UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21690
SUNGLASS HUT INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in its Charter)
FLORIDA 65-0667471
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
255 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 461-6100
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(Former name, former address and 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 [ ]
The number of shares outstanding of the registrant's common stock is 54,680,446
(as of June 6, 1997).
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of May 3, 1997 (Unaudited)
and February 1, 1997........................................................................3
Consolidated Statements of Income for the Thirteen Weeks Ended May 3, 1997
and May 4, 1996 (Unaudited).................................................................4
Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 3,
1997 and May 4, 1996 (Unaudited)............................................................5
Notes to Consolidated Financial Statements (Unaudited)......................................7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................9
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.........................................................15
Signatures...............................................................................16
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
May 3, February 1,
1997 1997
------------------- -------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,463 $ 5,673
Accounts receivable 4,220 3,032
Inventory 135,394 145,194
Prepaid rent 7,851 7,706
Other current assets 12,141 13,324
------------------- -------------------
Total current assets 165,069 174,929
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $70,039 and $63,941 136,322 135,930
UNAMORTIZED COST IN EXCESS OF NET ASSETS OF ACQUIRED
BUSINESSES, net of accumulated amortization of $27,205 and $27,587 38,805 38,849
OTHER ASSETS 13,820 14,229
------------------- -------------------
Total assets $ 354,016 $ 363,937
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,202 $ 13,610
Accrued payroll and related taxes 5,037 6,435
Accrued rent 7,844 6,759
Accrued expenses 5,737 966
Accrued restructuring expenses 9,358 15,096
Current portion of long-term debt 299 129
------------------- -------------------
Total current liabilities 48,477 42,995
LONG-TERM DEBT, net of current portion and unamortized discount 147,136 163,150
------------------- -------------------
Total liabilities 195,613 206,145
------------------- -------------------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 546 544
Additional paid-in capital 164,565 164,326
Foreign currency translation adjustment (149) (227)
Accumulated deficit (6,559) (6,851)
------------------- -------------------
Total stockholders' equity 158,403 157,792
=================== ===================
Total liabilities and stockholders' equity $ 354,016 $ 363,937
=================== ===================
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See Notes to Consolidated Financial Statements.
3
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<CAPTION>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Thirteen Weeks Ended
----------------------------------------
May 3, May 4,
1997 1996
---------------- ------------------
<S> <C> <C>
Net sales $ 138,249 $ 122,822
Cost of goods sold, occupancy and buying expenses 86,472 70,111
---------------- ------------------
Gross profit 51,777 52,711
Selling, general and administrative expenses: ---------------- ------------------
Operating expenses 41,583 33,521
Depreciation and leasehold amortization 6,563 5,177
Amortization of cost in excess of net assets of acquired businesses 599 521
---------------- ------------------
48,745 39,219
---------------- ------------------
Earnings before interest and income taxes 3,032 13,492
Interest expense 2,542 1,462
---------------- ------------------
Earnings before income taxes 490 12,030
Provision for income taxes 198 4,872
---------------- ------------------
Net income $ 292 $ 7,158
================ ==================
Net income per share $ .01 $ .13
================ ==================
Weighted average shares outstanding 55,363 55,763
================ ==================
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See Notes to Consolidated Financial Statements.
