period. Actual results
could differ from these estimates. The results of operations for the second
quarter and first half ended August 2, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ending January 31, 1999.
For further information, refer to the financial statements and notes thereto as
of and for the years ended February 1, 1998, February 2, 1997 and February 4,
1996.
NOTE 2 - CASH AND CASH EQUIVALENTS; SHORT-TERM INVESTMENTS
Cash and cash equivalents include cash on hand and marketable securities
with original maturities of three months or less.
Short-term investments consist of highly liquid investments with
original maturities between three and twelve months. Management determines the
proper classifications of investments at the time of purchase and reevaluates
such designations as of each balance sheet date. At August 2, 1998, all
securities were classified as held-to-maturity under the provisions of SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities" based on
the Company's positive intent and ability to hold the securities to maturity. In
accordance with SFAS No. 115, these securities are carried at amortized cost,
which approximates fair market value.
NOTE 3 - FOLLOW-ON OFFERING
During fiscal 1997 the Company issued an aggregate of 1,960,875 shares
of its common stock in a follow-on stock offering. The sale of shares yielded
net proceeds to the Company, after deducting expenses associated with the
offering, of $30.1 million.
NOTE 4 - NET INCOME PER SHARE, BASIC AND DILUTED
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128), in the fourth quarter of fiscal 1997. SFAS 128
simplifies the computation of earnings per share ("EPS") previously required in
Accounting Principles Board (APB) Opinion No. 15, "Earnings Per Share," by
replacing primary and fully diluted EPS with basic and diluted EPS. Earnings per
share for the second quarter and first half ended August 3, 1997 have been
restated in accordance with SFAS 128.
6
<PAGE> 7
The following table summarizes the computation of EPS:
<TABLE>
<CAPTION>
SECOND QUARTER ENDED: August 2, 1998 August 3, 1997
------------------------------ ------------------------------
Per Share Per Share
Net Income Shares Amount Net Income Shares Amount
---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Net Income $4,966,647 20,763,818 $0.24 $2,879,644 19,458,122 $0.15
DILUTED EPS:
Effect of dilutive stock options 862,950 703,146
Net Income $4,966,647 21,626,768 $0.23 $2,879,644 20,161,268 $0.14
</TABLE>
<TABLE>
<CAPTION>
FIRST HALF ENDED: August 2, 1998 August 3, 1997
------------------------------ ------------------------------
Per Share Per Share
Net Income Shares Amount Net Income Shares Amount
---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Net Income $7,853,561 20,719,587 $0.38 $4,003,922 18,862,090 $0.21
DILUTED EPS:
Effect of dilutive stock options 847,906 718,353
Net Income $7,853,561 21,567,493 $0.36 $4,003,922 19,580,443 $0.20
</TABLE>
Options to purchase 519 and 104,069 shares of common stock in the second
quarter of fiscal 1998 and the second quarter of fiscal 1997, respectively, and
36,832 and 56,016 in the first half of fiscal 1998 and the first half of fiscal
1997, respectively, were not included in the computation of diluted earnings per
common share because the option exercise price was greater than the average
market price of the common stock.
Stock Split - On both October 9, 1997 and June 8, 1998, the Company
effected a three-for-two stock split. Earnings per share and share outstanding
amounts have been restated to give retroactive effect to the stock splits in
these financial statements.
NOTE 5 - FEDERAL AND STATE INCOME TAX EXPENSE
The combined federal and state income tax expense was calculated using
estimated effective annual tax rates.
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
August 2, February 1,
1998 1998
---------- -----------
<S> <C> <C>
Accrued compensation and benefits $3,300,908 $4,185,159
Sales tax payable 1,402,500 568,931
Other accrued liabilities 932,535 901,719
Accrued employee medical plan expense 530,591 239,937
Gift certificates and store merchandise credits 513,967 778,390
Reserve for store expansion/relocation and closing costs 498,091 954,823
Accrued costs related to corporate relocation 271,598 1,205,202
---------- ----------
$7,450,190 $8,834,161
========== ==========
</TABLE>
7
<PAGE> 8
NOTE 7 - ACQUISITION
In September 1997, the Company acquired from Good Vibrations, Inc. the
store assets, including inventory, leasehold improvements and lease rights
pertaining to 15 retail stores. The purchase price aggregated $10.4 million and
resulted in the Company recording goodwill of $7.3 million. Details of the
transaction and the accounting effects were disclosed in the Company's Form 10-K
for the year ended February 1, 1998. The first half of 1998 includes sales
results from these 15 retail stores.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The second quarter ended August 2, 1998 as compared to the second quarter ended
August 3, 1997
Net Sales
Net sales increased to $73.2 million for the second quarter of fiscal
1998 from $48.3 million for the second quarter of fiscal 1997, an increase of
$24.9 million, or 51.6%. Of this $24.9 million increase, $8.0 million was
attributable to net sales generated by new stores opened in fiscal 1997 not yet
included in the comparable store base, $6.4 million was attributable to net
sales generated by 38 new stores opened in fiscal 1998 not yet included in the
comparable store base, $5.3 million was attributable to a 12.6% increase in
comparable store net sales in the second quarter of fiscal 1998, $3.4 million
was attributable to the 15 Good Vibrations stores acquired in fiscal 1997 not
yet included in the comparable store base and $2.2 million was attributable to
20 stores that have been expanded or relocated to the larger format and not yet
included in the comparable store base. Partially offsetting this increase was a
$.4 million decrease in net sales attributable to the closing of four stores
during fiscal 1997. The increase in comparable store net sales was primarily
attributable to increases in comparable store net sales of juniors, shoes,
accessories merchandise and, to a lesser extent, increases in comparable store
net sales of young men's merchandise. Net sales of footwear and junior female
apparel represented approximately 29% of total net sales for the second quarter
of fiscal 1998 compared to 24% for the second quarter of fiscal 1997. Retail
prices of the Company's merchandise remained relatively unchanged in the second
quarter of fiscal 1998 compared to the second quarter of fiscal 1997 and had no
significant impact on the net sales increase for the second quarter of fiscal
1998.
Gross Margin
Gross margin, after buying, distribution and occupancy costs, increased
to $24.6 million for the second quarter of fiscal 1998 from $15.8 million for
the second quarter of fiscal 1997, an increase of $8.8 million, or 55.7%. As a
percentage of net sales, gross margin increased to 33.6% from 32.7%. Of this .9%
increase, net merchandise margins increased 1.2% as a percentage of net sales
for the second quarter of fiscal 1998 compared to the second quarter of fiscal
1997 due to an increase in initial markup and, to a lesser extent, a decrease in
markdowns as a percentage of net sales and .5% was due to a decrease in
occupancy costs as a percentage of net sales which was related to higher
comparable store net sales and higher total net sales. These increases were
offset by higher distribution costs of .8% as a percentage of net sales for the
second quarter of fiscal 1998 compared to the second quarter of fiscal 1997,
which were due to startup costs and higher occupancy costs related to the new
distribution center facility.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $16.6 million
for the second quarter of fiscal 1998 from $11.4 million for the second quarter
of fiscal 1997, an increase of $5.2 million, or 45.6%. As a percentage of net
sales, these expenses decreased to 22.7% from 23.6%. Of this .9% net decrease as
a percentage of net sales, .5% was due to a decrease in general and
administrative expenses as a percentage of net sales, .2% was attributable to a
decrease in store selling expenses as a percentage of net sales and .2% was due
to a decrease in store expansion/relocation and closing expenses as a percentage
of net sales. These decreases as a percentage of net sales were primarily a
result of leveraging these expenses over higher total net sales.
8
<PAGE> 9
Income Tax Expense
Income tax expense was $3.2 million in the second quarter of fiscal 1998
compared to $1.9 million for the second quarter of fiscal 1997. The effective
income tax rate was 39.4% for the second quarter of fiscal 1998 as compared to
39.5% for the second quarter of fiscal 1997.
