<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 27, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12302
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BARNES & NOBLE, INC.
- - -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1196501
- - --------------------------------- ------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
- - ----------------------------------------------------------- ------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 633-3300
- - -------------------------------------------------------------------------------
Registrant's Telephone Number, Including Area Code
- - -------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
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
--- ---
Number of shares of $.001 par value common stock outstanding as of
May 24, 1996: 32,993,842
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BARNES & NOBLE, INC. AND SUBSIDIARIES
April 27, 1996
Index to Form 10-Q
Page No.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Operations - For the 13
weeks ended April 27, 1996 and April 29, 1995 . . . 3
Consolidated Balance Sheets - April 27, 1996, April
29, 1995 and January 27, 1996 . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the 13
weeks ended April 27, 1996 and April 29, 1995 . . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 9
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 12
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
- - ------ --------------------
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except per share data)
(unaudited)
- - -------------------------------------------------------------------------------
13 weeks ended
----------------------
April 27, April 29,
1996 1995
---------- ---------
Revenues $508,755 401,971
Cost of sales, buying and occupancy 333,476 261,952
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Gross profit 175,279 140,019
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Selling and administrative expenses 104,227 87,121
Rental expenses 53,115 41,500
Depreciation and amortization 13,589 10,559
Pre-opening expenses 4,489 2,768
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Operating loss (141) (1,929)
Interest (net of interest income of $191 and
$584, respectively) and amortization of
deferred financing expenses 8,344 6,050
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Loss before benefit for income taxes (8,485) (7,979)
Benefit for income taxes (3,092) (2,693)
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Net loss $ (5,393) (5,286)
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---------- ---------
Net loss per common share $ (.16) (.17)
Weighted average common shares outstanding 32,968,000 30,307,000
See accompanying notes to consolidated financial statements.
3
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars)
- - -------------------------------------------------------------------------------
April 27, April 29, January 27,
1996 1995 1996
----------- ---------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,256 6,950 9,276
Receivables, net 42,024 31,914 49,019
Merchandise inventories 705,600 504,808 740,351
Prepaid expenses and other current
assets 45,653 29,663 49,542
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Total current assets 802,533 573,335 848,188
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Property and equipment:
Land and land improvements 681 759 681
Buildings and leasehold improvements 281,770 219,859 249,603
Fixtures and equipment 222,845 153,572 204,528
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505,296 374,190 454,812
Less accumulated depreciation and
amortization 146,559 118,895 134,932
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Net property and equipment 358,737 255,295 319,880
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Intangible assets, net 95,985 133,170 96,799
Other noncurrent assets 59,147 33,970 50,475
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Total assets $1,316,402 995,770 1,315,342
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---------- ------- ---------
(Continued)
4
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(thousands of dollars)
- - -------------------------------------------------------------------------------
April 27, April 29, January 27,
1996 1995 1996
----------- ---------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 67,500 13,400 --
Accounts payable 347,967 289,829 415,698
Accrued liabilities 180,050 122,106 205,990
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Total current liabilities 595,517 425,335 621,688
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Long-term debt 290,000 190,000 262,400
Other long-term liabilities 35,341 22,452 31,019
Stockholders' equity:
Common stock; $.001 par value;
40,000,000 shares authorized;
32,989,785, 30,399,300 and
32,958,614 shares issued and
outstanding, respectively 33 30 33
Additional paid-in capital 442,471 351,830 441,769
Retained earnings (deficit) (46,960) 6,123 (41,567)
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Total stockholders' equity 395,544 357,983 400,235
---------- ------- ---------
Commitments and contingencies
---------- ------- ---------
Total liabilities and stockholders'
equity $1,316,402 995,770 1,315,342
---------- ------- ---------
---------- ------- ---------
See accompanying notes to consolidated financial statements.
5
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
(unaudited)
- - -------------------------------------------------------------------------------
13 weeks ended
----------------------
April 27, April 29,
1996 1995
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Cash flows from operating activities:
Net loss $ (5,393) (5,286)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 13,946 11,135
Losses on disposal of property and equipment 223 917
Increase in other long-term liabilities for
scheduled rent increases in long-term leases 4,322 2,103
Changes in operating assets and liabilities, net (48,036) (53,896)
---------- ---------
Net cash flows from operating activities (34,938) (45,027)
---------- ---------
Cash flows from investing activities:
Purchases of property and equipment (51,855) (22,072)
Net (increase) decrease in other noncurrent assets (9,029) 131
---------- ---------
Net cash flows from investing activities (60,884) (21,941)
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Cash flows from financing activities:
Net (decrease) increase in revolving credit facility (4,900) 13,400
Proceeds from issue of long-term debt 100,000 --
Proceeds from exercise of common stock options 702 5,096
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Net cash flows from financing activities 95,802 18,496
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Net decrease in cash and cash equivalents (20) (48,472)
Cash and cash equivalents at beginning of period 9,276 55,422
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Cash and cash equivalents at end of period $ 9,256 6,950
---------- ---------
---------- ---------
Changes in operating assets and liabilities, net:
Receivables, net $ 6,995 (1,775)
Merchandise inventories 34,751 (839)
Prepaid expenses and other current assets 3,889 (5,321)
Accounts payable and accrued liabilities (93,671) (45,961)
---------- ---------
Changes in operating assets and
liabilities, net $ (48,036) (53,896)
---------- ---------
---------- ---------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 2,636 444
Income taxes $ 11,134 10,086
See accompanying notes to consolidated financial statements.
6
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 13 weeks ended April 27, 1996 and April 29, 1995
(thousands of dollars)
(unaudited)
The unaudited consolidated financial statements include the accounts of
Barnes & Noble, Inc. and its wholly-owned subsidiaries (collectively, the
Company).
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly its
consolidated financial position as of April 27, 1996 and the results of its
operations and its cash flows for the 13 weeks then ended. These
consolidated financial statements are condensed and therefore do not include
all of the information and footnotes required by generally accepted
accounting principles. The consolidated financial statements should be read
in conjunction with the Company's annual report on Form 10-K for the 52 weeks
ended January 27, 1996. The Company follows the same accounting policies in
preparation of interim reports. Certain amounts in the consolidated financial
statements for periods prior to January 27, 1996 have been reclassified to
conform to the current presentation.
Due to the seasonal nature of the business, the results of operations
for the 13 weeks ended April 27, 1996 are not indicative of the results to be
expected for the fiscal year ending February 1, 1997.
(1) MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or market. Cost
is determined using the retail inventory method on the first-in, first-out
(FIFO) basis for 77%, 65% and 73% of the Company's merchandise inventories as
of April 27, 1996, April 29, 1995 and January 27, 1996, respectively. The
remaining merchandise inventories are valued on the last-in, first-out (LIFO)
method.
If substantially all of the merchandise inventories currently valued at
LIFO costs were valued at current costs, merchandise inventories would
increase approximately $7,826, $14,160 and $8,326 as of April 27, 1996, April
29, 1995 and January 27, 1996, respectively.
(2) REVOLVING CREDIT FACILITY AND TERM LOAN AGREEMENT
On March 28, 1996, the Company entered into a five-year, senior credit
facility led by The Chase Manhattan Bank, N.A., CIBC Inc. and ING Capital,
which replaced its $160,000 revolving credit facility. The new senior credit
facility increased the Company's capital resources and provides funds for the
Company's superstore expansion. The new facility includes a $325,000
revolving credit facility and $100,000 term loan facility and provides for an
additional commitment of $125,000 which is expected to become available to
the Company on September 1, 1997. Fees of up to 3/8 of 1% will be assessed
on the unused portion of the Company's commitment under the new facility.