4
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Thirteen Weeks Ended
-----------------------------------------
May 3, May 4,
1997 1996
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 292 $ 7,158
----------------- ------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities-
Depreciation and amortization 7,162 5,698
Compensation expense - stock grants 216 -
Amortization of debt discount 85 -
Changes in assets and liabilities
Changes in assets:
Accounts receivable (1,188) (1,735)
Inventory 9,800 (19,139)
Prepaid rent (145) (615)
Other current assets 1,183 (3,435)
Other assets (247) (132)
Changes in liabilities:
Accounts payable 6,592 (2,164)
Accrued expenses 967 1,716
----------------- ------------------
24,425 (19,806)
----------------- ------------------
Net cash provided by (used in) operating activities 24,717 (12,648)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,292) (7,401)
----------------- ------------------
Net cash used in investing activities (9,292) (7,401)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under revolving credit facilities 65,600 48,166
Principal payments on revolving credit facilities (81,500) (31,700)
Principal payments on long-term debt (29) -
Payment of deferred financing costs (22) -
Proceeds from exercise of stock options 11 4,008
----------------- ------------------
Net cash provided by (used in) financing activities (15,940) 20,474
----------------- ------------------
Effect of exchange rate changes on cash and cash equivalents 305 446
----------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (210) 871
CASH AND CASH EQUIVALENTS, beginning of period 5,673 4,506
----------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 5,463 $ 5,377
================= ==================
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Continued on Next Page
5
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<CAPTION>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
Thirteen Weeks Ended
-----------------------------------------
May 3, May 4,
1997 1996
----------------- ------------------
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 860 $ 1,009
================= ==================
Income taxes $ 393 $ 3,576
================= ==================
Non-cash activities:
Write-down of property and equipment against accrued restructuring
expenses $ 2,233 $ -
================= ==================
</TABLE>
See Note to Consolidated Financial Statements.
6
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL:
The accompanying consolidated financial statements of Sunglass Hut
International, Inc. and subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
The accounting policies followed for interim financial reporting are the same as
those disclosed in Note 1 of the Notes to Consolidated Financial Statements
included in the Company's audited financial statements for the fiscal year ended
February 1, 1997 which are included in Form 10-K. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial information for the interim periods reported
have been made. Results of operations for the thirteen weeks ended May 3, 1997
are not necessarily indicative of the results to be expected for the entire
fiscal year ending January 31, 1998.
NOTE 2 - EARNINGS PER SHARE:
If the Company were required to calculate earnings per share under Statement of
Financial Accounting Standards No. 128, which is effective for periods after
December 15, 1997, basic and diluted earnings per share for the first quarter of
1997 and 1996, respectively, would not have been materially different than the
earnings per share reported in the accompanying consolidated statements of
income.
NOTE 3 - ACCRUED RESTRUCTURING EXPENSES:
During the first quarter of 1997, $5.7 million of the accrual for restructuring
expenses was utilized for write-downs of property and equipment, and lease exit,
inventory restocking and handling, and severance costs related to corporate
restructuring and store closings. Of the 150 store closures included in the
restructuring plan, 63 stores have been closed as of the end of the first
quarter, 1997. The Company plans to complete the restructuring plan in 1997.
7
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NOTE: 4 - CONTINGENCIES:
The Internal Revenue Service ("IRS") is conducting an examination of the
Company's federal income tax returns for fiscal 1992 through 1994. While the
audit has not yet been finalized, the IRS personnel conducting the examination
have advised the Company of concerns related to the Company's income tax
reporting of certain deductions for noncompete agreements and intercompany
pricing matters regarding its foreign subsidiaries. The Company believes its
positions on these matters are supportable. While this matter is in the early
stage of development, based on information available to the Company at this
time, management believes that this issue will not have a material adverse
impact on the Company; however, there can be no assurance as to the ultimate
resolution of this matter.
NOTE 5 - SUBSEQUENT EVENT:
On May 29, 1997, Jack B. Chadsey resigned as President and Chief Executive
Officer and as a Director of the Company to devote time to other business
interests and James N. Hauslein, Chairman of the Board, was named Acting
President and Chief Executive Officer. The Company estimates it will record a
charge of approximately $0.01 per share during the second quarter of 1997 in
connection with Mr. Chadsey's resignation.