The twenty-six weeks ended August 2, 1998 as compared to the twenty-six weeks
ended August 3, 1997
Net Sales
Net sales increased to $134.4 million for the first half of fiscal 1998
from $87.3 million for the first half of fiscal 1997, an increase of $47.1
million, or 54.0%. Of this $47.1 million increase, $18.5 million was
attributable to net sales generated by new stores opened in fiscal 1997 not yet
included in the comparable store base, $10.3 million was attributable to a 13.6%
increase in comparable store net sales in the first half of fiscal 1998, $7.9
million was attributable to net sales generated by 38 new stores opened in
fiscal 1998 not yet included in the comparable store base, $6.8 million was
attributable to the 15 Good Vibrations stores acquired in fiscal 1997 not yet
included in the comparable store base and $4.3 million was attributable to 20
stores that have been expanded or relocated to the larger format and not yet
included in the comparable store base. Partially offsetting this increase was a
$.7 million decrease in net sales attributable to the closing of four stores
during fiscal 1997. The increase in comparable store net sales was primarily
attributable to increases in comparable store net sales of juniors, shoes,
accessories merchandise and, to a lesser extent, increases in comparable store
net sales of young men's merchandise. Net sales of footwear and junior female
apparel represented approximately 29% of total net sales for the first half of
fiscal 1998 compared to 22% for the first half of fiscal 1997. Retail prices of
the Company's merchandise remained relatively unchanged in the first half of
fiscal 1998 compared to the first half of fiscal 1997 and had no significant
impact on the net sales increase for the first half of fiscal 1998.
Gross Margin
Gross margin, after buying, distribution and occupancy costs, increased
to $44.2 million for the first half of fiscal 1998 from $27.6 million for the
first half of fiscal 1997, an increase of $16.6 million, or 60.1%. As a
percentage of net sales, gross margin increased to 32.9% from 31.6%. Of this
1.3% increase, net merchandise margins increased 1.1% as a percentage of net
sales for the first half of fiscal 1998 compared to the first half of fiscal
1997 due to an increase in initial markup and, to a lesser extent, a decrease in
markdowns as a percentage of net sales and .7% was due to a decrease in
occupancy costs as a percentage of net sales which was related to higher
comparable store net sales and higher total net sales. These increases were
offset by higher distribution costs of .5% as a percentage of net sales for the
second quarter of fiscal 1998 compared to the second quarter of fiscal 1997,
which were due to startup costs and higher occupancy costs related to the new
distribution center facility.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $31.7 million
for the first half of fiscal 1998 from $21.3 million for the first half of
fiscal 1997, an increase of $10.4 million, or 48.8%. As a percentage of net
sales, these expenses decreased to 23.6% from 24.4%. Of this .8% net decrease as
a percentage of net sales, .4% was attributable to a decrease in store selling
expenses as a percentage of net sales, .3% was due to a decrease in general and
administrative expenses as a percentage of net sales and .1% was due to a
decrease in store expansion/relocation and closing expenses as a percentage of
net sales. These decreases as a percentage of net sales were primarily a result
of leveraging these expenses over higher total net sales.
Income Tax Expense
Income tax expense was $5.1 million in the first half of fiscal 1998
compared to $2.6 million for the first half of fiscal 1997. The effective income
tax rate was 39.5% for first half of fiscal 1998 compared to 39.6% for the first
half of fiscal 1997.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations from internally generated cash
flow, short-term borrowings and equity financing. The Company's primary capital
requirements have been for the construction of new stores, remodeling,
expansion, or relocation of selected stores and financing of inventories. During
the first half of fiscal 1998, the Company also used funds for the relocation of
and capital improvements to its new corporate offices and distribution facility.
Net cash provided by operating activities for the first half of fiscal
1998 was $2.6 million compared to $1.3 million for the first half of fiscal
1997. This $1.3 million increase was primarily attributable to an increase in
net income of $3.9 million and an increase in depreciation and amortization of
$1.6 million, offset by a decrease in accounts payable net of merchandise
inventories of $1.9 million and a decrease in accrued liabilities and taxes of
$2.3 million. Working capital at August 2, 1998 was $46.4 million compared to
$48.1 million at February 1, 1998, a decrease of $1.7 million. The decrease in
working capital was primarily due to capital expenditures for the construction
of 38 new stores and nine expansions/relocations opened in the first half of
fiscal 1998, offset by higher operating cash flows. Inventories at August 2,
1998 were $47.8 million compared to $32.1 million at February 1, 1998, an
increase of $15.7 million. This increase was primarily related to opening 38 new
stores and relocating nine stores with in excess of 50% larger average square
footage than their previous locations. The increase in accounts payable of $7.7
million at August 2, 1998 compared to February 1, 1998 was primarily
attributable to the increase in inventories at August 2, 1998.
Net cash used in investing activities was $5.1 million for the first
half of fiscal 1998 compared to $28.7 million for the first half of fiscal 1997.
Net cash invested in property and equipment was $17.8 million for the first half
of fiscal 1998 compared to $9.0 million for the first half of fiscal 1997. The
increase in capital expenditures was due to an increase in the number of new
stores opened and, to a lesser extent, an increase in the number of stores
expanded/relocated in the first half of fiscal 1998 compared to the first half
of fiscal 1997, as well as capital expenditures for the new corporate offices
and distribution facilities in the first half of fiscal 1998. There were $12.4
million in short-term investment maturities in the first half of fiscal 1998
compared to $19.7 in purchases of short term investments in the first half of
fiscal 1997.
Net cash provided by financing activities for the first half of fiscal
1998 was $.7 million compared to $30.4 million for the first half of fiscal
1997. In the second quarter of fiscal 1997, the Company received $30.1 million
for 1,960,875 shares of common stock issued pursuant to a registered public
stock offering. In the first half of fiscal 1998, the Company received proceeds
of $.7 million from the exercise of stock options compared to $.3 million in the
first half of fiscal 1997. At August 2, 1998, the Company had $5.7 million in
letters of credit outstanding.
The Company has a credit facility with a bank, which expires in August
1999. The credit facility provides for a $15.0 million line of credit, which can
be used for cash advances, commercial letters of credit and shipside bonds.
Interest on cash advances under the line of credit facility is payable monthly
at the bank's prime rate (8.50% at August 2, 1998). At August 2, 1998, the
Company had $5.7 million in letters of credit outstanding and no cash advances
outstanding. The loan agreement subjects the Company to various restrictive
covenants, including maintenance of certain financial ratios and prohibits
payment of cash dividends on common stock. At August 2, 1998, the Company was in
compliance with all of its covenants.
The Company plans to open approximately 35 stores and expand or relocate
approximately six existing stores during the remainder of fiscal 1998. The
Company estimates that capital expenditures during the remainder of fiscal 1998
will be approximately $14 million.
The Company reviews the operating performance of its stores on an
ongoing basis to determine which stores, if any, to close and records closing
costs as stores are closed or identified to be closed. The Company closed no
stores in the first half of fiscal 1998. The Company anticipates closing one
store in the third quarter of fiscal 1998 and two in the fourth quarter of
fiscal 1998.
Management believes that the Company's working capital, bank line of
credit and cash flows from operating activities will be sufficient to meet the
Company's operating and capital expenditure requirements through the end of
fiscal 1999.
10
<PAGE> 11
INFLATION
The Company does not believe that inflation has had a material effect on
the results of operations during the past three years. There can be no assurance
that the Company's business will not be affected by inflation in the future.
NEW ACCOUNTING PRONOUNCEMENTS
Comprehensive Income -- The Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), in
the first quarter 1998. SFAS 130 establishes standards for the reporting and
display of comprehensive income. Components of comprehensive income include net
earnings (loss), foreign currency translation adjustments and gains/losses
associated with investments available for sales. The adoption of SFAS 130
required no additional disclosure for the Company and did not have a material
effect on the Company's financial position or results of operations.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is seasonal by nature, with the Christmas and
back-to-school periods historically accounting for the largest percentage of
annual net sales. The Company's first quarter historically accounts for the
smallest percentage of annual net sales. In fiscal 1997 and fiscal 1996,
excluding net sales generated by new and relocated/expanded stores, the
Christmas and back-to-school periods together accounted for approximately 35%
and 36%, respectively, of the Company's annual net sales and a higher percentage
of the Company's operating income. In fiscal 1997, excluding net sales generated
by new and relocated/expanded stores, approximately 43% of the Company's annual
net sales occurred in the first half of the fiscal year and 57% in the second
half. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of factors, including the timing of store
openings; the amount of revenue contributed by new stores; the timing and level
of markdowns; the timing of store closings, expansions and relocations;
competitive factors; and general economic conditions.
YEAR 2000 COMPLIANCE
The Company has completed a Year 2000 review of its computer and
information systems in preparation for the year 2000.
