<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 28, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File No. 0-19972
BRAUN'S FASHIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06 - 1195422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2400 XENIUM LANE NORTH, PLYMOUTH, MINNESOTA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
55441
(ZIP CODE)
(612) 551-5000
(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
---- ----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
---- ----
As of September 24, 1999, 4,395,890 shares of the registrant's common stock
were outstanding.
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<PAGE>
BRAUN'S FASHIONS CORPORATION
FORM 10-Q QUARTERLY REPORT
INDEX
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Condensed Financial Statements: Page
----
Consolidated Condensed Balance Sheet
As of August 28, 1999 and February 27, 1999............................................................ 3
Consolidated Condensed Income Statement
For the Quarters Ended August 28, 1999 and August 29, 1998............................................. 4
Consolidated Condensed Income Statement
For the Two Quarters Ended August 28, 1999 and August 29, 1998......................................... 5
Consolidated Condensed Statement of Cash Flows
For the Two Quarters Ended August 28, 1999 and August 29, 1998......................................... 6
Notes to Consolidated Condensed Financial Statements................................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................................... 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk......................................................................................12
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
Signatures.............................................................................................14
</TABLE>
2
<PAGE>
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 28, FEBRUARY 27,
ASSETS 1999 1999
(Unaudited) (Audited)
-------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 7,101,236 $ 12,587,719
Accounts receivable....................................................... 1,342,568 1,397,502
Merchandise inventory..................................................... 12,855,215 10,799,046
Prepaid expenses.......................................................... 1,189,169 547,947
Prepaid income taxes...................................................... 346,823 --
Current deferred tax asset................................................ 275,493 275,493
-------------- ---------------
Total current assets................................................ 23,110,504 25,607,707
Equipment and improvements, net............................................ 15,961,031 12,954,964
Other assets:
Long-term deferred tax asset.............................................. 1,468,101 1,468,101
Other .................................................................... 155,901 28,844
-------------- ---------------
Total other assets................................................... 1,624,002 1,496,945
-------------- ---------------
Total assets......................................................... $ 40,695,537 $ 40,059,616
-------------- ---------------
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 2,227,144 $ 2,893,317
Accrued liabilities....................................................... 4,743,762 5,471,811
Current maturities of long-term debt...................................... 283,370 271,592
Income taxes payable...................................................... -- 546,936
-------------- ---------------
Total current liabilities............................................ 7,254,276 9,183,656
Long-term liabilities:
Long-term debt............................................................ 5,002,936 5,073,604
Accrued rent obligation................................................... 1,091,326 1,072,590
-------------- ---------------
Total long-term liabilities.......................................... 6,094,262 6,146,194
Stockholders' equity:
Preferred stock-$0.01 par value, 1,000,000 shares authorized;
none outstanding..................................................... -- --
Common stock-$0.01 par value, 14,000,000 shares authorized;
4,391,957 and 4,349,761 shares issued and outstanding at August 28,
1999 and February 27, 1999, respectively............................. 47,600 47,178
Additional paid-in capital................................................ 29,464,302 29,304,648
Retained earnings (accumulated deficit)................................... 910,058 (1,447,099)
-------------- ---------------
30,421,960 27,904,727
Common stock held in treasury, at cost (368,000 shares)................... (2,999,961) (2,999,961)
Common stock subscriptions receivable..................................... (75,000) (175,000)
-------------- ---------------
Total stockholders' equity........................................... 27,346,999 24,729,766
-------------- ---------------
Total liabilities and stockholders' equity........................... $ 40,695,537 $ 40,059,616
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------
AUGUST 28, AUGUST 29,
1999 1998
-------------- ---------------
<S> <C> <C>
Net sales....................................................................... $ 29,207,456 $ 22,942,157
Cost of sales:
Merchandise, buying and occupancy.......................................... 19,606,685 15,388,209
-------------- ---------------
Gross profit............................................................... 9,600,771 7,553,948
Selling, general and administrative expenses.................................... 7,360,751 5,973,893
Depreciation ................................................................... 810,224 663,512
-------------- ---------------
Operating income........................................................... 1,429,796 916,543
Interest, net................................................................... 69,479 103,412
-------------- ---------------
Income before income taxes ............................................... 1,360,317 813,131
Income tax provision ........................................................... 523,722 308,990
-------------- ---------------
Net income ................................................................ $ 836,595 $ 504,141
-------------- ---------------
-------------- ---------------
Basic earnings per common share:
Net income................................................................. $ 0.19 $ 0.11
-------------- ---------------
-------------- ---------------
Basic shares outstanding................................................... 4,377,069 4,555,294
-------------- ---------------
-------------- ---------------
Diluted earnings per common share:
Net income ................................................................ $ 0.18 $ 0.10
-------------- ---------------
-------------- ---------------
Diluted shares outstanding................................................. 4,663,961 4,866,221
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
----------------------------------
AUGUST 28, AUGUST 29,
1999 1998
-------------- ---------------
<S> <C> <C>
Net sales....................................................................... $ 58,412,994 $ 47,944,783
Cost of sales:
Merchandise, buying and occupancy.......................................... 38,476,015 31,717,528
-------------- ---------------
Gross profit............................................................... 19,936,979 16,227,255
Selling, general and administrative expenses.................................... 14,470,119 12,132,581
Depreciation ................................................................... 1,535,130 1,322,670
-------------- ---------------
Operating income........................................................... 3,931,730 2,772,004
Interest, net................................................................... 98,955 219,983
-------------- ---------------
Income before income taxes................................................. 3,832,775 2,552,021
Income tax provision ........................................................... 1,475,618 969,768