8
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), Sunglass Hut International,
Inc. (the "Company") is hereby providing cautionary statements identifying
important factors that could cause the Company's actual results to differ
materially from those projected in forward-looking statements (as such term is
defined in the Reform Act) of the Company made by or on behalf of the Company
herein or which are made orally, whether in presentations, in response to
questions or otherwise. Any statements that express, or involve discussions as
to expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
"will result," "are expected to," "will continue," "is anticipated," "plans,"
"intends," "estimated," "projection" and "outlook") are not historical facts and
may be forward-looking and, accordingly, such statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Such
uncertainties include, among others, the following factors:
ABILITY TO MANAGE GROWTH. The Company has grown significantly in the past
several years. However, there is no assurance that the Company will sustain the
growth in the number of stores and revenues that it has achieved historically.
Moreover, there can be no assurance that the Company's management and financial
controls, executive personnel and other corporate support systems will be
adequate to manage the increase in the size and scope of the Company's business
in prior and future periods. The continued growth of the Company is dependent,
in large part, upon the Company's ability to open and operate new stores on a
profitable basis, which in turn is subject to, among other things, the Company's
ability to secure suitable store sites on a timely basis and on satisfactory
terms, the Company's ability to hire, train and retain qualified management and
other personnel, the availability of adequate capital resources and the
successful integration of new stores into existing operations. There can be no
assurance that, because of demographic or other reasons, the Company's new
stores will achieve sales and profitability comparable to the Company's existing
stores. In addition, there can be no assurance that the opening of new locations
will not cannibalize sales at existing locations.
RISKS OF NEW SPECIALTY STORE CONCEPTS AND LOCATIONS. The Company's ability to
expand into new concepts has not been fully tested. The Company opened its first
Watch Station store, a watch specialty store, in May 1996. Accordingly, its
operations will be subject to the numerous risks of establishing new business
enterprises, including unanticipated operating problems, lack of experience and
customer acceptance, significant competition from existing and new retailers,
and the extent of existing relationships between such retailers and
manufacturers/distributors. There can be no assurance that Watch Station will be
able to duplicate the growth of the Company's Sunglass Hut stores or that it
will achieve sales and profitability levels that justify the Company's
investment therein. Expansion of Watch Station also involves other risks that
could have a material adverse effect on the Company, including (i) diversion of
management's attention from the Company's core business, (ii) difficulties with
the hiring, retention and training of key personnel, (iii) risks associated with
unanticipated problems or legal liabilities and (iv) possible reduction of the
Company's gross profit margin. In the fourth quarter of fiscal 1996, the Company
halted expansion of EyeX, a prescription glasses and corrective lens store
concept launched in October 1995.
9
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
There can be no assurance that the Company will be able to successfully execute
other components of its growth strategies. The Company's expansion plans include
both its "Sunscriptions" prescription sunglass program and an increasing
percentage of non-traditional retail locations, including licensed departments,
with respect to which the Company has substantially less experience. Moreover,
the Company's international expansion subjects the Company to certain risks and
limitations not associated with its current U.S. operations, including (i) the
uncertainty of market acceptance of specialty retailers and/or the Company's
product offerings, (ii) the Company's ability to hire and train local personnel,
(iii) the Company's dependence on local business practices, (iv) foreign
currency losses, (v) the impact of foreign taxes, and (vi) foreign investment
restrictions and limitations.
Although the Company has acquired competitors in the past and considers
acquiring additional smaller chains of specialty sunglass retailers on an
ongoing basis, there can be no assurance that the Company will be able to
consummate acquisitions on satisfactory terms or that any acquired operations
will be successfully integrated. Moreover, the consolidation of the domestic
specialty sunglass industry has reduced the number of larger companies available
for sale, which could lead to higher prices being paid for the acquisition of
the remaining independent companies.