The new credit facility, which permits borrowings at various interest rate
options based on the prime rate or London Interbank Offer Rate (LIBOR),
contains covenants, representations and events of default typical of credit
facility arrangements of this size and nature, including financial covenants
which require
(Continued)
7
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BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
For the 13 weeks ended April 27, 1996 and April 29, 1995
(thousands of dollars)
(unaudited)
the Company to meet, among other things, cash flow and interest coverage
ratios and which limit capital expenditures. Similar to the Company's
$160,000 revolving credit agreement, the new revolving credit and term loan
facility is secured by the capital stock, accounts receivable and general
intangibles of the Company's subsidiaries. The outstanding balance under the
Company's $160,000 facility was refinanced pursuant to the consummation of
the new credit facility.
(3) FINANCIAL INSTRUMENTS
During the first quarter of 1996, the Company entered into three year
and four year interest rate swap agreements for $40,000 and $30,000,
respectively, involving the exchange of fixed and floating interest payment
obligations without the exchange of the underlying principal amounts. The
Company enters into interest rate swap agreements to manage interest costs
and risk associated with changes in interest rates. These agreements
effectively convert underlying variable-rate debt based on prime rate or
LIBOR to fixed-rate debt. The Company recorded interest expense of $32
during the 13 weeks ended April 27, 1996 associated with these agreements.
(4) INCOME TAXES
The tax provisions for the 13 weeks ended April 27, 1996 and April 29,
1995 are based upon management's estimate of its annualized effective tax
rates. Permanent differences, primarily amortization of goodwill, increase
the provision for income taxes.
(5) SUBSEQUENT EVENTS
On May 30, 1996, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 40,000,000 to
100,000,000. This amendment was approved at the Company's Annual Meeting of
Stockholders held on May 29, 1996. The Company's 1996 Incentive Plan was also
approved at the Annual Meeting.
8
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's cash for seasonal working capital
requirements and capital investments are net cash flows from operat-
ing activities, funds available under its revolving credit facili-
ty, long-term financing under the new term loan facility and vendor
financing.
During the 13 weeks ended April 27, 1996 and April 29, 1995, cash and
cash equivalents were used primarily for capital investments and
increases in working capital necessary to support the Company's
expansion of its superstore business, primarily merchandise inventory
purchases related to such expansion. Cash and cash equivalents as of
April 27, 1996 were $9.3 million in comparison to $7.0 million as of
April 29, 1995.
To meet the seasonal demands of its business and funds for its
capital requirements, the Company entered into a five-year senior
credit facility on March 28, 1996 with a group of banks led by
The Chase Manhattan Bank, N.A., CIBC Inc. and ING Capital which
replaced the Company's $160.0 million revolving credit facility.
The new facility includes a $325.0 million revolving credit facility
and a $100.0 million term loan facility and provides for an additional
$125.0 million which is expected to become available to the Company
during the second year of the agreement.
Total debt as of April 27, 1996 and April 29, 1995 was $357.5 million
and $203.4 million, respectively. Maximum borrowings under the
Company's revolving facility were $143.3 million and $29.3 million
during the 13 weeks ended April 27, 1996 and April 29, 1995,
respectively, and averaged approximately $90.6 million and
$8.9 million during the 13 weeks ended April 27, 1996 and April 29,
1995, respectively, due to the increase in working capital and
capital expenditures.
Capital expenditures totaled $51.9 million and $22.1 million during
the 13 weeks ended April 27, 1996 and April 29, 1995, respectively.
These expenditures were primarily for new superstores, refurbishments
of existing mall bookstores and enhancements to the Company's manage-
ment information and in-store systems.
Based upon current operating levels and the planned superstore expan-
sion, management believes cash flows generated from operations,
short-term vendor financing and its borrowing capacity under its new
senior credit facility will be sufficient to meet the Company's
working capital and debt service requirements, fund restructuring
reserves and support the development of its short- and long-term
strategies for at least the next twelve months.
The Company did not declare or pay any cash dividends during the
13-week periods ended April 27, 1996 or April 29, 1995.
9
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RESULTS OF OPERATIONS
13 WEEKS ENDED APRIL 27, 1996 AND APRIL 29, 1995
REVENUES
Revenues increased 26.6%, or $106.8 million, to $508.8 million during
the 13 weeks ended April 27, 1996 from $402.0 million for the 13 weeks
ended April 29, 1995. Superstore revenues grew 43.1% to $381.5
million during the 13 weeks ended April 27, 1996, an increase of
$114.9 million from $266.6 million during the 13 weeks ended April 29,
1995. As a result of the Company's rapid expansion of its superstore
business, superstore revenues, as a percentage of total revenues, rose
to 75.0% during the 13 weeks ended April 27, 1996, up from 66.3% for
the same period in the prior year. Mall bookstores generated 24.0% of
total revenues during the 13 weeks ended April 27, 1996 in comparison
to 32.1% of total revenues for the same period one year ago.
The increase in revenues during the 13 weeks ended April 27, 1996
was primarily attributable to an increase in comparable superstore
sales of 5.9%, revenues from the 106 superstores opened since
April 29, 1995 and increases in comparable mall bookstore sales of
0.8% during the 13 weeks ended April 27, 1996.
During the 13 weeks ended April 27, 1996, the Company opened 20
superstores and closed three, bringing the Company's total number of
superstores to 375. The Company opened two and closed ten
mall bookstores during the quarter and ended the period with
631 mall bookstores. As of April 27, 1996 the Company operated
1,006 stores in 49 states and the District of Columbia.
COST OF SALES, BUYING AND OCCUPANCY
During the 13 weeks ended April 27, 1996, cost of sales, buying and
occupancy increased $71.5 million, or 27.3%, to $333.5 million from
$262.0 million for the same period one year ago. As a percentage
of revenues, cost of sales, buying and occupancy remained relatively
constant and were 65.5% and 65.2% during the 13 weeks ended
April 27, 1996 and April 29, 1995, respectively.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased $17.1 million, or 19.6%,
to $104.2 million during the 13 weeks ended April 27, 1996 from $87.1
million during the 13 weeks ended April 29, 1995. The Company's
operating leverage continued to improve as selling and administrative
expenses decreased as a percentage of revenues to 20.5% during the 13
weeks ended April 27, 1996 from 21.7% during the prior year period.
10
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RENTAL EXPENSES, DEPRECIATION AND AMORTIZATION
Rental expenses increased $11.6 million, or 28.0%, to $53.1 million
during the 13 weeks ended April 27, 1996 from $41.5 million during the
13 weeks ended April 29, 1995 primarily due to the rental expenses for
the 106 new superstores opened since April 29, 1995. Depreciation and
amortization increased $3.0 million, or 28.7%, to $13.6 million during
the 13 weeks ended April 27, 1996 from $10.6 million during the 13
weeks ended April 29, 1995 primarily as a result of the increased
number of superstores operated by the Company.
OPERATING LOSS
As a result of the factors discussed above, the Company's operating
loss improved to $(0.1) million during the 13 weeks ended April 27,
1996 from $(1.9) million during the 13 weeks ended April 29, 1995.