-------------- ---------------
Net income ................................................................ $ 2,357,157 $ 1,582,253
-------------- ---------------
-------------- ---------------
Basic earnings per common share:
Net income................................................................. $ 0.54 $ 0.35
-------------- ---------------
-------------- ---------------
Basic shares outstanding................................................... 4,365,204 4,539,343
-------------- ---------------
-------------- ---------------
Diluted earnings per common share:
Net income ................................................................ $ 0.51 $ 0.32
-------------- ---------------
-------------- ---------------
Diluted shares outstanding................................................. 4,577,444 4,870,580
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASHFLOWS
(Unaudited)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
----------------------------------
AUGUST 28, AUGUST 29,
1999 1998
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................ $ 2,357,157 $ 1,582,253
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.............................................. 1,535,130 1,322,670
(Gain) loss on disposal of equipment, net.................................. 66,840 (1,686)
Increase (decrease) in accrued rent obligation............................. 18,736 (14,844)
Changes in operating assets and liabilities:
Increase in merchandise inventory,
prepaid expenses, receivables and other............................... (3,116,337) (1,362,596)
Decrease in accounts payable,
accrued liabilities and income taxes payable.......................... (1,941,158) (1,329,634)
-------------- ---------------
Net cash provided by (used in) operating activities................... (1,079,632) 196,163
Cash flows from investing activities:
Purchase of equipment and improvements..................................... (4,608,037) (1,906,850)
Proceeds from sale of equipment............................................ -- 30,000
-------------- ---------------
Net cash used in investing activities................................. (4,608,037) (1,876,850)
Cash flows from financing activities:
Principal payments on long-term debt....................................... (132,914) (122,095)
Interest on 12% Senior Notes added to principal............................ 74,024 145,012
Exercise of stock options.................................................. 160,076 243,501
Common stock subscriptions receivable...................................... 100,000 --
-------------- ---------------
Net cash provided by financing activities............................. 201,186 266,418
-------------- ---------------
Net decrease in cash and cash equivalents....................................... (5,486,483) (1,414,269)
Cash and cash equivalents at beginning of year.................................. 12,587,719 15,848,439
-------------- ---------------
Cash and cash equivalents at end of period...................................... $ 7,101,236 $ 14,434,170
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
BRAUN'S FASHIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The financial statements included in this Form 10-Q have been prepared by
Braun's Fashions Corporation and its wholly owned subsidiary Braun's Fashions,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the financial statements and related notes included in
the Company's Annual Report on Form 10-K for the fiscal year ended February 27,
1999.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year. In the
opinion of management, the information contained herein reflects all adjustments
necessary to make the results of operations for the interim periods a fair
statement of such operations. All such adjustments are of a normal recurring
nature.
NOTE 2 -- NET INCOME PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). Under SFAS No. 128,
basic earnings per share ("EPS") is computed based on the weighted average
number of shares of common stock outstanding during the applicable periods while
diluted EPS is computed based on the weighted average number of common and
common equivalent shares (dilutive stock options) outstanding.
The following is a reconciliation of the number of shares (denominator)
used in the basic and diluted EPS computations:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
AUGUST 28, 1999 AUGUST 29, 1998
--------------------- ---------------------
NET NET
SHARES INCOME SHARES INCOME
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Basic EPS 4,377,069 $ 0.19 4,555,294 $ 0.11
Effect of dilutive stock options 286,892 (0.01) 310,927 (0.01)
--------- -------- --------- --------
Diluted EPS 4,663,961 $ 0.18 4,866,221 $ 0.10
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
------------------------------------------------
AUGUST 28, 1999 AUGUST 29, 1998
--------------------- ---------------------
NET NET
SHARES INCOME SHARES INCOME
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Basic EPS 4,365,204 $ 0.54 4,539,343 $ 0.35
Effect of dilutive stock options 212,240 (0.03) 331,237 (0.03)
--------- -------- --------- --------
Diluted EPS 4,577,444 $ 0.51 4,870,580 $ 0.32
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
NOTE 3 -- ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for
fiscal years beginning after June 15, 1999, establishes standards for the
recognition and measurement of derivatives and hedging activities. The Company
does not currently engage in these types of risk management or investment
activities. Therefore, SFAS No. 133 is not anticipated to have any impact on the
Company's financial position or results of operations.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Braun's Fashions Corporation is a Minneapolis-based retailer of women's
specialty apparel, which operates through its wholly-owned subsidiary, Braun's
Fashions, Inc. As of September 24, 1999, the Company operated 212 stores in 24
states, primarily in the northern half of the United States. The Company's
stores offer exclusive women's fashions and accessories under the proprietary
brand label of Christopher & Banks.
During the first two quarters of fiscal 2000, 18 new stores have been
opened under the name Christopher & Banks, thereby identifying the store name
with the Company's brand name merchandise. Another 15 new stores are expected
to open during the third quarter, bringing the total to 33 for the year.
During the first six months of its fiscal year, the Company also changed the
name of 19 of its existing stores to Christopher & Banks. The Company plans
to change the name of seven other existing stores to Christopher & Banks
during the remainder of the fiscal year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's operating statement data expressed as a percentage of net
sales.
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
------------------------ ------------------------
AUGUST 28, AUGUST 29, AUGUST 28, AUGUST 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Merchandise, buying and occupancy................................. 67.1 67.1 65.9 66.2
---------- ---------- ---------- ----------
Gross profit...................................................... 32.9 32.9 34.1 33.8
Selling, general and administrative............................... 25.2 26.0 24.8 25.3
Depreciation and amortization..................................... 2.8 2.9 2.6 2.7
---------- ---------- ---------- ----------
Operating income ................................................. 4.9 4.0 6.7 5.8
Interest, net..................................................... 0.2 0.5 0.2 0.5
---------- ---------- ---------- ----------
Income before income taxes........................................ 4.7 3.5 6.5 5.3
Income tax provision.............................................. 1.8 1.3 2.5 2.0
---------- ---------- ---------- ----------
Net income ....................................................... 2.9% 2.2% 4.0% 3.3%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
QUARTER ENDED AUGUST 28, 1999 COMPARED TO QUARTER ENDED AUGUST 29, 1998.