MERCHANDISING AND CONCENTRATION OF SUPPLIERS. The Company's success depends to a
large degree on its ability to provide a merchandise selection that appeals to
customers' changing desires and that appropriately reflects geographical or
other demographic differences in brand and style preferences. A failure by the
Company to identify or take advantage of emerging fashion trends in sunglasses
could have a material adverse effect on its results of operations. Moreover, the
Company has no long-term purchase contracts or other contractual assurance of
continued supply, pricing or access to new products. While the Company believes
that it has good relationships with its vendors, the inability to obtain
merchandise from one or more key vendors on a timely basis, or a material change
in the Company's current purchase terms, could have a material adverse effect on
its results of operations.
The market for sunglasses is increasingly subject to the risk of changing
fashion trends, and the demand for certain styles can change. Although the
Company has historically enjoyed favorable return privileges with its vendors,
there can be no assurance that the Company will not be subject to limitations on
returns in the future. In addition, the Company's efforts to develop branded
sunglass products will increase the Company's exposure to risks of inventory
obsolescence. Accordingly, in the event that a particular style of sunglass does
not achieve widespread consumer acceptance, the Company may be required to take
significant markdowns, which could have a material adverse effect on its gross
profit margin and other operating results.
10
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
DEPENDENCE ON KEY PERSONNEL. The Company's success and ability to properly
manage its growth depends to a significant extent both upon the performance of
its current senior management team and its ability to attract, hire, motivate
and retain additional, qualified management personnel in the future. The
inability to recruit and retain such additional personnel, or the loss of
service of any of the Company's current executive officers, could have a
material adverse impact on the Company.
SEASONALITY. The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its net sales and net income. The Company
has generally experienced lower net sales and net income in each of the first
and third fiscal quarters of each year, and the Company expects this trend may
continue for the foreseeable future. The Company's quarterly results of
operations may also fluctuate significantly as a result of a variety of factors,
including the timing of new store openings and sales contributed by new stores.
POSSIBLE VOLATILITY OF STOCK AND NOTE PRICES. The market prices of the Company's
common stock and convertible subordinated notes are subject to significant
volatility caused by factors such as quarterly fluctuations in the financial
results of the Company, monthly comparable store sales results, changes in
financial estimates by securities analysts, shortfalls in earnings or sales
below analysts' expectations, the overall economy and the financial markets. In
addition, the common stock is quoted on the NASDAQ National Market and the notes
are traded on the NASDAQ SmallCap Market, which stock markets have experienced,
and are likely to experience in the future, significant price and volume
fluctuations which could adversely affect the market price of the common stock
and the notes without regard to the operating performance of the Company.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS. Certain provisions of the Company's Articles of
Incorporation and Bylaws may be deemed to have anti-takeover effects and may
delay, defer or prevent a takeover attempt that a stockholder might consider in
its best interest. These provisions (i) classify the Company's Board of
Directors into three classes, each of which will serve for different three-year
periods, (ii) provide that only the Board of Directors or Chief Executive
Officer may call special meetings of the stockholders, and (iii) establish
certain advance notice procedures for nomination of candidates for election as
directors and for stockholder proposals to be considered at stockholders'
meetings. The Company is also subject to certain provisions of the Florida
Business Corporation Act which may deter or frustrate takeovers of Florida
corporations.
The Company cautions that the risk factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrences of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
11
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED) GENERAL
Sunglass Hut International, Inc. ("Sunglass Hut" or the "Company") is the
world's largest specialty retailer of sunglasses with over 2,000 locations
worldwide. Since opening its first kiosk in Miami, Florida in 1971, the Company
has grown rapidly, both through internal expansion and acquisitions, increasing
from 716 stores as of fiscal yearend 1992 to 2,054 specialty sunglass and 62
Watch Station locations as of the quarter ended May 3, 1997. The Company's
business strategy is to combine the operating efficiencies, extensive product
assortment and everyday low prices of category dominant retailers with the level
of customer service and ambiance characteristic of specialty retailers. The size
of the Company's products allows the Company to use a wide variety of sales
location formats, including malls, airports, on-street sites and licensed
departments within department stores.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital to support
its inventory requirements and new store additions. The Company's long-term
liquidity requirements relate principally to the maturity of the existing
revolving credit facility in December 1998, the maturity of the $115 million
Convertible Subordinated Notes in June 2003, operating lease commitments and
continued store expansion. The credit facility includes up to $10 million in
letters of credit. Borrowings under the credit facility generally bear interest
at a floating rate equal to, at the Company's option, (i) the greater of (a) the
prime rate or (b) the federal funds effective rate plus 0.50%, plus, in each
case, up to a maximum of 0.75% depending on the levels of certain financial
ratios, or (ii) LIBOR plus a range from .625% to 1.75% depending on the levels
of certain financial ratios.