The Company's material merchandise, financial and store computer
software systems are provided by third-party vendors and are used with minor
modifications by the Company. Many of these software vendors have provided, and
the Company believes that others will provide, updated software versions as part
of the normal periodic software upgrade process that address the year 2000
issue. Generally, this upgrade process is expected to be completed by the end of
fiscal 1998 and does not cost the Company additional amounts beyond normal
recurring annual software maintenance fees paid by it. While the Company will
incur internal staff costs as well as certain outside consulting and other
expenditures related to its year 2000 compliance efforts, the total incremental
expenses incurred are not expected to have a material impact on the Company's
financial condition or results of operations.
The Company's most significant software system includes purchase order
management, open order reporting, open-to-buy, receiving, distribution, basic
stock replenishment, inter-store transfers, inventory and price management,
general ledger and accounts payable functions. This system has been upgraded and
has been certified by the software vendor as year 2000 compliant. In addition,
the Company uses a recently installed materials handling system at its new
distribution center and the vendor of this system has advised the Company that
the system is year 2000 compliant.
With regard to vendors, the Company is currently contacting its
significant merchandise vendors regarding their state of year 2000 readiness.
None of such vendors accounted for more than 9% of the Company's net sales for
fiscal 1997. The Company also uses numerous third-party vendors to provide other
goods and services, as well as office, distribution center and other supplies to
the Company and its stores. There is no assurance that the systems of the
vendors from whom the Company receives merchandise, goods and services will be
timely converted or that any failure on their part to convert would not have an
adverse impact on the Company if a number of such vendors fail to address the
year 2000 issue on a timely basis.
11
<PAGE> 12
SAFE HARBOR STATEMENT
The preceding "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the Company intends that such forward-looking statements be
subject to the safe harbors created thereby. These forward-looking statements
include the plans and objectives of management for future operations, including
plans and objectives relating to the future economic performance of the Company.
The forward-looking statements and associated risks set forth herein may include
or relate to: (i) the planned opening of approximately 35 stores and expansion
or relocation of six stores during the remainder of fiscal 1998; (ii) the
anticipated closing of three stores in the second half of fiscal 1998; (iii) the
$14.0 million estimate of capital expenditures for the remainder of fiscal 1998,
(iv) sufficiency of the Company's working capital, bank line of credit and cash
flows from operating activities for the Company's future operating and capital
requirements and (v) the Company's plans to complete its Year 2000 conversion on
a timely basis and the ability of the Company's vendors to resolve their Year
2000 issues.
The forward-looking statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, the following: (i)
the ability of the Company to locate and obtain favorable store sites, negotiate
acceptable lease terms, and hire and train employees; (ii) management's ability
to manage the Company's planned expansion; (iii) the availability of merchandise
from the Company's vendors and private brand sources; (iv) the effect of
economic conditions; (v) the effect of competitive pressures from other
retailers; and (vi) any unanticipated problems or delays in the completion by
the Company of Year 2000 conversions or the failure of vendors to do so. Results
actually achieved thus may differ materially from expected results in these
statements.
PART II-OTHER INFORMATION
Item 1 - Legal Proceedings - Not Applicable
Item 2 - Changes in Securities and Use of Proceeds - Not Applicable
Item 3 - Defaults Upon Senior Securities - Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
a) The 1998 Annual Meeting of the Shareholders of the Company was held on May
21, 1998 and adjourned and reconvened on June 1, 1998 and June 18, 1998 (the
"1998 Annual Meeting").
b) At the 1998 Annual Meeting , Greg H. Weaver, Pearson C. Cummin III, Peter L.
Harris, Julius Jensen III and Sally Frame Kasaks were elected as Directors of
the Company until the Company's next annual meeting of shareholders and until
their successors are elected and qualified.
c) In addition to the election of directors, the shareholders voted on and
approved the following matters at the 1998 Annual Meeting convened on May
21,1998: the Pacific Sunwear of California, Inc. Incentive Compensation Plan and
the Pacific Sunwear of California, Inc. Employee Stock Purchase Plan. The 1998
Annual Meeting was adjourned and reconvened on June 1, 1998 and June 18, 1998 to
vote on an amendment to the Company's 1992 Stock Award Plan increasing the
number of shares authorized under such plan by 400,000 shares. The shareholders
voted on and approved this amendment to the Company's 1992 Stock Award Plan at
the Annual Meeting reconvened on June 18, 1998.
Voting at the 1998 Annual Meeting for the election of directors was as set forth
below. Each of the nominees identified below was elected a director.
12
<PAGE> 13
<TABLE>
<CAPTION>
NAME VOTES CAST FOR VOTES WITHHELD
- - ---- -------------- --------------
<S> <C> <C>
Greg H. Weaver 10,918,311 153,626
Pearson C. Cummin III 10,918,312 153,625
Peter L. Harris 10,918,312 153,625
Julius Jensen III 10,918,311 153,626
Sally Frame Kasaks 10,918,312 153,625
</TABLE>
With respect to the approval of the Pacific Sunwear of California, Inc. Employee
Stock Purchase Plan, 10,910,235 votes were cast for approval, 159,674 votes were
cast against, 2,028 votes abstained and there were no broker non- votes.
With respect to the approval of the Pacific Sunwear of California, Inc.
Incentive Compensation Plan, 10,988,715 votes were cast for approval, 80,001
votes were cast against, 3,221 votes abstained and there were no broker non-
votes.
With respect to the approval of the amendment to the Company's 1992 Stock Award
Plan, 6,620,790 votes were cast for approval, 6,182,693 votes were cast against,
4,573 votes abstained and there were no broker non-votes.
Item 5 - Other Information - Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(10) The Pacific Sunwear of California, Inc. Amended and
Restated 1992 Stock Award Plan
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No reports were filed on form 8-K during the quarter for which
this report is filed.
13
<PAGE> 14
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.
Pacific Sunwear of California, Inc.
(Registrant)
Date: September 2, 1998 /s/ GREG H. WEAVER
----------------------------------------
Greg H. Weaver
Chairman of the Board
and Chief Executive Officer
Date: September 2, 1998 /s/ CARL W. WOMACK
----------------------------------------
Carl W. Womack
Senior Vice President, Chief
Financial Officer and Secretary
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
10 The Pacific Sunwear of California, Inc. Amended and
Restated 1992 Stock Award Plan
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10
PACIFIC SUNWEAR OF CALIFORNIA, INC.
AMENDED AND RESTATED 1992 STOCK AWARD PLAN
(Composite Plan Document Reflecting May 1998 Amendment
to the Plan and June 8, 1998 Stock Split)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
I. THE PLAN.................................................................... 1
1.1 Purpose.............................................................. 1
1.2 Administration....................................................... 1
1.3 Participation........................................................ 2
1.4 Stock Subject to the Plan............................................ 2
1.5 Grant of Awards...................................................... 3
1.6 Exercise of Awards................................................... 3
1.7 No Transferability; Limited Exception to
Transfer Restrictions................................................ 3
II. OPTIONS..................................................................... 5
2.1 Grants............................................................... 5
2.2 Option Price......................................................... 5
2.3 Option Period........................................................ 6
2.4 Exercise of Options.................................................. 6
2.5 Limitations on Grant of Incentive Stock
Options.............................................................. 6
2.6 Non-Employee Director Awards......................................... 7
III. STOCK APPRECIATION RIGHTS................................................... 9
3.1 Grants............................................................... 9
3.2 Exercise of Stock Appreciation Rights................................ 9
3.3 Payment.............................................................. 10
IV. RESTRICTED STOCK AWARDS..................................................... 11
4.1 Grants............................................................... 11
4.2 Restrictions......................................................... 11
V. PERFORMANCE SHARE AWARDS.................................................... 11
5.1 Grants............................................................... 11
5.2 Special Performance-Based Share Awards............................... 11
VI. OTHER PROVISIONS............................................................ 13
6.1 Rights of Eligible Employees, Participants
and Beneficiaries.................................................... 13
6.2 Adjustments Upon Changes in Capitalization........................... 14
6.3 Termination of Employment............................................ 15
6.4 Acceleration of Awards............................................... 17
6.5 Government Regulations............................................... 17
6.6 Tax Withholding...................................................... 18
6.7 Amendment, Termination and Suspension................................ 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.8 Privileges of Stock Ownership;
Nondistributive Intent............................................... 19
6.9 Effective Date of the Plan........................................... 20
6.10 Term of the Plan..................................................... 20
6.11 Governing Law........................................................ 20
6.12 Plan Construction.................................................... 20
VII. DEFINITIONS................................................................. 21
7.1 Definitions.......................................................... 21
</TABLE>
ii
<PAGE> 4
PACIFIC SUNWEAR OF CALIFORNIA, INC.