INTEREST EXPENSE, NET AND AMORTIZATION OF DEFERRED FINANCING EXPENSES
Interest expense, net of interest income, and amortization of deferred
financing expenses increased to $8.3 million during the 13 weeks ended
April 27, 1996 from $6.1 million during the 13 weeks ended April 29,
1995. The increase in net interest expense reflects an increase in
borrowings.
BENEFIT FOR INCOME TAXES
The benefit for income taxes during the 13 weeks ended April 27, 1996
was $3.1 million compared to $2.7 million during the 13 weeks ended
April 29, 1995. The tax provisions for the 13 weeks ended April 27,
1996 and April 29, 1995 were based upon management's estimate of the
Company's annualized effective tax rates. Permanent differences,
primarily amortization of goodwill, increase the provision for income
taxes.
NET LOSS
As a result of the factors discussed above, the Company's results of
operations were a net loss of ($5.4) million during the 13 weeks ended
April 27, 1996 compared to a net loss of ($5.3) million during the 13
weeks ended April 29, 1995. During the 13 weeks ended April 27, 1996,
the net loss per common share improved to ($0.16) per share from
($0.17) per share for the same period in the prior year.
11
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PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following Exhibits are filed as Exhibits to this form:
Exhibit
No. Description
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3.1 Amendment to Amended and Restated
Certificate of Incorporation of the
Company, filed May 30, 1996.
10.1 1996 Incentive Plan.
(b) No report on Form 8-K was filed by the registrant during the
fiscal quarter for which this report is filed.
12
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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.
BARNES & NOBLE, INC.
---------------------
(Registrant)
Date: June 11, 1996 By: /s/ Irene R. Miller
-------------------
Irene R. Miller
Vice Chairman and Chief Financial
Officer (Principal Financial and
Accounting Officer and duly
authorized officer of the
Registrant)
13
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Exhibit 3.1
CERTIFICATE OF AMENDMENT OF
THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
BARNES & NOBLE, INC.
(Under Section 242 of the General Corporation Law of Delaware)
The undersigned hereby certifies that:
FIRST: The name of the corporation is Barnes & Noble, Inc.
(hereinafter the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation is
hereby amended by striking out section (a) of Article Fourth thereof and by
substituting in lieu of said section (a) of Article Fourth the following:
FOURTH: (a) The total number of shares of all classes of stock
which the Corporation shall have the authority to issue is (i)
100,000,000 shares with a par value of $.001 per share which are
to be of a class designated "Common Stock" and (ii) 5,000,000 shares
with a par value of $.001 per share which are to be of a class
designated "Preferred Stock."
THIRD: The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this certificate has been signed this 29th
day of May 1996 and it is affirmed that the statements made herein are true
under the penalties of perjury.
BARNES & NOBLE, INC.
By: /s/ Michael N. Rosen
-------------------------
Michael N. Rosen
Secretary
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Exhibit 10.1
BARNES & NOBLE, INC.
1996 INCENTIVE PLAN
BARNES & NOBLE, INC., a corporation formed under the laws of the State of
Delaware (the "Company"), hereby establishes and adopts the following 1996
Incentive Plan (the "Plan").
RECITALS
WHEREAS, the Company desires to encourage high levels of performance by
those individuals who are key to the success of the Company, to attract new
individuals who are highly motivated and who will contribute to the success of
the Company and to encourage such individuals to remain as directors, employees,
consultants and/or advisors of the Company and its subsidiaries by increasing
their proprietary interest in the Company's growth and success.
WHEREAS, to attain these ends, the Company has formulated the Plan embodied
herein to authorize the granting of incentive awards through grants of stock
options ("Options"), grants of stock appreciation rights, grants of Stock
Purchase Awards (hereinafter defined), and grants of Restricted Stock Awards
(hereinafter defined) to those individuals whose judgment, initiative and
efforts are or have been responsible for the success of the Company.
NOW, THEREFORE, the Company hereby constitutes, establishes and adopts the
following Plan and agrees to the following provisions:
ARTICLE 1.
PURPOSE OF THE PLAN
1.1. PURPOSE. The purpose of the Plan is to assist the Company in
attracting and retaining selected individuals to serve as directors, officers,
consultants, advisors and employees of the Company who will contribute to the
Company's success and to achieve long-term objectives which will inure to the
benefit of all stockholders of the Company through the additional incentive
inherent in the ownership of the Company's shares of common stock ("Shares").
Options granted under the Plan will be either "incentive stock options,"
intended to qualify as such under the provisions of section 422 of the Internal
Revenue Code of 1986, as from time to time amended (the "Code"), or
"nonqualified stock options." For purposes of the Plan, the term "subsidiary"
shall mean "subsidiary corporation," as such term is defined in section 424(f)
of the Code, and "affiliate" shall have the meaning set forth in Rule 12b-2 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For
purposes of the Plan, the term "Award" shall mean a grant of an Option, a grant
of a stock appreciation right, a grant of a Stock Purchase Award, a grant of a
Restricted Stock Award, or any other award made under the terms of the Plan.
ARTICLE 2.
SHARES SUBJECT TO AWARDS
2.1. NUMBER OF SHARES. Subject to the adjustment provisions of Section
9.10 hereof, the aggregate number of Shares which may be issued under Awards
under the Plan, whether pursuant to Options, stock appreciation rights, Stock
Purchase Awards or Restricted Stock Awards, shall not exceed 3,000,000. No
Options to purchase fractional Shares shall be granted or issued under the Plan.
For purposes of this Section 2.1, the Shares that shall be counted toward such
limitation shall include all Shares:
(1) issued or issuable pursuant to Options that have been or may be
exercised;
(2) issued or issuable pursuant to Stock Purchase Awards; and
(3) issued as, or subject to issuance as, a Restricted Stock Award.
1
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2.2. SHARES SUBJECT TO TERMINATED AWARDS. The Shares covered by any
unexercised portions of terminated Options granted under Articles 4 and 6,
Shares forfeited as provided in Section 8.2(a) and Shares subject to any Awards
which are otherwise surrendered by the Participant without receiving any payment
or other benefit with respect thereto may again be subject to new Awards under
the Plan. In the event the purchase price of an Option is paid in whole or in
part through the delivery of Shares, the number of Shares issuable in connection
with the exercise of the Option shall not again be available for the grant of
Awards under the Plan. Shares subject to Options, or portions thereof, which
have been surrendered in connection with the exercise of stock appreciation
rights shall not again be available for the grant of Awards under the Plan.
2.3. CHARACTER OF SHARES. Shares delivered under the Plan may be
authorized and unissued Shares or Shares acquired by the Company, or both.
2.4. LIMITATIONS ON GRANTS TO INDIVIDUAL PARTICIPANT. Subject to
adjustments pursuant to the provisions of Section 9.10 hereof, the number of
Shares which may be granted hereunder to any employee during any fiscal year
under all forms of Awards shall not exceed 350,000 Shares. If an Option is
cancelled, the cancelled Option shall continue to be counted toward the 350,000
limit for the year granted. An Option (or a stock appreciation right) that is
repriced during any fiscal year is treated as the cancellation of the Option (or
stock appreciation right) and a grant of a new Option (or stock appreciation
right), both of which shall be counted toward the 350,000 limit for that fiscal
year.
ARTICLE 3.