Due to the seasonal nature of the Company's business, outstanding borrowings
under the credit facility typically peak during the first and third fiscal
quarters as the Company finances inventory purchases in advance of the Company's
highest sales periods. See "Seasonality and Quarterly Results." Outstanding
borrowings as of the end of first quarter, 1997, have been reduced from yearend
1996, however, primarily due to the Company's inventory reduction and
rebalancing efforts during the quarter. As of May 3, 1997, borrowings under the
credit facility totaled $34.6 million, and $1.7 million in letters of credit
were outstanding, which were maintained as security for performance under the
Company's executive office lease and to service other debt.
Net cash provided by operating activities was $24.7 million for the first three
months of fiscal 1997 compared to net cash used of $12.6 million for the same
period in fiscal 1996. The difference between the Company's net income and
operating cash flow in fiscal 1997 is primarily attributable to non-cash charges
for depreciation and amortization, the reduction in inventory of $9.8 million
and the increase in accounts payable of $6.6 million.
Net cash used in investing activities was $9.3 million for the first three
months of fiscal 1997 compared to $7.4 million for the same period last year.
Investing cash flows reflect capital expenditures, which are primarily related
to new store expansion and the renovation of existing stores.
Net cash used in financing activities was $15.9 million for the first three
months of fiscal 1997 compared to net cash provided by financing activities of
$20.5 million for the same period last year, primarily due to a net reduction in
the amount outstanding under the revolving credit facility.
12
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Management believes that cash provided by operations together with borrowing
availability under the Company's revolving credit facility, as amended, will be
sufficient to fund estimated capital expenditures associated with the Company's
planned opening of approximately 160 additional locations in fiscal 1997 and
other working capital requirements through at least fiscal 1997.
RESULTS OF OPERATIONS
QUARTER ENDED MAY 3, 1997 COMPARED TO QUARTER ENDED MAY 4, 1996
Net sales increased $15.4 million, or 12.6%, to $138.2 million during the
quarter ended May 3, 1997 compared to $122.8 million for the same period of
fiscal 1996. This increase reflects sales from new stores opened during the
first quarter of fiscal 1997 (and fiscal 1996 to the extent not reflected in
comparable store sales) of $22.6 million, partially offset by a decrease in
comparable store sales of $7.2 million.
Gross profit decreased $934,000, or 1.8%, to $51.8 million during the quarter
ended May 3, 1997 compared to $52.7 million for the same period of fiscal 1996.
As a percentage of net sales, gross profit decreased 5.4% to 37.5% for the
quarter ended May 3, 1997 from 42.9% for the quarter ended May 4, 1996. The
decrease in gross profit is due to (1) negative expense leverage due to a
decrease in comparable store sales, as well as higher occupancy costs related to
the Company's new store expansion, including expansion into international
markets, (2) markdowns and promotions to reduce inventory levels, and (3) the
Company's expansion into international markets and the retail watch industry,
both of which generate lower gross profits than the Company's traditional
domestic sunglass business.
Operating expenses increased $8.1 million, or 24.1%, during the quarter ended
May 3, 1997 compared to the same period of fiscal 1996. This increase is
primarily due to operating expenses associated with the operations and
management of new stores opened and acquired in fiscal 1997 and 1996. Operating
expenses as a percentage of net sales were 30.1% in 1997 and 27.3% in 1996. The
increase in operating expenses as a percentage of net sales during 1997 is
mainly due to the negative impact of lower than expected comparable and new
stores' sales.