NET SALES. Net sales for the quarter ended August 28, 1999 were $29.2
million, an increase of 27% from $22.9 million for the quarter ended August 29,
1998. The increase in sales was attributable to a 15% increase in same-store
sales combined with an increase in the number of stores operated by the Company.
The Company operated 210 stores at August 28, 1999 compared to 187 at August 29,
1998.
GROSS PROFIT. Gross profit, which is net sales less cost of merchandise,
buying and occupancy expenses, was $9.6 million or 32.9% of net sales during the
second quarter of fiscal 2000 compared to $7.6 million or 32.9% of net sales
during the same period in fiscal 1999. Gross profit as a percent of net sales
remained unchanged as an increase in merchandise margin was offset by a slight
increase in both freight and occupancy expenses as a percent of net sales.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of fiscal 2000 were $7.4 million
or 25.2% of net sales compared to $6.0 million or 26.0% of net sales for the
second quarter of fiscal 1999. The decrease as a percent of net sales was a
result of leveraging associated with increased sales.
OPERATING INCOME. Operating income for the quarter ended August 28, 1999,
was $1.4 million or 4.9% of net sales compared to operating income of $916,543
or 4.0% of net sales for the quarter ended August 29, 1998.
INTEREST, NET. Net interest decreased from $103,412 in the second quarter
of fiscal 1999 to $69,479 in the current year's quarter. This decrease was
primarily due to a reduction in the Company's long-term debt. In the third
quarter of fiscal 1999, the Company repurchased and retired approximately $4.7
million original principal face amount of its Senior Notes due 2005.
INCOME TAXES. Income tax expense in the second quarter of fiscal 2000 was
$523,722 compared to $308,990 in the second quarter of fiscal 1999.
NET INCOME. As a result of the foregoing factors, net income for the
quarter ended August 28, 1999 was $836,595 or 2.9% of net sales compared to
$504,141 or 2.2% of net sales for the quarter ended August 29, 1998.
SIX MONTHS ENDED AUGUST 28, 1999 COMPARED TO SIX MONTHS ENDED AUGUST 29, 1998.
NET SALES. Net sales for the six months ended August 28, 1999 were $58.4
million, an increase of 22% from $47.9 million for the six months ended August
29, 1998. The increase in sales was attributable to a 12% increase in same-store
sales combined with an increase in the number of stores operated by the Company.
The Company operated 210 stores at August 28, 1999 compared to 187 at August 29,
1998.
GROSS PROFIT. Gross profit was $19.9 million or 34.1% of net sales during
the first six months of fiscal 2000, compared to $16.2 million or 33.8% of net
sales during the same period in fiscal 1999. The increase in gross margin as a
percent of net sales was a result of improved merchandise margins, primarily
resulting from lower pricing obtained from overseas vendors, offset by a slight
increase in occupancy and freight expenses as a percent of net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first six months of fiscal 2000 were $14.5
million or 24.8% of net sales compared to $12.1 million or 25.3% of net sales
for the first six months of fiscal 1999. The decrease as a percent of net sales
was a result of leveraging associated with increased sales.
OPERATING INCOME. Operating income for the six months ended August 28, 1999
was $3.9 million or 6.7% of net sales compared to operating income of $2.8
million or 5.8% of net sales for the comparable period of fiscal 1999.
INTEREST, NET. Net interest decreased from $219,983 for the first six
months of fiscal 1999 to $98,955 in the current year's comparable period. This
decrease was primarily due to a reduction in the Company's long-term debt.
During the third quarter of fiscal 1999, the Company repurchased and retired
approximately $4.7 million original principal face amount of its Senior Notes
due 2005.
INCOME TAXES. Income tax expense in the first six months of fiscal 2000 was
$1.5 million compared to $969,763 in the first half of fiscal 1999.
NET INCOME. As a result of the foregoing factors, net income for the six
months ended August 28, 1999 was $2.4 million or 4.0% of net sales compared to
$1.6 million or 3.3% of net sales for the six months ended August 29, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal on-going cash requirements are to finance the
construction of new stores and the remodeling of certain existing stores, to
purchase merchandise inventories and to fund other working capital requirements.
Merchandise purchases vary on a seasonal basis, peaking in the fall. As a
result, the Company's cash requirements historically reach their peak in October
and November. Conversely, cash balances reach their peak in January, after the
holiday season is completed.
Net cash used by operating activities totaled $1.1 million for the first
six months of fiscal 2000. Cash was also used to finance $4.6 million of capital
expenditures to open 18 new stores, to substantially complete 10 major store
remodelings and for various expenditures at its headquarters facility. During
the remainder of the fiscal year the Company intends to
9
<PAGE>
spend approximately $3.5 million to open new stores and to complete store
remodels. Management expects its cash on hand combined with cash flow from
operations to be sufficient to meet its capital expenditure and working capital
requirements and its other needs for liquidity during the remainder of the year.
In March 1999, the Company entered into an Amended and Restated Revolving
Credit and Security Agreement with Norwest Bank Minnesota, National Association
(the "Norwest Revolver"). The Norwest Revolver will expire on June 30, 2002. The
Norwest Revolver provides the Company with revolving credit loans and letters of
credit up to $12 million, subject to a borrowing base formula tied to inventory
levels.