ELIGIBILITY AND ADMINISTRATION
3.1. AWARDS TO EMPLOYEES AND DIRECTORS. (a) Participants who receive (i)
Options under Articles 4 and 6 hereof or stock appreciation rights under Article
5 ("Optionees"), and (ii) Stock Purchase Awards under Article 7 or Restricted
Stock Awards under Article 8 (in either case, a "Participant"), shall consist of
such key officers, employees, consultants, advisors and directors of the Company
or any of its subsidiaries or affiliates as the Committee shall select from time
to time, PROVIDED, HOWEVER, that an Option that is intended to qualify as an
"incentive stock option" may be granted only to an individual that is an
employee of the Company or any of its subsidiaries. The Committee's designation
of an Optionee or Participant in any year shall not require the Committee to
designate such person to receive Awards or grants in any other year. The
designation of an Optionee or Participant to receive Awards or grants under one
portion of the Plan shall not require the Committee to include such Optionee or
Participant under other portions of the Plan.
(b) No Option which is intended to qualify as an "incentive stock option"
may be granted to any employee who, at the time of such grant, owns, directly or
indirectly (within the meaning of sections 422(b)(6) and 424(d) of the Code),
shares of stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any of its subsidiaries
or affiliates, unless at the time of such grant, (i) the option price is fixed
at not less than 110% of the Fair Market Value (as defined below) of the Shares
subject to such Option, determined on the date of the grant, and (ii) the
exercise of such Option is prohibited by its terms after the expiration of five
years from the date such Option is granted.
3.2. ADMINISTRATION. (a) The Plan shall be administered by a committee
(the "Committee") consisting of not fewer than two directors of the Company (the
directors of the Company being hereinafter referred to as the "Directors"), as
designated by the Directors. The Directors may remove from, add members to, or
fill vacancies in the Committee. Each member of the Committee shall be a
"disinterested person" within the meaning of Rule 16b-3(c)(2)(i) of the Exchange
Act and an "outside director" within the meaning of Section 162(m)(4)(C)(i) of
the Code, except that if the Directors determine that (i) the Plan cannot
satisfy the requirements of Rule 16b-3 of the Exchange Act (such that grants of
Awards are not exempt from Section 16(b) of the Exchange Act), then the members
of the Committee need not be "disinterested persons," or (ii) they no longer
want the Plan to comply
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with the requirements of Code Section 162(m), then the members of the Committee
need not be "outside directors." Any Award to a member of the Committee shall be
made strictly in accordance with the terms of Section 4.1(b).
(b) The Committee is authorized, subject to the provisions of the Plan, to
establish such rules and regulations as it may deem appropriate for the conduct
of meetings and proper administration of the Plan. All actions of the Committee
shall be taken by majority vote of its members.
(c) Subject to the provisions of the Plan, the Committee shall have
authority, in its sole discretion, to grant Awards under the Plan, to interpret
the provisions of the Plan and, subject to the requirements of applicable law,
including Rule 16b-3 of the Exchange Act, to prescribe, amend, and rescind rules
and regulations relating to the Plan or any Award thereunder as it may deem
necessary or advisable. All decisions made by the Committee pursuant to the
provisions of the Plan shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Directors and employees, and other Plan
participants.
ARTICLE 4.
OPTIONS
4.1. GRANT OF OPTIONS. (a) KEY INDIVIDUALS, DIRECTORS AND EMPLOYEES. The
Committee shall determine, within the limitations of the Plan, those key
individuals and the Directors and employees of the Company and its subsidiaries
and affiliates to whom Options are to be granted under the Plan, the number of
Shares that may be purchased under each such Option and the option price, and
shall designate such Options at the time of the grant as either "incentive stock
options" or "nonqualified stock options"; PROVIDED, HOWEVER, that Options
granted to employees of an affiliate (that is not also a subsidiary) or to
non-employees of the Company may only be "nonqualified stock options."
(b) NON-EMPLOYEE DIRECTORS. Notwithstanding any provision of this Plan to
the contrary, all persons who are Non-Employee Directors (as defined below)
shall receive Awards under this Plan only as follows: (i) all Non-Employee
Directors on January 16, 1996 shall automatically be granted Options to purchase
20,000 Shares at their then Fair Market Value, with 25% of each such Option
(covering 5,000 Shares) exercisable immediately (or on such later date as
stockholder approval of this Plan is obtained) and an additional 25% shall
become exercisable on each January 1 thereafter through January 1, 1999, at
which time 100% of said Options shall be exercisable; and (ii) each person who
thereafter is elected or appointed to membership on the Board of Directors of
the Company and who is a Non-Employee Director on the date of his election or
appointment, shall on such effective date of election or appointment
automatically be granted Options to purchase 20,000 Shares at their then Fair
Market Value, with 25% of each such Option (covering 5,000 Shares) becoming
exercisable on each of the next four anniversaries of said grant date, at which
time (said fourth anniversary) 100% of said Options shall be exercisable. For
purposes of this paragraph (b), a "Non-Employee Director" shall be a Director
who is not otherwise an employee of the Company or any of its affiliates or
subsidiaries on the grant date and has not been employed by the Company or any
of its affiliates or subsidiaries for any part of the twelve months preceding
such date. Each Option granted to a Non-Employee Director hereunder shall be
exercisable for a period of ten years from the date of automatic grant and shall
be subject to the restrictions and limitations set forth in the Plan.
Notwithstanding any provision of this Plan to the contrary, the provisions of
this Section 4.1(b) may not be amended more than once every six (6) months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
4.2. STOCK OPTION AGREEMENTS; ETC. All Options granted pursuant to Article
4 and Article 6 herein (a) shall be authorized by the Committee (other than
Options to Non-Employee Directors under Section 4.1(b)) and (b) shall be
evidenced in writing by stock option agreements ("Stock Option Agreements") in
such form and containing such terms and conditions as the Committee shall
determine which are not inconsistent with the provisions of the Plan, and, with
respect to any Stock Option
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Agreement granting Options which are intended to qualify as "incentive stock
options," are not inconsistent with Section 422 of the Code. Granting of an
Option pursuant to the Plan shall impose no obligation on the recipient to
exercise such option. Any individual who is granted an Option pursuant to this
Article 4 and Article 6 herein may hold more than one Option granted pursuant to
such Articles at the same time and may hold both "incentive stock options" and
"nonqualified stock options" at the same time. To the extent that any Option
does not qualify as an "incentive stock option" (whether because of its
provisions, the time or manner of its exercise or otherwise) such Option or the
portion thereof which does not so qualify shall constitute a separate
"nonqualified stock option."
4.3. OPTION PRICE. Subject to Section 3.1(b), the option price per each
Share purchasable under any "incentive stock option" granted pursuant to this
Article 4 and any "nonqualified stock option" granted pursuant to Article 6
herein shall not be less than 100% of the Fair Market Value (as hereinafter
defined) of such Share on the date of the grant of such Option. The option price
per each Share purchasable under any "nonqualified stock option" granted
pursuant to this Article 4 shall be such amount as the Committee shall determine
at the time of the grant of such Option. Notwithstanding the foregoing, the
option price per each Share purchasable under any Option granted to a Non-
Employee Director pursuant to Section 4.1(b) shall be equal to 100% of the Fair
Market Value of such Share on the date of grant of such Option.
4.4. OTHER PROVISIONS. Options granted pursuant to this Article 4 shall be
made in accordance with the terms and provisions of Article 9 hereof and any
other applicable terms and provisions of the Plan.
ARTICLE 5.