Depreciation and leasehold amortization expense increased $1.4 million, or
26.8%, to $6.6 million during the quarter ended May 3, 1997 compared to $5.2
million for the same period of fiscal 1996, primarily due to new store growth.
Interest expense increased $1.1 million to $2.5 million for the quarter ended
May 3, 1997, compared to $1.4 million for the same period last year due to an
increased borrowings level to support new store operating and capital cash
needs.
As a result of the foregoing, the Company reported net income of $.01 per share,
or $292,000, during the quarter ended May 3, 1997 compared to net income of $.13
per share, or $7.2 million, for the same period of fiscal 1996.
13
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SEASONALITY AND QUARTERLY RESULTS
Historically, the Company's operations have been seasonal, with highest net
sales and net income occurring in the second fiscal quarter (reflecting
increased demand for sunglasses during the spring and summer months) and, to a
lesser extent, the fourth fiscal quarter (reflecting increased demand during the
calendar year-end holiday selling season).
The Company's results of operations may also fluctuate from quarter to quarter
as a result of the amount and timing of sales contributed by new stores, the
integration of new stores into the operations of the Company, and the timing of
planned store closures, as well as other factors. The addition of a large number
of new stores can therefore significantly affect results of operations on a
quarter-to-quarter basis.
14
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.11 Consulting and Management Services Agreement
between Sunglass Hut International, Inc. and Hauslein
& Company, Inc. dated February 24, 1997 (1)
10.12 Stock Award Agreement between Sunglass Hut
International, Inc. and Edward L. Grund dated April
1, 1997 (1)
10.13 Restricted Stock Agreement between Sunglass Hut
International, Inc. and Edward L. Grund dated April
1, 1997 (1)
27 Financial Data Schedule
- ---------------
(1) Filed herewith.
(b) The Company did not file any reports on Form 8-K during the quarter
ended May 3, 1997.
15
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
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.
SUNGLASS HUT INTERNATIONAL, INC.
Date: June 17, 1997 By: /s/James N. Hauslein
--------------------------------------------
James N. Hauslein
Chairman of the Board and
Acting President and Chief Executive Officer
(principal executive officer)
Date: June 17, 1997 By: /s/Larry G. Petersen
--------------------------------------------
Larry G. Petersen
Senior Vice President-Finance
and Chief Financial Officer
(principal financial officer)
Date: June 17, 1997 By: /s/George L. Pita
--------------------------------------------
George L. Pita
Vice President-Finance
(principal accounting officer)
16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.11 Consulting and Management Services Agreement
between Sunglass Hut International, Inc. and Hauslein
& Company, Inc. dated February 24, 1997 (1)
10.12 Stock Award Agreement between Sunglass Hut
International, Inc. and Edward L. Grund dated April
1, 1997 (1)
10.13 Restricted Stock Agreement between Sunglass Hut
International, Inc. and Edward L. Grund dated April
1, 1997 (1)
27 Financial Data Schedule
EXHIBIT 10.11
CONSULTING AND MANAGEMENT SERVICES AGREEMENT
THIS CONSULTING AND MANAGEMENT SERVICES AGREEMENT ("Agreement") is made
and entered into as of the 24th day of February, 1997, by and between Sunglass
Hut International, Inc., a Florida corporation (the "Company"), and Hauslein &
Company, Inc., a Florida corporation ("Hauslein").
1. APPOINTMENT OF HAUSLEIN. The Company appoints Hauslein and Hauslein
accepts appointment on the terms and conditions provided in this Agreement, to
serve as a consultant to the Company's business.