Loans under the Norwest Revolver bear interest at Norwest's base rate plus
1/4%. Interest is payable monthly in arrears. The Norwest Revolver carries a
facility fee of 1/4% on the unused portion of the Norwest Revolver as defined in
the Norwest Revolver. The Norwest Revolver is secured by substantially all of
the Company's assets. In September 1999, the Norwest Revolver was amended to
include in-transit inventory, as defined in the Norwest Revolver, in the
calculation of the borrowing base formula. The borrowing base at September 24,
1999, was $9.5 million. As of September 24, the Company had no borrowings and
outstanding letters of credit in the amount of $4.5 million under the Norwest
Revolver. Accordingly, the availability of revolving credit loans under the
Norwest Revolver was $5.0 million at that date.
The Norwest Revolver contains certain restrictive covenants including
restrictions on incurring additional indebtedness, limitations on certain types
of investments and prohibitions on paying dividends, as well as requiring the
maintenance of certain financial ratios. As of August 28, 1999, the most recent
measurement date, the Company was in compliance with all covenants of the
Norwest Revolver.
In January 1997, the Company issued $10,300,200 of debt in the form of 12%
Senior Notes (the "Senior Notes") due January 2005, pursuant to an Indenture
dated as of December 2, 1996. The principal amount of the Senior Notes bears
interest at the rate of 12% per annum. Interest at the rate of 9% per annum on
the outstanding principal amount is due monthly. Interest at the rate of 3% per
annum on the outstanding principal amount accrues monthly and upon accrual is
treated as principal for all purposes, including without limitation, the
calculation of all interest payments due thereafter, and is payable in full on
January 1, 2005.
In fiscal 1999 and fiscal 1998, the Company repurchased $4,676,000 and
$1,033,000, respectively, of principal face amount of its Senior Notes at a
discount from par. These purchases satisfied all of the annual mandatory
redemption requirements through January 1, 2004, leaving no additional mandatory
payments due until maturity on January 1, 2005.
The Senior Notes are general unsecured senior obligations of the Company.
The Indenture for the Senior Notes ("the Indenture") contains certain covenants
which, among other things, limit the ability of the Company to incur liens and
additional indebtedness. As of August 28, 1999, the most recent measurement
date, the Company was in compliance with all covenants of the Indenture. In
November 1998, the noteholders consented to the elimination of a restrictive
covenant under the Indenture which, among other things, prohibited the Company
from repurchasing its equity securities and paying dividends.
The Company is unaware of any environmental liability that would have a
material adverse effect on the financial position or the results of operations
of the Company.
The Company anticipates that approximately 55% of its merchandise purchased
in fiscal 2000 will be directly from overseas vendors. Since the Company
purchases this merchandise using letters of credit denominated in U.S. dollars,
primarily from vendors in countries whose currency is pegged to the U.S. dollar,
management does not believe the Company will be materially affected by foreign
currency fluctuations.
SEASONALITY
The Company's sales reflect seasonal variation as sales in the third and
fourth quarters, which include the fall and holiday season, generally have been
higher than sales in the first and second quarters. Sales generated during the
fall and holiday season have a significant impact on the Company's annual
results of operations. Quarterly results may fluctuate significantly depending
on a number of factors including adverse weather conditions, shifts in the
timing of certain holidays and promotional events, timing of new store openings,
and customer response to the Company's seasonal merchandise mix.
10
<PAGE>
INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation has had a material
effect on the results of operations during the quarters ended August 28, 1999,
and August 29, 1998.
YEAR 2000 MATTERS
The year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. Certain of the Company's
computer information systems and their associated software ("IT Systems") and
other equipment using microchips or embedded technology ("Non-IT Systems") may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations including, but not limited to, a temporary inability to process
transactions or to engage in similar business activities.
READINESS FOR YEAR 2000. The Company has been in the process of addressing
the year 2000 issue with regard to its IT and Non-IT Systems since the beginning
of calendar 1998. In connection with a general upgrade of its IT Systems, the
Company completed the installation of new merchandise and financial system
software packages in February 1999. The Company began using these systems in
March 1999. In addition to being year 2000 compliant, management believes the
new merchandise systems allow for improved merchandise planning, sales tracking
and trend analysis. Further, the Company also expects these systems will allow
for improved distribution center processing and more flexible allocations of
merchandise to the Company's stores.
The Company has employed a consultant to upgrade the Company's
point-of-sale systems to be year 2000 compliant. The final stages of this
project, including testing, were completed in August 1999 and the Company
determined that these systems are year 2000 compliant. The Company has also
evaluated its Non-IT Systems and determined that all Non-IT Systems that are
critical to the Company's operations have been addressed regarding year 2000
compliance.
COSTS TO ADDRESS YEAR 2000 ISSUES. In February 1999, the Company installed
new year 2000 compliant software packages. These software packages and related
hardware improvements, which the Company previously planned to install
irrespective of any year 2000 considerations, cost approximately $1.0 million,
of which approximately $50,000 was expensed and the remainder was capitalized.
In addition, the Company intends to spend approximately $300,000 over the next
twelve to eighteen months for hardware costs related to the new software
packages. Other internal costs associated with the year 2000 issues, which are
not separately tracked by the Company, consist primarily of payroll and related
expenses for the Company's Management Information Systems department. All costs
related to year 2000 compliant issues have been, or will be funded through cash
flows from operations.
RISKS OF YEAR 2000 ISSUES. The Company expects to implement all changes
necessary to address the year 2000 issue by December 1999. The Company presently
believes that, with the conversions to new software and modifications to
existing IT and Non-IT Systems, the year 2000 issue will not pose significant
operational problems for the Company's IT and Non-IT Systems and thus will not
have a material adverse effect on the Company's operations. However, the year
2000 issue is pervasive and complex and can potentially affect any computer
process. Accordingly, no assurance can be given that year 2000 compliance can be
achieved without additional unanticipated expenditures and uncertainties that
might affect future financial results.