AMENDED AND RESTATED 1992 STOCK AWARD PLAN
(Composite Plan Document Reflecting May 1998 Amendment
to the Plan and June 8, 1998 Stock Split)
I. THE PLAN.
1.1 Purpose.
The purpose of this Plan is to promote the success of the Company
by providing an additional means to attract, motivate and retain key personnel
through the grant of Options and other Awards(1) that provide added long term
incentives for high levels of performance and for significant efforts to improve
the financial performance of the Company.
1.2 Administration.
(a) This Plan shall be administered by the Committee. Action of
the Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the unanimous written consent of its members. In
the event action by the Committee is taken by written consent, the action shall
be deemed to have been taken at the time specified in the consent or, if none is
specified, at the time of the last signature. The Committee may delegate
administrative functions to individuals who are officers or employees of the
Company.
(b) Subject to the express provisions of this Plan, the Committee
shall have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination
- - --------
(1) For definitions of these and other capitalized terms, see Section 7.1,
Definitions.
1
<PAGE> 5
of their employment or consulting services for purposes of this Plan and to make
all other determinations necessary or advisable for the administration of this
Plan. The determination of the Committee on any of the foregoing matters shall
be conclusive.
(c) Any action taken by, or inaction of, the Company, any
Subsidiary, the Board or the Committee relating to this Plan shall be within the
absolute discretion of that entity or body. No member of the Board or Committee,
or officer of the Company or any Subsidiary, shall be liable for any such action
or inaction.
(d) Subject to the requirements of Section 7.1(h), the Board, at
any time it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of its
members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.
(e) In making any determination or in taking or not taking any
action under this Plan, the Committee or the Board, as the case may be, may
obtain and may rely upon the advice of experts, including professional advisors
to the Company. No director, officer or agent of the Company shall be liable for
any such action or determination taken or made or omitted in good faith.
(f) The Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.3 Participation.
Awards may be granted only to Eligible Employees. An Eligible
Employee who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee shall so determine. Except as provided in
Section 2.6 below, members of the Board who are not officers or employees of the
Company shall not be eligible to receive Awards.
2
<PAGE> 6
1.4 Stock Subject to the Plan.
The stock to be offered under this Plan shall be shares of the
Company's authorized but unissued Common Stock. The aggregate amount of Common
Stock that may be issued or transferred pursuant to Awards granted under this
Plan shall not exceed 3,448,576 shares, subject to adjustment as set forth in
Section 6.2. The maximum number of shares of Common Stock that may be delivered
pursuant to options qualified as Incentive Stock Options granted under this Plan
is 2,250,000 shares, subject to adjustment as set forth in Section 6.2. If any
Option and any related Stock Appreciation Right shall lapse or terminate without
having been exercised in full, or any Common Stock subject to a Restricted Stock
Award shall not vest or any Common Stock subject to a Performance Share Award or
a Performance-Based Award shall not have been transferred, the unpurchased,
unvested or nontransferred shares subject thereto shall again be available for
purposes of this Plan.
1.5 Grant of Awards.
Subject to the express provisions of this Plan, the Committee
shall determine from the class of Eligible Employees those individuals to whom
Awards under this Plan shall be granted, the terms of Awards (which need not be
identical) and the number of shares of Common Stock subject to each Award;
provided, however, that the aggregate number of shares of Common Stock subject
to Awards that may be granted to any employee in any twelve month period may not
exceed 923,062 subject to adjustment as described in Section 6.2 of the Plan.
Each Award shall be subject to the terms and conditions set forth in this Plan
and such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of this Plan. The grant of an Award
is made on the Award Date.
3
<PAGE> 7
1.6 Exercise of Awards.
An Option or Stock Appreciation Right shall be deemed to be
exercised when the Secretary of the Company receives written notice of such
exercise from the Participant, together with payment of the purchase price made
in accordance with Section 2.2(a), except to the extent payment may be permitted
to be made following delivery of written notice of exercise in accordance with
Section 2.2(b). Notwithstanding any other provision of this Plan, the Committee
may impose, by rule and in Award Agreements, such conditions upon the exercise
of Awards (including, without limitation, conditions limiting the time of
exercise to specified periods) as may be required to satisfy applicable
regulatory requirements.
1.7 No Transferability; Limited Exception to Transfer
Restrictions.
(a) Limit On Exercise and Transfer. Unless otherwise expressly
provided in (or pursuant to) this Section 1.7, by applicable law and by the
Award Agreement, as the same may be amended, (i) all Awards are non-transferable
and shall not be subject in any manner to sale, transfer, anticipation,
alienation, assignment, pledge, encumbrance or charge; Awards shall be exercised
only by the Participant; and (ii) amounts payable or shares issuable pursuant to
an Award shall be delivered only to (or for the account of) the Participant.
(b) Exceptions. The Committee may permit Awards to be exercised
by and paid to certain persons or entities related to the Participant, including
but not limited to members of the Participant's immediate family, charitable
institutions, or trusts or other entities whose beneficiaries or beneficial
owners are members of the Participant's immediate family and/or charitable
institutions, pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer shall be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes on a gratuitous or donative basis and
without consideration (other than nominal
4
<PAGE> 8
consideration). Notwithstanding the foregoing, Incentive Stock Options and
Restricted Stock Awards shall be subject to any and all additional transfer
restrictions under the Code.
(c) Further Exceptions to Limits On Transfer. The exercise and
transfer restrictions in Section 1.7(a) shall not apply to:
(i) transfers to the Company,
(ii) the designation of a beneficiary to receive benefits in
the event of the Participant's death or, if the Participant has died,
transfers to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the
laws of descent and distribution,
(iii) transfers pursuant to a QDRO order if approved or
ratified by the Committee,
(iv) if the Participant has suffered a disability,
permitted transfers or exercises on behalf of the Participant by his or
her legal representative, or
(v) the authorization by the Committee of "cashless
exercise" procedures with third parties who provide financing for the
purpose of (or who otherwise facilitate) the exercise of Awards
consistent with applicable laws and the express authorization of the
Committee.
Notwithstanding the foregoing, Incentive Stock Options and Restricted
Stock Awards shall be subject to any and all additional transfer
restrictions under the Code.
5
<PAGE> 9
II. OPTIONS.
2.1 Grants.
One or more Options may be granted to any Eligible Employee. Each
Option so granted shall be designated by the Committee as either a Nonqualified
Stock Option or an Incentive Stock Option.
2.2 Option Price.
(a) The purchase price per share of Common Stock covered by each
Option shall be determined by the Committee, but in the case of Incentive Stock
Options shall not be less than 100% (110% in the case of a Participant who owns
more than 10% of the total combined voting power of all classes of stock of the
Company) of the Fair Market Value of the Common Stock on the date the Incentive
Stock Option is granted. The purchase price of any shares purchased shall be
paid in full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by check payable to the order of the Company,
(ii) if authorized by the Committee or specified in the Option being exercised,
by a promissory note made by the Participant in favor of the Company, upon the
terms and conditions determined by the Committee, and secured by the Common
Stock issuable upon exercise in compliance with applicable law (including,
without limitation, state corporate law and federal margin requirements) or
(iii) if authorized by the Committee or specified in the Option being exercised,
by shares of Common Stock of the Company already owned by the Participant;
provided, however, that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
(b) In addition to the payment methods described in subsection
(a), the Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a bank or broker to promptly deliver to the
6
<PAGE> 10
Company the amount of sale or loan proceeds necessary to pay the exercise price
and, unless otherwise allowed by the Committee, any applicable tax withholding
under Section 6.6. The Company shall not be obligated to deliver certificates
for the shares unless and until it receives full payment of the exercise price
therefor.
2.3 Option Period.
Each Option and all rights or obligations thereunder shall expire
on such date as shall be determined by the Committee, but not later than 10
years after the Award Date, and shall be subject to earlier termination as
hereinafter provided.
2.4 Exercise of Options.
Except as otherwise provided in Sections 6.3 and 6.4, an Option
may become exercisable, in whole or in part, on the date or dates specified in
the Award Agreement and thereafter shall remain exercisable until the expiration
or earlier termination of the Option. No Option shall be exercisable for at
least six months after the Award Date, except in the case of death or Total
Disability. The Committee may, at any time after grant of the Option and from
time to time, increase the number of shares exercisable at any time so long as
the total number of shares subject to the Option is not increased. No Option
shall be exercisable except in respect of whole shares, and fractional share
interests shall be disregarded. Not less than 10 shares of Common Stock may be
purchased at one time unless the number purchased is the total number at the
time available for purchase under the terms of the Option.