STOCK APPRECIATION RIGHTS
5.1. GRANT AND EXERCISE. Stock appreciation rights may be granted in
conjunction with all or part of any Option granted under the Plan provided such
rights are granted at the time of the grant of such Option. A "stock
appreciation right" is a right to receive cash or Shares, as provided in this
Article 5, in lieu of the purchase of a Share under a related Option. A stock
appreciation right or applicable portion thereof shall terminate and no longer
be exercisable upon the termination or exercise of the related Option, and a
stock appreciation right granted with respect to less than the full number of
Shares covered by a related Option shall not be reduced until, and then only to
the extent that, the exercise or termination of the related Option exceeds the
number of Shares not covered by the stock appreciation right. A stock
appreciation right may be exercised by the holder thereof (the "Holder"), in
accordance with Section 5.2 of this Article 5, by giving written notice thereof
to the Company and surrendering the applicable portion of the related Option.
Upon giving such notice and surrender, the Holder shall be entitled to receive
an amount determined in the manner prescribed in Section 5.2 of this Article 5.
Options which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the related stock appreciation rights have been
exercised.
5.2. TERMS AND CONDITIONS. Stock appreciation rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(a) Stock appreciation rights shall be exercisable only at such time or
times and to the extent that the Options to which they relate shall be
exercisable in accordance with the provisions of the Plan.
(b) Upon the exercise of a stock appreciation right, a Holder shall be
entitled to receive up to, but no more than, an amount in cash or whole
Shares equal to the excess of the then Fair Market Value of one Share over
the option price per Share specified in the related Option multiplied by the
number of Shares in respect of which the stock appreciation right shall have
been exercised. The Holder shall specify in his written notice of exercise,
whether payment shall be made in cash or in whole Shares; PROVIDED, HOWEVER,
in the case of a stock appreciation right exercised by a
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person subject to Section 16 of the Exchange Act, the Holder's written
notice specifying the form of payment is subject to the approval of the
Committee. Each stock appreciation right may be exercised only at the time
and so long as a related Option, if any, would be exercisable or as
otherwise permitted by applicable law; PROVIDED, HOWEVER, that no stock
appreciation right granted under the Plan to a person then subject to
Section 16 of the Exchange Act shall be exercised during the first six
months of its term for cash.
(c) No stock appreciation right shall be transferable by a Holder
otherwise than by will or by the laws of descent and distribution, and stock
appreciation rights shall be exercisable, during the Holder's lifetime, only
by the Holder.
(d) Upon the exercise of a stock appreciation right, the Option or part
thereof to which such stock appreciation right is related shall be deemed to
have been exercised for the purpose of the limitation of the number of
Shares to be issued under the Plan, as set forth in Section 2.1 of the Plan.
(e) Stock appreciation rights granted in connection with an Option may
be exercised only when the Fair Market Value of the Shares subject to the
Option exceeds the option price at which Shares can be acquired pursuant to
the Option.
(f) Stock appreciation rights may be exercised for cash by a person
subject to Section 16 of the Exchange Act only during the period beginning
on the third business day, and ending on the twelfth business day, following
the release of quarterly and annual summary statements of sales and
earnings, as set forth in Rule 16b-3(e)(1)(ii) of the Exchange Act.
ARTICLE 6.
RELOAD OPTIONS
6.1. AUTHORIZATION OF RELOAD OPTIONS. Concurrently with the award of any
Option (such Option hereinafter referred to as the "Underlying Option") to any
participant in the Plan, the Committee may grant a reload option (a "Reload
Option") to such participant to purchase for cash or Shares a number of Shares
as specified below. A Reload Option shall be exercisable for an amount of Shares
equal to (i) the number of Shares delivered by the Optionee to the Company to
exercise the Underlying Option, and (ii) to the extent authorized by the
Committee, the number of Shares used to satisfy any tax withholding requirement
incident to the exercise of the Underlying Option, subject to the availability
of Shares under the Plan at the time of such exercise. The grant of a Reload
Option shall become effective upon the exercise of an Underlying Option by
delivering to the Company Shares held by the Optionee for at least six months.
Notwithstanding the fact that the Underlying Option may be an "incentive stock
option," a Reload Option is not intended to qualify as an "incentive stock
option" under Section 422 of the Code.
6.2. RELOAD OPTION AMENDMENT. Each Stock Option Agreement shall state
whether the Committee has authorized Reload Options with respect to the
Underlying Option. Upon the exercise of an Underlying Option, the Reload Option
will be evidenced by an amendment to the underlying Stock Option Agreement.
6.3. RELOAD OPTION PRICE. The option price per Share deliverable upon the
exercise of a Reload Option shall be the Fair Market Value of a Share on the
date the grant of the Reload Option becomes effective.
6.4. TERM AND EXERCISE. Each Reload Option is fully exercisable six months
from the effective date of grant. The term of each Reload Option shall be equal
to the remaining option term of the Underlying Option.
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6.5. TERMINATION OF EMPLOYMENT. No Reload Option shall be granted to an
Optionee when Options are exercised pursuant to the terms of this Plan following
termination of the Optionee's employment.
6.6. APPLICABILITY OF OTHER SECTIONS. Except as otherwise provided in this
Article 6, the provisions of Article 9 applicable to Options shall apply equally
to Reload Options.
ARTICLE 7.
STOCK PURCHASE AWARDS
7.1. GRANT OF STOCK PURCHASE AWARDS. The term "Stock Purchase Award" means
the right to purchase Shares of the Company and to pay for such Shares through a
loan made by the Company to an employee (a "Purchase Loan") as set forth in this
Article 7.
7.2. TERMS OF PURCHASE LOANS. (a) PURCHASE LOAN. Each Purchase Loan shall
be evidenced by a promissory note. The term of the Purchase Loan shall be a
period of years, as determined by the Committee, and the proceeds of the
Purchase Loan shall be used exclusively by the Participant for purchase of
Shares from the Company at a purchase price equal to their Fair Market Value on
the date of the Stock Purchase Award.
(b) INTEREST ON PURCHASE LOAN. A Purchase Loan shall be non-interest
bearing or shall bear interest at whatever rate the Committee shall determine
(but not in excess of the maximum rate permissible under applicable law),
payable in a manner and at such times as the Committee shall determine. Those
terms and provisions as the Committee shall determine shall be incorporated into
the promissory note evidencing the Purchase Loan.
(c) FORGIVENESS OF PURCHASE LOAN. Subject to Section 7.4 hereof, the
Company may forgive the repayment of up to 100% of the principal amount of the
Purchase Loan, subject to such terms and conditions as the Committee shall
determine and set forth in the promissory note evidencing the Purchase Loan (the
"Conditions"). A Participant's Purchase Loan can be prepaid at any time, and
from time to time, without penalty.
7.3. SECURITY FOR LOANS. (a) STOCK POWER AND PLEDGE. Purchase Loans
granted to Participants shall be secured by a pledge of the Shares acquired
pursuant to the Stock Purchase Award. Such pledge shall be evidenced by a pledge
agreement (the "Pledge Agreement") containing such terms and conditions as the
Committee shall determine. Purchase Loans shall be recourse or non-recourse with
respect to a Participant, as determined from time to time by the Committee. The
share certificates for the Shares purchased by a Participant pursuant to a Stock
Purchase Award shall be issued in the Participant's name, but shall be held by
the Company as security for repayment of the Participant's Purchase Loan
together with a stock power executed in blank by the Participant (the execution
and delivery of which by the Participant shall be a condition to the issuance of
the Stock Purchase Award). The Participant shall be entitled to exercise all
rights applicable to such Shares, including, but not limited to, the right to
vote such Shares and the right to receive dividends and other distributions made
with respect to such Shares. When the Purchase Loan and any accrued but unpaid
interest thereon has been repaid or otherwise satisfied in full, the Company
shall deliver to the Participant the share certificates for the Shares purchased
by a Participant under the Stock Purchase Award.