Additionally, in its normal course of operations the Company relies upon
vendors, government agencies, customs agents, utility companies,
telecommunications companies, shipping companies, suppliers and other third
party service providers over which it can assert little control. The Company's
ability to conduct its business is dependent upon the ability of these third
parties to avoid year 2000 related disruptions. The Company has contacted and
will continue to contact its key suppliers and other third party service
providers to inquire as to their year 2000 readiness. If these parties do not
adequately address their year 2000 issues the Company's business may be
affected, which could result in a material adverse effect on the results of
operations and financial position of the Company.
CONTINGENCY PLANS. In addition to the above plans, the Company's
contingency plans involve addressing operational issues that may arise due to
the failure of the Company's or third parties' IT and Non-IT Systems. The
Company is currently assessing such issues and estimates these plans will be
completed by December 1999.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology.
There are certain important factors that could cause results to differ
materially from those
11
<PAGE>
anticipated by some of these forward-looking statements. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. The factors,
among others, that could cause actual results to differ materially include:
consumers' spending and debt levels; the Company's ability to execute its
business plan; the acceptance of the Company's merchandising strategies by its
target customers; the ability of the Company to anticipate marketing trends and
consumer needs; continuity of a relationship with or purchases from major
vendors, particularly those from whom the Company imports merchandise;
competitive pressures on sales and pricing; increases in other costs which
cannot be recovered through improved pricing of merchandise; and the adverse
effect of weather conditions from time to time on consumers' ability or desire
to purchase new clothing.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II.
ITEM 1.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 2.
CHANGES IN SECURITIES
AND USE OF PROCEEDS
There have been no material modifications to the Company's registered
securities.
ITEM 3.
DEFAULTS UPON
SENIOR SECURITIES
There has been no default with respect to any indebtedness of the Company.
ITEM 4.
SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on July 28, 1999, in
Minneapolis, Minnesota. The Company solicited proxies and filed definitive proxy
statements with the Commission pursuant to Regulation 14A. The matters voted
upon and the votes cast at the meeting were as follows:
Item 1. Election of two Class 2 directors to serve on the Board of Directors for
a term of three years and to ratify the appointment of one Class 3
director:
<TABLE>
<CAPTION>
Vote
----------------------------------------------------------------
For Withheld
--------- --------
<S> <C> <C>
Class 2 - Larry C. Barenbaum 3,339,718 173,822
Class 2 - Donald D. Beeler 3,339,786 173,754
Class 3 - William J. Prange 3,340,738 172,802
</TABLE>
Other individuals whose term of office as a director continued after
the meeting included Marc C. Ostrow, James J. Fuld, Jr., and Nicholas
H. Cook.
12
<PAGE>
Item 2. Proposal to increase the number of shares of Common Stock reserved for
issuance under the Company's 1997 Stock Incentive Plan from 450,000 to
675,000 shares:
<TABLE>
<CAPTION>
Vote
------------------------------------------------------
For Against Abstain Broker Non-Vote
--------- -------- ------- ---------------
<S> <C> <C> <C>
1,280,942 707,236 14,434 1,510,928
</TABLE>
Item 3. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's capital stock from 10,000,000 to 15,000,000:
<TABLE>
<CAPTION>
Vote
------------------------------------------------------
For Against Abstain Broker Non-Vote
--------- -------- ------- ---------------
<S> <C> <C> <C>
3,223,679 277,612 12,249 0
</TABLE>
Item 4. Proposal to ratify the appointment of PricewaterhouseCoopers, LLP as
the Company's independent auditors for the Company's current fiscal
year:
<TABLE>
<CAPTION>
Vote
------------------------------------------------------
For Against Abstain Broker Non-Vote
--------- -------- ------- ---------------
<S> <C> <C> <C>
3,500,231 2,165 11,144 0
</TABLE>
ITEM 5.
OTHER INFORMATION
In September 1999, the Company appointed Joseph Pennington, the
Company's Chief Operating Officer, to the additional position of President. Mr.
Pennington was also appointed to the Company's Board of Directors. William
Prange remains the Company's Chairman and Chief Executive Officer.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
--------
<S> <C>
10.26 -- Certificate of Amendment of the Company's Restated
Certificate of Incorporation dated as of August 16, 1999.
10.27 -- First Amendment to Amended and Restated Revolving Credit and
Security Agreement dated as of September 17, 1999.
10.28 -- Second Amendment to the Company's 1997 Stock Incentive Plan
dated as of July 28, 1999.
10.29 -- Braun's Fashions Corporation 1999 Executive Loan Program
dated as of July 28, 1999.
27 -- Financial Data Schedules (submitted for SEC use only)
</TABLE>
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 8, 1999
BRAUN'S FASHIONS CORPORATION
By /s/ ANDREW K. MOLLER
-------------------------------------
Andrew K. Moller
Senior Vice President and
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer.
14
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
BRAUN'S FASHIONS CORPORATION
The undersigned, being the Chief Executive Officer and President of Braun's
Fashions Corporation, a Delaware corporation (the "Corporation"), certifies that
the following resolution was duly adopted by the affirmative vote of the holders
of a majority of the voting power of the shares present and entitled to vote at
the July 28, 1999 Annual Meeting of the Shareholders of the Corporation,
pursuant to Section 242 of the Delaware Business Corporation Law.
RESOLVED:
Article Four of the Corporation's Restated Certificate of
Incorporation is amended to read as follows:
"FOURTH: THE TOTAL NUMBER OF SHARES OF ALL CLASSES OF CAPITAL
STOCK THAT THE CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS
FIFTEEN MILLION (15,000,000) SHARES, OF WHICH (a) ONE MILLION
(1,000,000) SHARES SHALL BE UNDESIGNATED PREFERRED STOCK HAVING A
PAR VALUE OF $0.01 PER SHARE (THE "PREFERRED STOCK"), AND (b)
FOURTEEN MILLION (14,000,000) shares shall be common stock with
the par value of $0.01 per share (the "Common Stock")."