2.5 Limitations on Grant of Incentive Stock Options.
(a) To the extent that the aggregate fair market value of stock
with respect to which incentive stock options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as nonqualified
7
<PAGE> 11
stock options. For purposes of determining whether the $100,000 limit is
exceeded, the fair market value of stock subject to options shall be determined
as of the date the options are awarded. In reducing the number of options
treated as incentive stock options to meet the $100,000 limit, the most recently
granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Company may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
(b) There shall be imposed in any Award Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in Section 422
of the Code.
(c) No Incentive Stock Option may be granted to any person who,
at the time the Incentive Stock Option is granted, owns shares of outstanding
Common Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and such
Option by its terms is not exercisable after the expiration of five years from
the date such Option is granted.
2.6 Non-Employee Director Awards.
(a) Participation. Awards under this Section 2.6 shall be made
only to Non-Employee Directors.
(b) Option Grants. As and when any person who is not then an
officer or employee of the Company shall become a director of the Company, there
shall be granted automatically (without any action by the Board or the
Committee) a Nonqualified Stock Option (the grant or award date of which shall
be the date such person takes office) to such person to purchase 13,500 shares
of Common Stock.
8
<PAGE> 12
(c) Subsequent Annual Options. In each calendar year during the
term of the Plan, commencing with the 1997 annual meeting, there shall be
granted automatically (without any action by the Committee or the Board) a
Nonqualified Stock Option to purchase 13,500 shares of Common Stock to each
Non-Employee Director who is re-elected as a director of the Company or who
continues as a director (the grant or award date of which shall be the date of
the annual meeting of shareholders in each such year).
(d) Option Price. The purchase price per share of the Common
Stock covered by each Option granted pursuant to this Section 2.6 shall be one
hundred percent of the Fair Market Value of the Common Stock on the Award Date.
The purchase price of any shares purchased shall be paid in full at the time of
each purchase in cash or by check or in shares of Common Stock valued at their
Fair Market Value on the business day next preceding the date of exercise of the
Option, or partly in such shares and partly in cash.
(e) Option Period. Each Option granted under this Section 2.6 and
all rights or obligations thereunder shall expire on the tenth anniversary of
the Award Date and shall be subject to earlier termination as provided below.
(f) Exercise of Options. Except as otherwise provided in
Sections 2.6(g) and 2.6(h), each Option granted under this Section 2.6 shall
become exercisable (i) as to one-quarter of the covered shares on the earlier of
(A) the first anniversary of the Award Date, or (B) the day immediately
preceding the first regularly scheduled Annual Meeting of shareholders first
occurring after the Award Date; and (ii) as to an additional 1/36th of the
covered shares each month thereafter (using the Award Date as the date of
monthly vesting). This provision shall be effective with respect to all
outstanding Options granted pursuant to this Section 2.6 and all future Options
granted pursuant to this Section 2.6 and the vesting of such Options shall be
determined in accordance herewith.
(g) Termination of Directorship. If a Non-Employee Director
Participant's services as a member of the Board terminate, each Option granted
pursuant to Section
9
<PAGE> 13
2.6(b) or (c) hereof held by such Non-Employee Director Participant which is not
then exercisable shall terminate; provided, however, that if a Non-Employee
Director Participant's services as a member of the Board terminate by reason of
death or Total Disability, the Committee may, in its discretion, consider to be
exercisable a greater portion of any such Option than would otherwise be
exercisable, upon such terms as the Committee shall determine. If a Non-Employee
Director Participant's services as a member of the Board terminate by reason of
death or Total Disability, any portion of any such Option which is then
exercisable may be exercised for one year after the date of such termination or
the balance of such Option's term, whichever period is shorter. If a
Non-Employee Director Participant's services as a member of the Board terminate
for any other reason, any portion of any such Option which is then exercisable
may be exercised for three months after the date of such termination or the
balance of such Option's term, whichever period is shorter.
(h) Acceleration Upon an Event. Immediately prior to the
occurrence of an Event, in order to protect the holders of Options granted under
this Section 2.6, each Option granted under Section 2.6(b) or (c) hereof shall
become exercisable in full.
(i) Adjustments. The specific numbers of shares stated in the
foregoing provisions of Section 2.6(b) and (c) hereof and the consideration
payable for such shares shall be subject to adjustment in certain events as
provided in Section 6.2 of this Plan.
(j) Effective Date of Section 2.6. This Section 2.6 shall be
effective as of the date of Board approval (March 23, 1994), subject to
shareholder approval within twelve months after such date.
10
<PAGE> 14
III. STOCK APPRECIATION RIGHTS.
3.1 Grants.
In its discretion, the Committee may grant Stock Appreciation
Rights concurrently with the grant of Options. A Stock Appreciation Right shall
extend to all or a portion of the shares covered by the related Option. A Stock
Appreciation Right shall entitle the Participant who holds the related Option,
upon exercise of the Stock Appreciation Right and surrender of the related
Option, or portion thereof, to the extent the Stock Appreciation Right and
related Option each were previously unexercised, to receive payment of an amount
determined pursuant to Section 3.3. Any Stock Appreciation Right granted in
connection with an Incentive Stock Option shall contain such terms as may be
required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder. In its discretion, the Committee may also
grant Stock Appreciation Rights independently of any Option subject to such
conditions as the Committee may in its absolute discretion provide.
3.2 Exercise of Stock Appreciation Rights.
(a) A Stock Appreciation Right granted concurrently with an
Option shall be exercisable only at such time or times, and to the extent, that
the related Option shall be exercisable and only when the Fair Market Value of
the stock subject to the related Option exceeds the exercise price of the
related Option.
(b) In the event that a Stock Appreciation Right granted
concurrently with an Option is exercised, the number of shares of Common Stock
subject to the related Option shall be charged against the maximum amount of
Common Stock that may be issued or transferred pursuant to Awards under this
Plan. The number of shares subject to the Stock Appreciation Right and the
related Option of the Participant shall also be reduced by such number of
shares.
(c) If a Stock Appreciation Right granted concurrently with an
Option extends to less than all the
11
<PAGE> 15
shares covered by the related Option and if a portion of the related Option is
thereafter exercised, the number of shares subject to the unexercised Stock
Appreciation Right shall be reduced only if and to the extent that the remaining
number of shares covered by such related Option is less than the remaining
number of shares subject to such Stock Appreciation Right.
(d) A Stock Appreciation Right granted independently of any
Option shall be exercisable pursuant to the terms of the Award Agreement but in
no event earlier than six months after the Award Date, except in the case of
death or Total Disability.
3.3 Payment.
(a) Upon exercise of a Stock Appreciation Right and surrender of
an exercisable portion of the related Option, the Participant shall be entitled
to receive payment of an amount determined by multiplying
(i) the difference obtained by subtracting the exercise
price per share of Common Stock under the related Option from the Fair
Market Value of a share of Common Stock on the date of exercise of the
Stock Appreciation Right, by
(ii) the number of shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) The Committee, in its sole discretion, may settle the amount
determined under paragraph (a) above solely in cash, solely in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right), or partly in such shares and partly in cash, provided that
the Committee shall have determined that such exercise and payment are
consistent with applicable law. In any event, cash shall be paid in lieu of
fractional shares. Absent a determination to the contrary, all Stock
Appreciation Rights shall be settled in cash as soon as practicable after
exercise. The exercise price for the Stock Appreciation Right shall be the
exercise price of
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the related Option. Notwithstanding the foregoing, the Committee may, in the
Award Agreement, determine the maximum amount of cash or stock or a combination
thereof which may be delivered upon exercise of a Stock Appreciation Right.
(c) Upon exercise of a Stock Appreciation Right granted
independently of any Option, the Participant shall be entitled to receive
payment of an amount based on a percentage, specified in the Award Agreement, of
the difference obtained by subtracting the Fair Market Value per share of Common
Stock on the Award Date from the Fair Market Value per share of Common Stock on
the date of exercise of the Stock Appreciation Right. Such amount shall be paid
as described in paragraph (b) above.
IV. RESTRICTED STOCK AWARDS.
4.1 Grants.
Subject to Section 1.4, the Committee may, in its discretion,
grant one or more Restricted Stock Awards to any Eligible Employee. Each
Restricted Stock Award agreement shall specify the number of shares of Common
Stock to be issued to the Participant, the date of such issuance, the price, if
any, to be paid for such shares by the Participant and the restrictions imposed
on such shares, which restrictions shall not terminate earlier than six months
after the Award Date.