2. BOARD OF DIRECTORS SUPERVISION. The activities of Hauslein to be
performed under this Agreement shall be subject to the supervision of the Board
of Directors of the Company (the "Board") to the extent required by applicable
law or regulation and subject to reasonable policies not inconsistent with the
terms of this Agreement adopted by the Board and in effect from time to time.
Where not required by applicable law or regulation, Hauslein shall not require
the prior approval of the Board to perform its duties under this Agreement.
3. AUTHORITY OF HAUSLEIN. Subject to any limitations imposed by
applicable law or regulation, Hauslein shall render management and consulting
services to the Company which services shall include advice and assistance
concerning any and all aspects of the operations, planning and financing of the
Company as needed from time to time. Such Hauslein services shall include (i)
assisting in locating, interviewing and recruiting senior executive candidates,
(ii) analyzing and reviewing the Company's proposed budget for fiscal 1997 and
future periods, (iii) making recommendations concerning the Company's business
strategies, (iv) working with management in establishing and monitoring the
Company's financial and other controls, (v) providing advice and consultation in
all areas of executing the Company's business plan, (vi) conducting relations on
behalf of the Company with accountants, attorneys and other professionals, and
(vii) making periodic reports to the Board with respect to the consulting
services provided hereunder. Without limiting the generality of the foregoing,
Hauslein will use its best efforts to cause James N. Hauslein to devote
substantially all his working time and attention to the business and affairs of
the Company and to give the Company the benefit of his special knowledge, skill
and business expertise to promote the Company's interests.
4. REIMBURSEMENT OF EXPENSES; INDEPENDENT CONTRACTOR. All obligations
or expenses incurred by Hauslein in the performance of its duties under this
Agreement shall be for the account of, on behalf of, and at the expense of the
Company. Hauslein shall not be obligated to make any advance to or for the
account of the Company or to pay any sums, except out of funds held in accounts
maintained by the Company nor shall Hauslein be obligated to incur any liability
or obligation for the account of the Company without assurance that the
necessary funds for the discharge of such liability or obligation will be
provided. Hauslein shall be an independent contractor, and nothing obtained in
this Agreement shall be deemed or construed (i) to create a partnership or joint
venture between the Company and Hauslein, or (ii) to cause Hauslein to be
responsible in any way for the debts, liabilities or obligations of the Company
or any other party, or (iii) to constitute any of Hauslein's employees, officers
or affiliates as employees, officers or agents of the Company. It is understood
that James N. Hauslein will continue to serve as the Company's Chairman of the
Board in accordance with the Company's bylaws.
5. MANAGEMENT FEE. In consideration of Hauslein's agreement to provide
the management services described in Section 3 of this Agreement, the Company
shall pay to Hauslein an annual base cash consulting and management fee equal to
$375,000, payable in monthly installments. Except as expressly provided in
Section 6, any bonus, grant of securities or payment of other additional
consideration shall be due only if approved by the Board in its sole discretion.
6. SUSPENSION OF CHAIRMAN'S CONSULTING FEES. It is agreed that, during
the term of this Agreement, neither James N. Hauslein nor Hauslein shall receive
any fee or other compensation in
<PAGE>
connection with James N. Hauslein's service on the Board, except for (x) the
annual director's fee and meeting fees paid to all non-employee directors of the
Company, and (y) the annual grants of options and restricted stock to be made to
non-employee directors pursuant to the Company's 1996 Executive Incentive
Compensation Plan, all of which fees and awards shall continue.
7. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
7.1 EXPENSE REIMBURSEMENT. During the term of Hauslein's
engagement hereunder, the Company shall, consistent with the Company's policies
and internal audit procedures and upon the submission of supporting
documentation by Hauslein or its representatives, reimburse Hauslein for all
reasonable expenses actually paid or incurred by Hauslein or its representatives
in the course of and pursuant to the business of the Company, including expenses
for travel and entertainment. It is expressly agreed that the Company will (x)
provide Hauslein with a non-accountable administrative expense allowance of
$8,500 per month, which is intended to defray in part the expenses incurred by
Executive in maintaining its Greenwich, Connecticut offices, and (y) reimburse
Hauslein for weekly, round-trip, first class air fare between New York and
Miami.