RESOLVED
FURTHER:
The officers of the Corporation be and they hereby are authorized and
directed to do such acts and things as they may deem necessary or desirable
to give effect to this amendment and to carry out the intent and purpose of
this resolution.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment this 16th day of August, 1999.
BRAUN'S FASHIONS CORPORATION
/s/ William J. Prange
-------------------------------------
William J. Prange
Chief Executive Officer and President
Attest:
/s/ Andrew K. Moller
- --------------------------
Andrew K. Moller
Senior Vice President and Chief Financial Officer
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AND SECURITY AGREEMENT
This First Amendment to Amended and Restated Credit and Security
Agreement ("Amendment"), dated as of September ___, 1999, is made by and
among BRAUN'S FASHIONS, INC., a Minnesota corporation ("Borrower"), BRAUN'S
FASHIONS CORPORATION, a Delaware corporation ("Guarantor"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Lender").
RECITALS
FIRST: The Borrower and the Lender have entered into that Amended
and Restated Revolving Credit and Security Agreement dated as of March 15,
1999 ("Credit Agreement"). Capitalized terms used in this Amendment have the
meanings given to them in the Credit Agreement unless otherwise specified.
SECOND: The Borrower has requested certain amendments to the
Credit Agreement which Lender is willing to accept pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, it is agreed as follows:
1. DEFINITION OF BORROWING BASE. The definition of Borrowing
Base shall be deleted in its entirety and replaced with the following:
"Borrowing Base" means, at any time the lessor of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's
sole discretion with prior written or telefacsimile notice to the
Borrower, the sum of:
(i) either (A) between June 1 and August 31 in any
year, and so long as there are no outstanding Advances, 80%
of the Eligible Apparel Inventory, or (B) at all other
times, 70% of Eligible Apparel Inventory; and
(ii) 30% of Eligible Accessories Inventory; and
(iii) 50% of Eligible In-Transit Inventory.
2. DEFINITION OF ELIGIBLE INVENTORY. The definition of "Eligible
Inventory" shall be deleted in its entirety and replaced with the following:
<PAGE>
"Eligible Inventory" means all Inventory of the Borrower, at
the lower of cost or market value as determined in accordance
with GAAP; provided, however, that the following shall not in
any event be deemed Eligible Inventory:
(a) Inventory that is: in-transit (except for
Eligible In-Transit Inventory); located at any warehouse,
job site or other premises not approved by the Lender in
writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing
statements to perfect a first priority security interest
in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment
unless such consignee or bailee has executed an agreement
with the Lender;
(b) Supplies, packaging, parts or sample Inventory;
(c) Work-in-process Inventory;
(d) Inventory that is damaged, obsolete, slow
moving (that is, over four months old) or not currently
saleable in the normal course of the Borrower's
operations;
(e) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or
intends to return to the vendor thereof;
(f) Inventory that is perishable or live;
(g) Inventory manufactured by the Borrower pursuant
to a license unless the applicable licensor has agreed in
writing to permit the Lender to exercise its rights and
remedies against such Inventory;
(h) Inventory that is subject to a security
interest in favor of any Person other than the Lender; and
(i) Inventory otherwise deemed ineligible by the Lender
in its sole discretion.
3.
2
<PAGE>
DEFINITION OF ELIGIBLE IN-TRANSIT INVENTORY. A
definition of "Eligible In-Transit Inventory" shall be added
to the Credit Agreement as follows:
"Eligible In-Transit Inventory" means Eligible Inventory that
is in-transit and backed by a documentary Letter of Credit
issued by the Lender.
4. REPORTING REQUIREMENTS. Paragraph 6.1(c) shall be deleted in
its entirety and replaced with the following:
(c) within 20 days after the end of each month or more frequently
if the Lender so requires, agings of the Borrower's accounts receivable and
its accounts payable, and within 15 days after the end of each month an
inventory certification report, and a calculation of the Borrower's Accounts,
Eligible Accounts, Inventory, Eligible Inventory, and Eligible In-Transit
Inventory as of the end of each month or more frequently as the Lender
requires.
5. STOCK PURCHASE LOANS. Paragraph 7.4(a)(iii) shall be deleted
in its entirety and replaced with the following:
(iii) Stock Purchase Loans in an amount not to exceed the sum of $500,000
to any one Person, and $2,500,000 in the aggregate at any one time.
6. NO OTHER CHANGES. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect and shall apply to any advance or letter of
credit herein.
7. CONDITIONS PRECEDENT. This Amendment shall be effective when
the Lender shall have received an executed original hereof, together with
each of the following, each in substance and form acceptable to the Lender in
its sole discretion:
(a) The Agreement, duly executed by the Borrower.
(b) The Acknowledgment and Agreement of Guarantor set forth
at the end of this Amendment, duly executed by the Guarantor.
(c) A Certificate of Authority of the Borrower setting forth
the sample signatures of each of the officers and agents of the
Borrower authorized to execute and deliver this Amendment and all
other documents, agreements and certificates on behalf of the
Borrower, and setting forth (i) the resolutions of the board of
directors of the Borrower approving the execution and delivery of
this Amendment and (ii) the fact that the articles of incorporation
and bylaws of the Borrower, which were certified and delivered to
the Lender in connection with the execution and delivery of the
Credit Agreement continue in full force and effect and have not
been amended or otherwise modified except as set forth in the
Certificate of Authority to be delivered.
3
<PAGE>
(d) Such other matters as the Lender may require.
8. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations
hereunder, and this Amendment has been duly executed and delivered
by the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its
terms except as may be limited by bankruptcy, insolvency or other
laws affecting the rights of creditors generally.
(b) The execution, delivery and performance by the Borrower
of this Amendment has been duly authorized by all necessary
corporate actions and does not (i) require any authorization,
consent or approval by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii)
violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or
bylaws of the Borrower, or (iii) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound
or affected.