4.2 Restrictions.
(a) Shares of Common Stock included in Restricted Stock Awards
may not be sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until such shares have vested.
(b) Participants receiving Restricted Stock shall be entitled to
dividend and voting rights for the shares issued even though they are not
vested, provided that such rights shall terminate immediately as to any
forfeited Restricted Stock.
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(c) In the event that the Participant shall have paid cash in
connection with the Restricted Stock Award, the Award Agreement shall specify
whether and to what extent such cash shall be returned upon a forfeiture (with
or without an earnings factor).
V. PERFORMANCE SHARE AWARDS.
5.1 Grants.
The Committee may, in its discretion, grant Performance Share
Awards to Eligible Employees based upon such factors as the Committee shall
determine. A Performance Share Award agreement shall specify the number of
shares of Common Stock subject to the Performance Share Award, the price, if
any, to be paid for such shares by the Participant and the conditions upon which
issuance to the Participant shall be based, which issuance shall not be earlier
than six months after the Award Date.
5.2 Special Performance-Based Share Awards.
Without limiting the generality of the foregoing,
and in addition to options granted under other provisions of this Plan, other
performance-based awards within the meaning of Section 162(m) of the Code
("Performance-Based Awards"), whether in the form of restricted stock,
performance stock, phantom stock, or other rights, the vesting or payment of
which depends on the degree of achievement of the Performance Goals relative to
preestablished targeted levels for the Company and/or one or more of its
Subsidiaries or divisions, may be granted under this Plan. An award that is
intended to satisfy the requirements of this Section 5.2 shall be designated as
a Performance-Based Award at the time of grant.
(a) Eligible Class. The eligible class of persons for
Performance-Based Awards under this Section shall be the executive officers of
the Company.
(b) Performance Goal Alternatives. The specific performance goals
for Performance-Based Awards granted under
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this Section shall be, on an absolute or relative basis, one or more of the
Performance Goals, as selected by the Committee in its sole discretion. The
Committee shall establish in the applicable Award Agreement the specific
performance target(s) relative to the Performance Goal(s) which must be attained
before the compensation under the Performance-Based Award becomes payable. The
specific targets shall be determined within the time period permitted under
Section 162(m) of the Code (and any regulations issued thereunder) so that such
targets are considered to be preestablished and so that the attainment of such
targets is substantially uncertain at the time of their establishment. The
applicable performance measurement period may not be less than one nor more than
10 years.
(c) Maximum Performance-Based Award. Notwithstanding any other
provision of the Plan to the contrary, the maximum number of shares which may be
delivered pursuant to awards that are granted as Performance-Based Awards under
this Section 5.2 to any Participant in any calendar year shall not exceed
615,375 shares, either individually or in the aggregate, subject to adjustment
as provided in Section 6.2. Awards that are cancelled during the year shall be
counted against this limit to the extent required by Section 162(m) of the Code.
(d) Committee Certification. Before any Performance-Based Award
under this Section 5.2 is paid, the Committee must certify in writing that the
Performance Goal(s) and any other material terms of the Performance- Based Award
were satisfied; provided, however, that a Performance-Based Award may be paid
without regard to the satisfaction of the applicable Performance Goal in the
event of a change in control event in accordance with Section 162(m) of the Code
and Section 6.2.
(e) Terms and Conditions of Awards. The Committee will have the
discretion to determine the restrictions or other limitations of the individual
awards granted under this Section 5.2 including the authority to reduce awards,
payouts or vesting or to pay no awards, in its sole discretion, if the Committee
preserves such
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authority at the time of grant by language to this effect in its authorizing
resolutions or otherwise.
(f) Adjustments for Changes in Capitalization and other Material
Changes. In the event of a change in corporate capitalization, such as a stock
split or stock dividend, or a corporate transaction, such as a merger,
consolidation, spinoff, reorganization or similar event, or any partial or
complete liquidation of the Company, or any similar event consistent with
regulations issued under Section 162(m) of the Code including, without
limitation, any material change in accounting policies or practices affecting
the Company and/or the Performance Goals or targets, then the Committee may make
adjustments to the Performance Goals and targets relating to outstanding
Performance-Based Awards to the extent such adjustments are made to reflect the
occurrence of such an event; provided, however, that adjustments described in
this subsection may be made only to the extent that the occurrence of an event
described herein was unforeseen at the time the targets for a Performance-Based
Award were established by the Committee.
VI. OTHER PROVISIONS.
6.1 Rights of Eligible Employees, Participants and Beneficiaries.
(a) Status as an Eligible Employee shall not be construed as a
commitment that any Award will be made under this Plan to any Eligible Employee
generally.
(b) Nothing contained in this Plan (or in Award Agreements or in
any other documents related to this Plan or to Awards) shall confer upon any
Eligible Employee or Participant any right to continue in the service or employ
of the Company or constitute any contract or agreement of service or employment,
or interfere in any way with the right of the Company to reduce such person's
compensation or other benefits or to terminate the services or employment of
such Eligible Employee or Participant, with or without cause, but nothing
contained in this Plan or any document
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related thereto shall affect any other contractual right of any Eligible
Employee or Participant.
(c) No Participant, Beneficiary or other person
shall have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock) of the Company by reason of any Award granted
hereunder. Neither the provisions of this Plan (or of any documents related
hereto), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive an Award hereunder, such
right shall be no greater than the right of any unsecured general creditor of
the Company.
6.2 Adjustments Upon Changes in Capitalization.
(a) If the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the Common
Stock, through a reorganization or merger to which the Company is a party, or
through a combination, consolidation, recapitalization, reclassification, stock
split, stock dividend, reverse stock split, stock consolidation or other capital
change or adjustment, an appropriate adjustment shall be made in the number and
kind of shares or other consideration that is subject to or may be delivered
under this Plan and pursuant to outstanding Awards. A corresponding adjustment
to the consideration payable with respect to Awards granted prior to any such
change and to the price, if any, paid in connection with Restricted Stock Awards
or Performance Share Awards or Performance-Based Awards shall also be made. Any
such adjustment, however, shall be made without change in the total payment, if
any, applicable to the portion of the Award not exercised but with a
corresponding adjustment in the price for each share. Corresponding adjustments
shall be made with respect to Stock Appreciation Rights based upon
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the adjustments made to the Options to which they are related or, in the case of
Stock Appreciation Rights granted independently of any Option, based upon the
adjustments made to Common Stock.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
the Plan shall terminate. Notwithstanding the foregoing, the Committee may
provide in writing in connection with, or in contemplation of, any such
transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the Awards
theretofore granted or the substitution by such corporation for such Awards of
awards covering the stock of the successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (ii) for the continuance of this Plan by such successor
corporation in which event this Plan and the Awards shall continue in the manner
and under the terms so provided; or (iii) for the payment in cash or shares of
Common Stock in lieu of and in complete satisfaction of such Awards.
(c) In adjusting Awards to reflect the changes described in this
Section 6.2, or in determining that no such adjustment is necessary, the
Committee may rely upon the advice of independent counsel and accountants of the
Company, and the determination of the Committee shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
6.3 Termination of Employment.
(a) If the Participant's service to or employment by the Company
terminates for any reason other than Retirement, death or Total Disability, the
Participant shall have, subject to earlier termination pursuant to or as
contemplated by Section 2.3, three months or such shorter period as is provided
in the Award Agreements from the date of termination of services or employment
to exercise any Option to the extent it shall have become exercisable on the
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date of termination of employment, and any Option not exercisable on that date
shall terminate. Notwithstanding the preceding sentence, in the event the
Participant is discharged for cause as determined by the Committee in its sole
discretion, all Options shall lapse immediately upon such termination of
services or employment.
(b) If the Participant's service to or employment by the Company
terminates as a result of Retirement or Total Disability, the Participant or
Participant's Personal Representative, as the case may be, shall have, subject
to earlier termination pursuant to or as contemplated by Section 2.3, 12 months
(or, in the case of Incentive Stock Options where the Participant terminates as
a result of Retirement, three months) or such shorter period as is provided in
the Award Agreements from the date of termination of services or employment to
exercise any Option to the extent it shall have become exercisable by the date
of termination of services or employment and any Option not exercisable on that
date shall terminate.