(b) RELEASE AND DELIVERY OF SHARE CERTIFICATES DURING THE TERM OF THE
PURCHASE LOAN. The Company shall release and deliver to each Participant
certificates for Shares purchased by a Participant pursuant to a Stock Purchase
Award, in such amounts and on such terms and conditions as the Committee shall
determine, which shall be set forth in the Pledge Agreement.
(c) RELEASE AND DELIVERY OF SHARE CERTIFICATES UPON REPAYMENT OF THE
PURCHASE LOAN. The Company shall release and deliver to each Participant
certificates for the Shares purchased by the Participant under the Stock
Purchase Award and then held by the Company, provided the Participant has paid
or otherwise satisfied in full the balance of the Purchase Loan and any accrued
but unpaid
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interest thereon. In the event the balance of the Purchase Loan is not repaid,
forgiven or otherwise satisfied within 90 days after (i) the date repayment of
the Purchase Loan is due (whether in accordance with its term, by reason of
acceleration or otherwise), or (ii) such longer time as the Committee, in its
discretion, shall provide for repayment or satisfaction, the Company shall
retain those Shares then held by the Company in accordance with the Pledge
Agreement.
7.4. TERMINATION OF EMPLOYMENT. (a) TERMINATION OF EMPLOYMENT BY DEATH,
DISABILITY OR BY THE COMPANY WITHOUT CAUSE; CHANGE OF CONTROL. In the event of a
Participant's termination of employment by reason of death, "disability" or by
the Company without "cause," or in the event of a "change of control," the
Committee shall have the right (but shall not be required) to forgive the
remaining unpaid amount (principal and interest) of the Purchase Loan in whole
or in part as of the date of such occurrence. "Change of Control," "disability"
and "cause" shall have the respective meanings as set forth in the promissory
note evidencing the Purchase Loan.
(b) TERMINATION OF EMPLOYMENT BY VOLUNTARY RESIGNATION. In the event of a
Participant's termination of employment for any reason other than death or
"disability," the Participant shall repay to the Company the entire balance of
the Purchase Loan and any accrued but unpaid interest thereon, which amounts
shall become immediately due and payable, unless otherwise determined by the
Committee.
7.5. RESTRICTIONS ON TRANSFER. No Stock Purchase Award or Shares purchased
through such an Award and pledged to the Company as collateral security for the
Participant's Purchase Loan (and accrued and unpaid interest thereon) may be
otherwise pledged, sold, assigned or transferred (other than by will or by the
laws of descent and distribution).
ARTICLE 8.
RESTRICTED STOCK AWARDS
8.1. RESTRICTED STOCK AWARDS. (a) GRANT. A grant of Shares made pursuant
to this Article 8 is referred to as a "Restricted Stock Award." The Committee
may grant to any employee an amount of Shares in such manner, and subject to
such terms and conditions relating to vesting, forfeitability and restrictions
on delivery and transfer (whether based on performance standards, periods of
service or otherwise) as the Committee shall establish (such Shares, "Restricted
Shares"). The terms of any Restricted Stock Award granted under this Plan shall
be set forth in a written agreement (a "Restricted Stock Agreement") which shall
contain provisions determined by the Committee and not inconsistent with this
Plan. The provisions of Restricted Stock Awards need not be the same for each
Participant receiving such Awards.
(b) ISSUANCE OF RESTRICTED SHARES. As soon as practicable after the date
of grant of a Restricted Stock Award by the Committee, the Company shall cause
to be transferred on the books of the Company, Shares registered in the name of
the Company, as nominee for the Participant, evidencing the Restricted Shares
covered by the Award; provided, however, such Shares shall be subject to
forfeiture to the Company retroactive to the date of grant, if a Restricted
Stock Agreement delivered to the Participant by the Company with respect to the
Restricted Shares covered by the Award is not duly executed by the Participant
and timely returned to the Company. All Restricted Shares covered by Awards
under this Article 8 shall be subject to the restrictions, terms and conditions
contained in the Plan and the Restricted Stock Agreement entered into by and
between the Company and the Participant. Until the lapse or release of all
restrictions applicable to an Award of Restricted Shares, the share certificates
representing such Restricted Shares shall be held in custody by the Company or
its designee.
(c) STOCKHOLDER RIGHTS. Beginning on the date of grant of the Restricted
Stock Award and subject to execution of the Restricted Stock Agreement as
provided in Sections 8.1(a) and (b), the Participant shall become a stockholder
of the Company with respect to all Shares subject to the Restricted Stock
Agreement and shall have all of the rights of a stockholder, including, but not
limited
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to, the right to vote such Shares and the right to receive distributions made
with respect to such Shares; PROVIDED, HOWEVER, that any Shares distributed as a
dividend or otherwise with respect to any Restricted Shares as to which the
restrictions have not yet lapsed shall be subject to the same restrictions as
such Restricted Shares and shall be represented by book entry and held as
prescribed in Section 8.1(b).
(d) RESTRICTION ON TRANSFERABILITY. None of the Restricted Shares may be
assigned or transferred (other than by will or the laws of descent and
distribution), pledged or sold prior to lapse or release of the restrictions
applicable thereto.
(e) DELIVERY OF SHARES UPON RELEASE OF RESTRICTIONS. Upon expiration or
earlier termination of the forfeiture period without a forfeiture and the
satisfaction of or release from any other conditions prescribed by the
Committee, the restrictions applicable to the Restricted Shares shall lapse. As
promptly as administratively feasible thereafter, subject to the requirements of
Section 10.1, the Company shall deliver to the Participant or, in case of the
Participant's death, to the Participant's beneficiary, one or more stock
certificates for the appropriate number of Shares, free of all such
restrictions, except for any restrictions that may be imposed by law.
8.2. TERMS OF RESTRICTED SHARES. (a) FORFEITURE OF RESTRICTED SHARES.
Subject to Section 8.2(b), all Restricted Shares shall be forfeited and returned
to the Company and all rights of the Participant with respect to such Restricted
Shares shall terminate unless the Participant continues in the service of the
Company as an employee until the expiration of the forfeiture period for such
Restricted Shares and satisfies any and all other conditions set forth in the
Restricted Stock Agreement. The Committee, in its sole discretion, shall
determine the forfeiture period (which may, but need not, lapse in installments)
and any other terms and conditions applicable with respect to any Restricted
Stock Award.
(b) WAIVER OF FORFEITURE PERIOD. Notwithstanding anything contained in
this Article 8 to the contrary, the Committee may, in its sole discretion, waive
the forfeiture period and any other conditions set forth in any Restricted Stock
Agreement under appropriate circumstances (including the death, disability or
retirement of the Participant or a material change in circumstances arising
after the date of an Award) and subject to such terms and conditions (including
forfeiture of a proportionate number of the Restricted Shares) as the Committee
shall deem appropriate.
ARTICLE 9.