(c) All of the representations and warranties contained in
Section 5 of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an
earlier date.
9. NO WAIVER. The execution of this Amendment and acceptance of
any documents related hereto shall not be deemed to be a waiver of any
Default or Event of Default under the Credit Agreement or breach, default or
event of default under any Loan Document or other document held by the
Lender, whether or not known to the Lender and whether or not existing on the
date of this Amendment.
10. RELEASE. The Borrower, and the Guarantor by signing the
Acknowledgment and Agreement of Guarantor set forth below, each hereby
absolutely and unconditionally releases and forever discharges the Lender,
and any and all participants, parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns
thereof, together with all of the present and former directors, officers,
agents and employees of any of the foregoing, from any and all claims,
demands or causes of action of any kind, nature or description, whether
arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which the Borrower or Guarantor has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of
time to and including the date of this Amendment, whether such claims,
demands and causes of action are matured or unmatured or known or unknown.
11. COSTS AND EXPENSES. The Borrower hereby reaffirms its
agreement under the
4
<PAGE>
Credit Agreement to pay or reimburse the Lender on demand for all costs and
expenses incurred by the Lender in connection with the Credit Agreement, the
Loan Documents and all other documents contemplated thereby, including
without limitation all reasonable fees and disbursements of legal counsel.
Without limiting the generality of the foregoing, upon receipt of an
accounting for costs and expenses the Borrower specifically agrees to pay all
reasonable fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this
Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its
sole discretion and without further authorization by the Borrower, make a
loan to the Borrower under the Credit Agreement, or apply the proceeds of any
loan, for the purpose of paying any such fees, disbursements, costs and
expenses.
12. MISCELLANEOUS. This Amendment and the Acknowledgment and
Agreement of Guarantor may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which counterparts, taken together, shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first written above.
NORWEST BANK MINNESOTA, NATIONAL BRAUN'S FASHIONS, INC.
ASSOCIATION
By: By:
Name: Name:
------------------------------- -------------------------------
Its: Its:
------------------------------- -------------------------------
5
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR
The undersigned, a guarantor of the indebtedness of BRAUN'S
FASHIONS, INC. ("Borrower") to NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
("Lender") pursuant to a Guaranty dated as of March 15, 1999 ("Guaranty"),
hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to
the terms and execution of this Amendment by the Borrower; (iii) reaffirms
its obligations to the Lender pursuant to the terms of its Guaranty; (iv)
reaffirms the security interest of Lender and its assets granted to Lender
pursuant to that Security Agreement dated as of December 2, 1996 ("Security
Agreement"); and (v) acknowledges that Lender may amend, restate, extend,
renew or otherwise modify the agreement and any indebtedness or agreement of
Borrower, or enter into any agreement or extend additional or other credit
accommodations, without notifying or obtaining the consent of the undersigned
and without impairing the liability of the undersigned under the Guaranty and
Security Agreement for all of the Borrower's present and future indebtedness
to the Lender.
BRAUN'S FASHIONS CORPORATION
By:
Name:
Title:
6
<PAGE>
SECOND AMENDMENT TO THE
BRAUN'S FASHIONS CORPORATION
1997 STOCK INCENTIVE PLAN
July 28, 1999
RECITALS:
A. The Braun's Fashions Corporation 1997 Stock Incentive Plan (the "Plan") was
adopted by the Board of Directors of Braun's Fashions Corporation (the
"Company") and was approved by the shareholders of the Company on July 17,
1997 and amended on July 22, 1998. The Plan is now in full force and
effect.
B. The Company desires to amend the Plan to increase the number of shares of
common stock available for issuance under the Plan.
AMENDMENT:
THEREFORE, the Plan is hereby amended as follows:
1. The first sentence of paragraph 4 of the Plan is hereby amended to read as
follows:
"4. STOCK SUBJECT TO THE PLAN. THE AGGREGATE NUMBER OF SHARES
SUBJECT TO THE PLAN SHALL BE SIX HUNDRED SEVENTY-FIFTY THOUSAND (675,000)
SHARES OF THE COMMON STOCK OF THE COMPANY, $.01 PAR VALUE PER SHARE."
2. The foregoing amendment shall be effective as of July 28, 1999, the date
the shareholders of the Company approved this amendment at the Company's
Annual Meeting of Shareholders.
3. Except as modified hereby, the Plan shall continue in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by
its duly authorized officer as of July 28, 1999.
BRAUN'S FASHIONS CORPORATION
By: /s/ William J. Prange
---------------------------------------
William J. Prange
President and Chief Executive Officer
<PAGE>
BRAUNS FASHIONS CORPORATION
1999 EXECUTIVE LOAN PROGRAM
Brauns Fashions Corporation, a Delaware corporation (the "Company")
hereby adopts the following Executive Loan Program (the "Program") effective
this 28th day of July, 1999.
ARTICLE I
PURPOSE
The purpose of the Program is to provide loans to certain executive
officers of the Company. It is the general intention of the Board of
Directors of the Company that loans under the Program be made to create an
incentive for executive officers of the Company to exercise Company stock
options, thereby aligning management's interests with that of the
shareholders. The proceeds of a loan made hereunder may only be used in
connection with the exercise of stock options granted by the Company to the
executive officers.
ARTICLE I
ELIGIBILITY
Those executive officers identified by the Compensation Committee of the
Board of Directors from time to time are eligible to participate in the
Program.
ARTICLE III
LOAN
No more than two million two hundred thousand dollars ($2,200,000)
principal amount of loans in the aggregate may be outstanding to all
participants under this Program at any time. An executive officer of the
Company may borrow from the Company up to five hundred thousand dollars
($500,000).