(c) If the Participant's service to or employment by the Company
terminates as a result of death while the Participant is rendering services to
the Company or is employed by the Company or during the 12 month period (or, in
the case of Incentive Stock Options where the Participant has terminated as a
result of Retirement, three month period) referred to in subsection (b) above,
the Participant's Option shall be exercisable by the Participant's Beneficiary,
subject to earlier termination pursuant to or as contemplated by Section 2.3,
during the 12 month period or such shorter period as is provided in the Award
Agreements following the Participant's death, as to all or any part of the
shares of Common Stock covered thereby to the extent exercisable on the date of
death (or earlier termination).
(d) Each Stock Appreciation Right granted concurrently with an
Option shall have the same termination provisions and exercisability periods as
the Option to which it relates. The termination provisions and exercisability
periods of any Stock Appreciation Right granted independently of an Option shall
be established in
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accordance with Section 3.2(d). The exercisability period of a Stock
Appreciation Right shall not exceed that provided in Section 2.3 or in the
related Award Agreement and the Stock Appreciation Right shall expire at the end
of such exercisability period.
(e) In the event of termination of services to or employment with
the Company for any reason, (i) shares of Common Stock subject to the
Participant's Restricted Stock Award shall be forfeited in accordance with the
provisions of the related Award Agreement to the extent such shares have not
become vested on that date; and (ii) shares of Common Stock subject to the
Participant's Performance Share Award or Performance-Based Award shall be
forfeited in accordance with the provisions of the related Award Agreement to
the extent such shares have not been issued or become issuable on that date.
(f) In the event of termination of services to or employment with
the Company for any reason, other than discharge for cause, the Committee may,
in its discretion, increase the portion of the Participant's Award available to
the Participant, or Participant's Beneficiary or Personal Representative, as the
case may be, upon such terms as the Committee shall determine.
(g) If an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 6.3 to be a termination of services or
employment of each consultant or employee of that entity who does not continue
as a consultant or as an employee of another entity within the Company.
(h) Upon forfeiture of a Restricted Stock Award
pursuant to this Section 6.3, the Participant, or his or her Beneficiary or
Personal Representative, as the case may be, shall transfer to the Company the
portion of the Restricted Stock Award not vested at the date of termination of
services or employment, without payment of any consideration by the Company for
such transfer unless the Participant paid a purchase price in which case
repayment, if any, of that price shall be governed by the Award Agreement.
Notwithstanding any such transfer to the Company, or
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failure, refusal or neglect to transfer, by the Participant, or his or her
Beneficiary or Personal Representative, as the case may be, such nonvested
portion of any Restricted Stock Award shall be deemed transferred automatically
to the Company on the date of termination of services or employment. The
Participant's original acceptance of the Restricted Stock Award shall constitute
his or her appointment of the Company and each of its authorized representatives
as attorney(s)-in-fact to effect such transfer and to execute such documents as
the Company or such representatives deem necessary or advisable in connection
with such transfer.
6.4 Acceleration of Awards.
Unless prior to an Event the Board determines that, upon its
occurrence, there shall be no acceleration of Awards or determines those Awards
which shall be accelerated and the extent to which they shall be accelerated,
upon the occurrence of an Event (i) each Option and each related Stock
Appreciation Right shall become immediately exercisable to the full extent
theretofore not exercisable, (ii) Restricted Stock shall immediately vest free
of restrictions and (iii) the number of shares covered by each Performance Share
Award or Performance-Based Award shall be issued to the Participant; subject,
however, to compliance with applicable regulatory requirements, including
without limitation and Section 422 of the Code. For purposes of this section
only, the Board shall mean the Board as constituted immediately prior to the
Event.
6.5 Government Regulations.
This Plan, the granting of Awards under this Plan and the
issuance or transfer of shares of Common Stock (and/or the payment of money)
pursuant thereto are subject to all applicable federal and state laws, rules and
regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Awards may be granted under
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this Plan, and no shares shall be issued by the Company, nor cash payments made
by the Company, pursuant to or in connection with any such Award, unless and
until, in each such case, all legal requirements applicable to the issuance or
payment have, in the opinion of counsel to the Company, been complied with. In
connection with any stock issuance or transfer, the person acquiring the shares
shall, if requested by the Company, give assurances satisfactory to counsel to
the Company in respect of such matters as the Company may deem desirable to
assure compliance with all applicable legal requirements.
6.6 Tax Withholding.
(a) Upon the disposition by a Participant or other person of
shares of Common Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to satisfaction of the holding period requirements of Section 422
of the Code, or upon the exercise of a Nonqualified Stock Option, the exercise
of a Stock Appreciation Right, the vesting of a Restricted Stock Award or the
payment of a Performance Share Award or Performance-Based Award, the Company
shall have the right to (i) require such Participant or such other person to pay
by cash or check payable to the Company, the amount of any taxes which the
Company may be required to withhold with respect to such transactions or (ii)
deduct from amounts paid in cash the amount of any taxes which the Company may
be required to withhold with respect to such cash amounts. The above
notwithstanding, in any case where a tax is required to be withheld in
connection with the issuance or transfer of shares of Common Stock under this
Plan, the Participant may elect, pursuant to such rules as the Committee may
establish, to have the Company reduce the number of such shares issued or
transferred by the appropriate number of shares to accomplish such withholding;
provided, the Committee may impose such conditions on the payment of any
withholding obligation as may be required to satisfy applicable regulatory
requirements.
(b) The Committee may, in its discretion, permit a loan from the
Company to a Participant in the amount of any taxes which the Company may be
required to withhold with
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respect to shares of Common Stock received pursuant to a transaction described
in subsection (a) above. Such a loan will be for a term, at a rate of interest
and pursuant to such other terms and rules as the Committee may establish.
6.7 Amendment, Termination and Suspension.
(a) The Board may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan (or any part hereof). In addition, the
Committee may, from time to time, amend or modify any provision of this Plan
except Section 6.4 and, with the consent of the Participant, make such
modifications of the terms and conditions of such Participant's Award as it
shall deem advisable. The Committee, with the consent of the Participant, may
also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the original Award shall be reestablished at a price
not less than 100% of the Fair Market Value of the Common Stock on the effective
date of the amendment; provided that any such amendment shall be subject to
approval by the shareholders of the Company. No modification of any other term
or provision of any Option which is amended in accordance with the foregoing
shall be required, although the Committee may, in its discretion, make such
further modifications of any such Option as are not inconsistent with or
prohibited by this Plan. No Awards may be granted during any suspension of this
Plan or after its termination.
(b) Any amendment that would materially (i) increase the benefits
accruing to Participants, (ii) increase the aggregate number of shares which may
be issued under this Plan, or (iii) modify the requirements of eligibility for
participation in this Plan, shall be subject to shareholder approval only to the
extent then required by Section 422 of the Code or any successor provisions,
rules or statutes thereto, by a majority of the shareholders.
(c) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of the Plan shall not, without specific action of the Board or the
Committee and the consent of the Participant, in any way
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modify, amend, alter or impair any rights or obligations under any Award
previously granted under the Plan.
6.8 Privileges of Stock Ownership; Nondistributive
Intent.
A Participant shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to him or her.
Upon the issuance and transfer of shares to the Participant, unless a
registration statement is in effect under the Securities Act and applicable
state securities law, relating to such issued and transferred Common Stock and
there is available for delivery a prospectus meeting the requirements of Section
10 of the Securities Act, the Common Stock may be issued and transferred to the
Participant only if he or she represents and warrants in writing to the Company
that the shares are being acquired for investment and not with a view to the
resale or distribution thereof. No shares shall be issued and transferred unless
and until there shall have been full compliance with any then applicable
regulatory requirements (including those of exchanges upon which any Common
Stock of the Company may be listed).
6.9 Effective Date of the Plan.
This Plan shall be effective upon its approval by the Board,
subject to approval by the shareholders of the Company within twelve months from
the date of such Board approval.
6.10 Term of the Plan.
Unless previously terminated by the Board, this Plan shall
terminate at the close of business on November 17, 2002, and no Awards shall be
granted under it thereafter, but such termination shall not affect any Award
theretofore granted.
6.11 Governing Law.
This Plan and the documents evidencing Awards and all other
related documents shall be governed by, and
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construed in accordance with, the laws of the State of California. If any
provision shall be held by a court of competent jurisdiction to be invalid and
unenforceable, the remaining provisions of this Plan shall continue to be fully
effective.