GENERALLY APPLICABLE PROVISIONS
9.1. OPTION PERIOD. Subject to Section 3.1(b), the period for which an
Option is exercisable shall not exceed ten years from the date such Option is
granted, PROVIDED, HOWEVER, in the case of an Option that is not intended to be
an "incentive stock option," the Committee may prescribe a period in excess of
ten years. After the Option is granted, the option period may not be reduced.
9.2. FAIR MARKET VALUE. If the Shares are listed or admitted to trading on
a securities exchange registered under the Exchange Act, the "Fair Market Value"
of a Share as of a specified date shall mean the per Share closing price of the
Shares for the day immediately preceding the date as of which Fair Market Value
is being determined (or if there was no reported closing price on such date, on
the last preceding date on which the closing price was reported) reported on the
principal securities exchange on which the Shares are listed or admitted to
trading. If the Shares are not listed or admitted to trading on any such
exchange but are listed as a national market security on the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"),
traded in the over-the-counter market or listed or traded on any similar system
then in use, the Fair Market Value of a Share shall be the last sales price for
the day immediately preceding the date as of which the Fair Market Value is
being determined (or if there was no reported sale on such date, on the last
preceding date on which any reported sale occurred) reported on such system. If
the Shares are not listed or admitted to trading on any such exchange, are not
listed as a national market security on NASDAQ and are not traded in the
over-the-counter market or listed or traded on any similar system then in
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use, but are quoted on NASDAQ or any similar system then in use, the Fair Market
Value of a Share shall be the average of the closing high bid and low asked
quotations on such system for the Shares on the date in question. If the Shares
are not publicly traded, Fair Market Value shall be determined by the Committee
in its sole discretion using appropriate criteria. An Option shall be considered
granted on the date the Committee acts to grant the Option or such later date as
the Committee shall specify.
9.3. EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercised by the Optionee thereof (or by his executors, administrators, guardian
or legal representative, as provided in Sections 9.6 and 9.7 hereof) as to all
or part of the Shares covered thereby, by the giving of written notice of
exercise to the Company, specifying the number of Shares to be purchased,
accompanied by payment of the full purchase price for the Shares being
purchased. Full payment of such purchase price shall be made within five
business days following the date of exercise and shall be made (i) in cash or by
certified check or bank check, (ii) with the consent of the Committee, by
delivery of a promissory note in favor of the Company upon such terms and
conditions as determined by the Committee, (iii) with the consent of Committee,
by tendering previously acquired Shares (valued at its Fair Market Value, as
determined by the Committee as of the date of tender), or (iv) with the consent
of the Committee, any combination of (i), (ii) and (iii); PROVIDED, HOWEVER,
that payment may not be pursuant to (iii) above unless the Optionee shall have
owned the Shares being tendered in payment for a period of at least six months
prior to the date of exercise of the Option. Such notice of exercise,
accompanied by such payment, shall be delivered to the Company at its principal
business office or such other office as the Committee may from time to time
direct, and shall be in such form, containing such further provisions consistent
with the provisions of the Plan, as the Committee may from time to time
prescribe. In no event may any Option granted hereunder be exercised for a
fraction of a Share. The Company shall effect the transfer of Shares purchased
pursuant to an Option as soon as practicable, and, within a reasonable time
thereafter, such transfer shall be evidenced on the books of the Company. No
person exercising an Option shall have any of the rights of a holder of Shares
subject to an Option until certificates for such Shares shall have been issued
following the exercise of such Option. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date of such
issuance.
9.4. NON-TRANSFERABILITY OF OPTIONS. Except as provided in Section 9.11,
no Option shall be assignable or transferable by the Optionee, other than by
will or the laws of descent and distribution, and may be exercised during the
life of the Optionee only by the Optionee or his guardian or legal
representative.
9.5. TERMINATION OF EMPLOYMENT. In the event of the termination of
employment of an Optionee or the termination or separation from service of an
advisor or consultant or a Director (who is an Optionee) for any reason (other
than death or disability as provided below), any Option(s) granted to such
Optionee under this Plan and not previously exercised or expired shall be deemed
cancelled and terminated on the day of such termination or separation, unless
the Committee decides, in its sole discretion, to extend the term of the Option
for a period not to exceed three months after the date of such termination or
separation, PROVIDED, HOWEVER, that in no instance may the term of the Option,
as so extended, exceed the maximum term established pursuant to Section
3.1(b)(ii) or 9.1 above. Notwithstanding the foregoing, in the event of the
termination or separation from service of an Optionee for any reason other than
death or disability, under conditions satisfactory to the Company, the Committee
may, in its sole discretion, allow any "nonqualified stock options" granted to
such Optionee under the Plan and not previously exercised or expired to be
exercisable for a period of time to be specified by the Committee, PROVIDED,
HOWEVER, that in no instance may the term of the Option, as so extended, exceed
the maximum term established pursuant to Section 9.1 above.
9.6. DEATH. In the event an Optionee dies while employed by the Company or
any of its subsidiaries or affiliates or during his term as a Director of the
Company or any of its subsidiaries or affiliates, as the case may be, any
Option(s) granted to him not previously expired or exercised shall, to the
extent exercisable on the date of death, be exercisable by the estate of such
Optionee or by any person who acquired such Option by bequest or inheritance, at
any time within one year after the
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death of the Optionee, unless earlier terminated pursuant to its terms,
PROVIDED, HOWEVER, that if the term of such Option would expire by its terms
within six months after the Optionee's death, the term of such Option shall be
extended until six months after the Optionee's death, PROVIDED FURTHER, HOWEVER,
that in no instance may the term of the Option, as so extended, exceed the
maximum term established pursuant to Section 3.1(b)(ii) or 9.1 above.
9.7. DISABILITY. In the event of the termination of employment of an
Optionee or the separation from service of a Director (who is an Optionee) due
to total disability, the Optionee, or his guardian or legal representative,
shall have the unqualified right to exercise any Option(s) which have not been
previously exercised or expired and which the Optionee was eligible to exercise
as of the first date of total disability (as determined by the Committee), at
any time within one year after such termination or separation, unless earlier
terminated pursuant to its terms, PROVIDED, HOWEVER, that if the term of such
Option would expire by its terms within six months after such termination or
separation, the term of such Option shall be extended until six months after
such termination or separation, PROVIDED FURTHER, HOWEVER, that in no instance
may the term of the Option, as so extended, exceed the maximum term established
pursuant to Section 3.1(b)(ii) or 9.1 above. The term "total disability" shall,
for purposes of this Plan, be defined in the same manner as such term is defined
in Section 22(e)(3) of the Code.
9.8. SIX-MONTH HOLDING PERIOD. Notwithstanding anything to the contrary in
the Plan, each Option (or the Shares underlying the Option) granted to an
individual who is subject to Section 16 of the Exchange Act, must be held by
such individual for a combined period of at least six months from the date the
Option is granted (or until such earlier date as satisfies any legal requirement
for exemption under Rule 16b-3 of the Exchange Act and as satisfies all other
applicable law); PROVIDED that the sale, transfer or other disposition of any
Shares underlying any Option shall be permitted within such period to the extent
the sale, transfer or other disposition is exempt under Rule 16b-3 of the
Exchange Act and all other applicable law.