The loan shall mature upon the earlier of (i) borrower's termination of
employment or (ii) the sale by borrower of shares acquired pursuant to the
loan. For purposes of the Program, a borrower's employment shall terminate on
account of resignation, discharge, retirement, death or the indefinite
suspension of employment duties on account of disability. To the extent a
borrower sells less than all of the shares acquired under the loan, the loan
shall not mature until such time as all of the shares are sold provided that
borrower use the proceeds of the sale to reduce the principal and accrued
interest on the loan. Upon maturity, the loan shall be repaid to the Company
upon the Company's demand.
Each loan shall be a full recourse loan and shall bear interest at the
then minimum interest rate ("Designated Rate") required to avoid the
imputation of income under (i) the below-market loan rules, (ii) the imputed
interest and original issue discount rules, and (iii) any other similar
provision
<PAGE>
contained in the Internal Revenue Code, as amended, or in state or local tax
laws or regulations. Interest will accrue on the unpaid principal at the
Designated Rate for each month during the term of the loan. Interest shall
be due and payable semi-annually, on June 30 and December 31 of each year.
In the event the borrower's employment relationship with the Company is
terminated, borrower shall repay the loan within [thirty (30)] days after the
date the employment relationship is terminated, unless otherwise extended by
a separate written agreement approved by the Board. The Company shall obtain
a first perfected lien against the collateral pursuant to the terms of that
Pledge and Security Agreement which borrower shall execute and deliver to the
Company on the date the loan is made, together with all stock certificates
evidencing such collateral and appropriate stock powers.
ARTICLE IV
LOAN CONDITIONS
In order to obtain a loan under the Program, a borrower must execute all
loan documents the Company requires (e.g., promissory notes and security
agreements). Collateral consisting of the Company stock purchased with the
proceeds of the loan must be pledged to secure each loan.
ARTICLE V
PROCEDURE TO OBTAIN LOAN
Any borrower desiring a loan pursuant to the provisions of this Program
shall submit a written request for such loan (the "Proposal") to the Company
at its principal business office, specifying the amount of the loan desired
and the number of shares to be acquired pursuant to Company stock options.
ARTICLE VI
ADMINISTRATION
The Compensation Committee of the Board of Directors will administer the
Program. The Company's Chief Financial Officer will provide a report to the
Compensation Committee periodically on the participants, amount of loans
outstanding, and activity under the Program.
ARTICLE VII
NOTICES
All notices and other communications of any kind which the Company or a
borrower may be required or may desire to serve on the other party in
connection with the Program shall be in writing and may be delivered by
personal service or by registered or certified mail, return receipt
requested, deposited in the United States mail with postage thereon fully
prepaid, addressed to the other party at the addresses indicated in the
Pledge and Security Agreement or as otherwise provided below. Service of any
such notice or other communication so made by mail shall be deemed complete
on the date of actual delivery as shown by the addressee's registry or
certification receipt
2
<PAGE>
or at the expiration of the third (3rd) business day after the date of
mailing, whichever is earlier in time. Either the Company or a borrower may
from time to time, by notice in writing served upon the other as aforesaid,
designate a different mailing address or a different person to which such
notices or other communications are thereafter to be addressed or delivered.
ARTICLE VIII
TERMINATION
Loans may be made under this Program at any time and from time to time
prior to [December 31, 2000], on which date this Program will expire.
ARTICLE IX
EFFECTIVE DATE OF PROGRAM
This Program shall become effective upon its adoption by the Board.
ARTICLE X
MISCELLANEOUS PROVISIONS
The Program shall be administered by the plan administrator, which shall
be the Company acting through its Chief Financial Officer. The plan
administrator shall have the power to adopt forms of loan documents, to
exercise all rights and powers allocated to the Company under this Program
and to do anything else which is helpful or necessary to the proper operation
of the Program.
The Company reserves the right at any time to amend, modify or terminate
the Program; provided that no such amendment, modification or termination
shall in any manner require additional collateral, accelerate the maturity
date, impose an increase in the Designated Rate or otherwise alter the terms
of any outstanding loans in a manner adverse to the borrowers under such
loans, except as may be required to comply with applicable law.
The Company reserves the right at any time to discontinue making new
loans or to cancel any outstanding loan by forgiving it.
The Program is strictly a voluntary undertaking on the part of the
Company and shall not constitute a contract between the Company and any
individual, or consideration for, or an inducement or condition of, the
employment of an individual. Nothing contained in the Program shall give any
individual the right to be retained in the service of the Company or to
interfere with or restrict the right of the Company, which is hereby
expressly reserved, to discharge or retire any individual at any time for any
reason not prohibited by statute, without the Company being required to show
cause for the termination.
[END OF PAGE]
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10Q FOR THE QUARTER ENDED AUGUST 28, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-26-2000
<PERIOD-START> FEB-28-1999
<PERIOD-END> AUG-28-1999
<CASH> 7,101,236
<SECURITIES> 0
<RECEIVABLES> 1,342,568
<ALLOWANCES> 0
<INVENTORY> 12,855,215
<CURRENT-ASSETS> 23,110,504
<PP&E> 30,011,151
<DEPRECIATION> 14,050,120
<TOTAL-ASSETS> 40,695,537
<CURRENT-LIABILITIES> 7,254,276
<BONDS> 4,904,194
0
0
<COMMON> 47,600
<OTHER-SE> 27,299,399
<TOTAL-LIABILITY-AND-EQUITY> 40,695,537
<SALES> 29,207,456
<TOTAL-REVENUES> 29,207,456
<CGS> 19,606,685
<TOTAL-COSTS> 19,606,685
<OTHER-EXPENSES> 8,170,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,479
<INCOME-PRETAX> 1,360,317
<INCOME-TAX> 523,722
<INCOME-CONTINUING> 836,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 836,595
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.18
</TABLE>