6.12 Plan Construction.
(a) Rule 16b-3. It is the intent of the Company that transactions
in and affecting Awards in the case of Participants who are or may be subject to
Section 16 of the Exchange Act satisfy any then applicable requirements of Rule
16b-3 so that such persons (unless they otherwise agree) will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Exchange
Act in respect of those transactions and will not be subjected to avoidable
liability thereunder. In furtherance of such intent and the Company's intent to
satisfy any applicable state securities laws, the Awards granted under all of
the provisions of the Plan, in the discretion of the Committee, may be deemed
granted under a separate plan if so required, notwithstanding the designation of
this document as a single plan for convenience of reference and to establish
certain provisions and limitations applicable to all authorized Awards. If any
provision of the Plan or of any Award would frustrate or otherwise conflict with
the intent expressed above, that provision to the extent possible shall be
interpreted so as to avoid such conflict. If the conflict remains
irreconcilable, the Committee may disregard the provision if it concludes that
to do so furthers the interest of the Company and is consistent with the
purposes of the Plan as to such persons in the circumstances.
(b) Section 162(m). It is the further intent of the Company that
Options or Stock Appreciation Rights with an exercise or base price not less
than Fair Market Value on the date of grant and Performance-Based Awards under
Section 5.2 of this Plan that are granted to or held by a Section 16 Person
shall qualify as performance-based compensation under Section 162(m) of the
Code, and this Plan shall be interpreted consistent with such intent.
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VII. DEFINITIONS.
7.1 Definitions.
(a) "Award" means an Option, which may be designated as a
Nonqualified Stock Option or an Incentive Stock Option, a Stock Appreciation
Right, a Restricted Stock Award, Performance Share Award or Performance-Based
Award, in each case granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the
terms of an Award.
(c) "Award Date" means the date upon which the Committee took the
action granting an Award or such later date as is prescribed by the Committee
or, in the case of Options granted under Section 2.6, the date specified in such
Section 2.6.
(d) "Beneficiary" means the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death, and shall mean
the Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
(e) "Board" means the Board of Directors of the Company.
(f) "Cash Flow" shall mean cash and cash equivalents derived from
either (i) net cash flow from operations or (ii) net cash flow from operations,
financings and investing activities, as determined by the Committee at the time
an Incentive is granted.
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Commission" means the Securities and Exchange Commission.
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(i) "Committee" means the Board or a committee appointed by the
Board to administer this Plan, which committee shall be comprised only of two or
more directors or such greater number of directors as may be required under
applicable law, each of whom (i) in respect of any transaction at a time when
the affected Participant may be subject to Section 162(m) of the Code, shall be
an "outside director" within the meaning of Section 162(m) of the Code and (ii)
in respect of any transaction at a time when the affected Participant may be
subject to Section 16 of the Exchange Act, shall be a "Non-Employee Director"
within the meaning of Rule 16b-3(b)(3) under the Exchange Act.
(j) "Common Stock" means the Common Stock of the Company.
(k) "Company" means Pacific Sunwear of California, Inc., a
California corporation, and its successors.
(l) "Eligible Employee" means an officer or key employee of the
Company and consultants to the Company whether or not such consultants are
employees.
(m) "EPS" shall mean earnings per common share on a fully diluted
basis determined by dividing (i) net earnings, less dividends on preferred stock
of the Company and its Subsidiaries by (ii) the weighted average number of
common shares and common shares equivalents outstanding.
(n) "Event" means any of the following:
(1) Approval by the shareholders of the Company of the
dissolution or liquidation of the Company;
(2) Approval by the shareholders of the Company of an
agreement to merge or consolidate, or otherwise reorganize, with or into
one or more entities other than Subsidiaries, as a result of which less
than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former shareholders of the
Company; or
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(3) Approval by the shareholders of the Company of the
sale of substantially all of the Company's business assets to a person
or entity which is not a Subsidiary.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the Composite Tape, as published in the Western Edition of The Wall
Street Journal, of the principal national securities exchange on which the stock
is so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD; or (iv) if the stock is not listed or
admitted to trade on a national securities exchange, is not reported on the
National Market Reporting System and if bid and asked prices for the stock are
not furnished by the NASD or a similar organization, the values established by
the Committee for purposes of the Plan.
(q) "Incentive Stock Option" means an option which is designated
as an incentive stock option within the meaning of Section 422 of the Code, the
award of which contains such provisions as are necessary to comply with that
section.
(r) "Non-Employee Director" means a member of the Board who is
not an officer or employee of the Company.
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(s) "Non-Employee Director Participant" means a Non-Employee
Director who has been granted an Option under Section 2.6.
(t) "Nonqualified Stock Option" means an option which is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof.
(u) "Option" means an option to purchase Common Stock under this
Plan. An Option shall be designated by the Committee as a Nonqualified Stock
Option or an Incentive Stock Option.
(v) "Participant" means an Eligible Employee who has been granted
an Award.
(w) "Performance Goal" shall mean EPS or ROE or Cash Flow or
Total Stockholder Return, and "Performance Goals" means any combination thereof.
(x) "Performance-Based Awards" shall mean an Award of a right to
receive shares of Common Stock or other compensation (including cash) under
Section 5.2, the issuance or payment of which is contingent upon, among other
conditions, the attainment of performance objectives specified by the Committee.
(y) "Performance Share Award" means an award of shares of cash or
Common Stock under Section 5.1, the issuance of which is contingent upon
attainment of performance objectives specified by the Committee.
(z) "Personal Representative" means the person or persons who,
upon the disability or incompetence of a Participant, shall have acquired on
behalf of the Participant by legal proceeding or otherwise the power to exercise
the rights and receive the benefits specified in this Plan.
(aa) "Plan" means the Pacific Sunwear of California, Inc. 1992
Stock Award Plan, as amended.
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(ab) "QDRO" shall mean an order requiring the transfer of an
Award or portion thereof pursuant to a state domestic relations law to the
spouse, former spouse, child or other dependent of a Participant. Such order
must be in a form substantially identical to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended.
(ac) "Restricted Stock" means those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.
(ad) "Restricted Stock Award" means an award of a fixed number of
shares of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
(ae) "Retirement" means retirement from employment by or
providing services to the Company or any Subsidiary after age 65 and, in the
case of employees, in accordance with the retirement policies of the Company
then in effect.
(af) "ROE" shall mean consolidated net income of the Company and
its Subsidiaries (less preferred dividends), divided by the average consolidated
common shareholders equity.
(ag) "Securities Act" means the Securities Act of 1933, as
amended.
(ah) "Stock Appreciation Right" means a right to receive a number
of shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in Section 3.3(a).
(ai) "Subsidiary" means any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Company.
30
<PAGE> 34
(aj) "Total Disability" means a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code and, in the case of Awards
other than Incentive Stock Options, such other disabilities, infirmities,
afflictions or conditions as the Committee by rule may include.
(ak) "Total Stockholder Return" shall mean with respect to the
Company or its Subsidiaries or other entities (if measured on a relative basis),
the (i) change in the market price of its common stock (as quoted in the
principal market on which it is traded as of the beginning and ending of the
period) plus dividends and other distributions paid, divided by (ii) the
beginning quoted market price, all of which is adjusted for any changes in
equity structure, including but not limited to stock splits and stock dividends.
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFIC
SUNWEAR OF CALIFORNIA, INC.'S FORM 10Q FOR THE QUARTERLY PERIOD ENDED AUGUST 2,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> MAY-04-1998
<PERIOD-END> AUG-02-1998
<CASH> 12,961,692
<SECURITIES> 0
<RECEIVABLES> 1,607,251
<ALLOWANCES> 0
<INVENTORY> 47,843,515
<CURRENT-ASSETS> 70,506,562
<PP&E> 81,303,911
<DEPRECIATION> (22,554,994)
<TOTAL-ASSETS> 138,555,151
<CURRENT-LIABILITIES> 24,107,929
<BONDS> 0
0
0
<COMMON> 208,086
<OTHER-SE> 106,587,206
<TOTAL-LIABILITY-AND-EQUITY> 138,555,151
<SALES> 73,203,194
<TOTAL-REVENUES> 73,203,194
<CGS> 48,627,331
<TOTAL-COSTS> 16,594,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (219,346)
<INCOME-PRETAX> 8,200,647
<INCOME-TAX> 3,234,000
<INCOME-CONTINUING> 4,966,647
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,966,647
<EPS-PRIMARY> 0.24<F1>
<EPS-DILUTED> 0.23
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