9.9. AMENDMENT AND MODIFICATION OF THE PLAN. The Board of Directors of the
Company may, from time to time, alter, amend, suspend or terminate the Plan as
it shall deem advisable, subject to any requirement for stockholder approval
imposed by applicable law or any rule of any stock exchange or quotation system
on which Shares are listed or quoted; PROVIDED that the Board of Directors may
not amend the Plan in any manner that would result in noncompliance with Rule
16b-3 of the Exchange Act or any applicable law, except as otherwise provided in
Sections 3.2 or 9.11 hereof; and FURTHER PROVIDED that the Board of Directors
may not, without the approval of the Company's stockholders, amend the Plan to
(a) increase the number of Shares that may be the subject of Options under the
Plan (except for adjustments pursuant to Section 9.10 hereof), (b) reduce the
minimum option price specified by Sections 3.1(b) and 4.3 hereof, (c) increase
the maximum permissible term of any Option specified by Section 3.1(b)(ii) or
9.1 hereof, and (d) remove responsibility for administering the Plan from the
Committee. In addition, no amendments to, or termination of, the Plan shall in
any way impair the rights of an Optionee or a Participant under any Award
previously granted without such Optionee's or Participant's consent.
9.10. ADJUSTMENTS. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities, the issuance of warrants
or other rights to purchase Shares or other securities, or other similar
corporate transaction or event affects the Shares with respect to which Options
have been or may be issued under the Plan, such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as the Committee may deem
equitable, adjust any or all of (i) the number and type of Shares that
thereafter may be made the subject of Options, (ii) the number and type of
Shares subject to outstanding Options and stock appreciation rights, and (iii)
the grant or exercise price with respect to any Option, or, if deemed
appropriate, make provision for a cash
10
<PAGE>
payment to the holder of any outstanding Option; PROVIDED, in each case, that
with respect to "incentive stock options," no such adjustment shall be
authorized to the extent that such adjustment would cause such options to
violate Section 422(b) of the Code or any successor provision; and PROVIDED
FURTHER, that the number of Shares subject to any Option denominated in Shares
shall always be a whole number.
9.11. OTHER PROVISIONS. Notwithstanding anything in this Plan to the
contrary, if the Board of Directors determine that the Plan cannot, or that an
Award need not, satisfy the requirements of Rule 16b-3 of the Exchange Act (such
that grants of Awards are not exempt from Section 16(b) of the Exchange Act),
then the Committee shall have the authority to waive or modify those provisions
of the Plan which are intended to satisfy such Rule 16b-3 requirements and shall
allow an Optionee who has been granted "nonqualified stock options" to transfer
any or all of such options to any one or more of the following persons: (i) the
spouse, parent, issue, spouse of issue, or issue of spouse ("issue" shall
include all descendants whether natural or adopted) of such Optionee; or (ii) a
trust for the benefit of those persons described in clause (i) above or for the
benefit of such Optionee, or for the benefit of any such persons and such
Optionee; PROVIDED, HOWEVER, that such transferee shall be bound by all of the
terms and conditions of this Plan and shall execute an agreement satisfactory to
the Company evidencing such obligation; and PROVIDED FURTHER, HOWEVER, that such
Optionee shall remain bound by the terms and conditions of this Plan. The
Company shall cooperate with an Optionee's transferee and the Company's transfer
agent in effectuating any transfer permitted pursuant to this Section 9.11.
ARTICLE 10.
MISCELLANEOUS
10.1. TAX WITHHOLDING. The Company shall notify an Optionee or Participant
of any income tax withholding requirements arising as a result of the grant of
any Award, exercise of an Option or stock appreciation rights or any other event
occurring pursuant to this Plan. The Company shall have the right to withhold
from such Optionee or Participant such withholding taxes as may be required by
law, or to otherwise require the Optionee or Participant to pay such withholding
taxes. If the Optionee or Participant shall fail to make such tax payments as
are required, the Company or its subsidiaries or affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to such Optionee or Participant or to take such other
action as may be necessary to satisfy such withholding obligations.
10.2. RIGHT OF DISCHARGE RESERVED. Nothing in the Plan nor the grant of an
Award hereunder shall confer upon any employee, Director or other individual the
right to continue in the employment or service of the Company or any subsidiary
or affiliate of the Company or affect any right that the Company or any
subsidiary or affiliate of the Company may have to terminate the employment or
service of (or to demote or to exclude from future Options under the Plan) any
such employee, Director or other individual at any time for any reason. Except
as specifically provided by the Committee, the Company shall not be liable for
the loss of existing or potential profit from an Award granted in the event of
termination of an employment or other relationship even if the termination is in
violation of an obligation of the Company or any subsidiary or affiliate of the
Company to the employee or Director.
10.3. NATURE OF PAYMENTS. All Awards made pursuant to the Plan are in
consideration of services performed or to be performed for the Company or any
subsidiary or affiliate of the Company. Any income or gain realized pursuant to
Awards under the Plan and any stock appreciation rights constitutes a special
incentive payment to the Optionee, Participant or Holder and shall not be taken
into account, to the extent permissible under applicable law, as compensation
for purposes of any of the employee benefit plans of the Company or any
subsidiary or affiliate of the Company except as may be determined by the
Committee or by the Directors or directors of the applicable subsidiary or
affiliate of the Company.
11
<PAGE>
10.4. SEVERABILITY. If any provision of the Plan shall be held unlawful or
otherwise invalid or unenforceable in whole or in part, such unlawfulness,
invalidity or unenforceability shall not affect any other provision of the Plan
or part thereof, each of which remain in full force and effect. If the making of
any payment or the provision of any other benefit required under the Plan shall
be held unlawful or otherwise invalid or unenforceable, such unlawfulness,
invalidity or unenforceability shall not prevent any other payment or benefit
from being made or provided under the Plan, and if the making of any payment in
full or the provision of any other benefit required under the Plan in full would
be unlawful or otherwise invalid or unenforceable, then such unlawfulness,
invalidity or unenforceability shall not prevent such payment or benefit from
being made or provided in part, to the extent that it would not be unlawful,
invalid or unenforceable, and the maximum payment or benefit that would not be
unlawful, invalid or unenforceable shall be made or provided under the Plan.
10.5. GENDER AND NUMBER. In order to shorten and to improve the
understandability of the Plan document by eliminating the repeated usage of such
phrases as "his or her" and any masculine terminology herein shall also include
the feminine, and the definition of any term herein in the singular shall also
include the plural except when otherwise indicated by the context.
10.6. GOVERNING LAW. The Plan and all determinations made and actions
taken thereunder, to the extent not otherwise governed by the Code or the laws
of the United States, shall be governed by the laws of the State of Delaware and
construed accordingly.
10.7. EFFECTIVE DATE OF PLAN; TERMINATION OF PLAN. The Plan shall be
effective on the date of the approval of the Plan by the holders of a majority
of the shares entitled to vote at a duly constituted meeting of the
stockholders; PROVIDED, HOWEVER, that the adoption of the Plan is subject to
such stockholder approval within 12 months after the date of adoption of the
Plan by the Board of Directors. The Plan shall be null and void and of no effect
if the foregoing condition is not fulfilled and in such event each Award and
related stock appreciation rights shall, notwithstanding any of the preceding
provisions of the Plan, be null and void and of no effect. Awards may be granted
under the Plan at any time and from time to time on or prior to May 28, 2006, on
which date the Plan will expire except as to Awards and related stock
appreciation rights then outstanding under the Plan. Such outstanding Awards and
stock appreciation rights shall remain in effect until they have been exercised
or terminated, or have expired.
10.8. CAPTIONS. The captions in this Plan are for convenience of reference
only, and are not intended to narrow, limit or affect the substance or
interpretation of the provisions contained herein.
12
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