7.2 OTHER BENEFITS. The Company shall obtain or shall
continue in force, at the Company's sole expense, comprehensive major medical
and hospitalization insurance coverages, including dental coverages, either
group or individual, for James N. Hauslein in accordance with present practices.
The policies to be provided by the Company shall be on terms as determined by
the Board. Nothing paid to Hauslein or James N. Hauslein under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the base fee payable to Hauslein pursuant to this Agreement.
7.3 WORKING FACILITIES. The Company shall furnish James N.
Hauslein with an office, secretarial assistance and such other facilities and
services suitable to his position as Chairman of the Board and adequate for the
performance of Hauslein's duties hereunder.
7.4 HOUSING. The Company shall arrange and pay all costs of
leasing, maintaining and furnishing a Miami, Florida apartment for James N.
Hauslein during the term of this Agreement, up to a maximum of $3,300 per month.
7.5 AUTOMOBILE ALLOWANCE. Subject to the approval of the
Chairman of the Compensation Committee of the Board, the Company shall arrange
for (or reimburse Hauslein for the reasonable costs of) any necessary use of an
automobile by Hauslein for Company business from time to time during the term
hereof.
8. TERM. This Agreement shall remain in effect until terminated in
accordance with the provisions of this Agreement. Either the Company or Hauslein
may terminate this Agreement (x) upon 30 days' written notice to the other, or
(y) in the event of the breach of any of the material terms or provisions of
this Agreement by the other party, which breach is not cured within 10 business
days after written notice of the same is given to the party alleged to be in
breach.
9. STANDARD OF CARE. Hauslein (including any person or entity acting
for or on behalf of Hauslein) shall not be liable for any mistakes of fact,
errors of judgment, for losses sustained by the Company or for any acts or
omissions of any kind (including acts or omissions of Hauslein), unless the
Company's losses (including expenses, costs and attorneys' fees) are finally and
judicially determined to have resulted from the gross negligence or willful
misconduct of Hauslein.
10. INDEMNIFICATION OF HAUSLEIN. The Company hereby agrees to indemnify
and hold harmless Hauslein and its present and future officers, directors,
affiliates, employees and agents ("Indemnified Parties") to the fullest extent
that James N. Hauslein is required to be indemnified in accordance with his
existing Indemnification Agreement with the Company. The Company further agrees
to advance and
-2-
<PAGE>
reimburse the Indemnified Parties on a monthly basis for any cost of defending
any action or investigation arising in connection with his services hereunder
(including attorneys' fees and expenses), subject to an undertaking from such
Indemnified Party to repay the Company if such party is determined not to be
entitled to such indemnity.
11. NO ASSIGNMENT. Without the consent of Hauslein, the Company shall
not assign, transfer or convey any of its rights, duties or interest under this
Agreement, nor shall it delegate any of the obligations or duties required to be
kept or performed by it hereunder. Without the prior written consent of the
Company, Hauslein shall not assign, transfer or convey any of its rights, duties
or interests under this Agreement, nor shall it delegate any of the obligations
or duties required to be kept or performed by it under this Agreement.
12. NOTICES. All notices, demands, consents, approvals and requests
given by either party to the other hereunder shall be in writing and shall be
personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses:
If to the Company: Sunglass Hut International, Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Attention: Jack B. Chadsey, President
If to Hauslein: Hauslein & Company, Inc.
One Lafayette Place, Third Floor
Greenwich, Connecticut 06830
Attention: James N. Hauslein, President
Any party may at any time change its respective address by sending written
notice to the other party of the change in the manner hereinabove prescribed.
13. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or enforceable, shall not be affected thereby, and each term
and provision of this Agreement shall be valid and be enforced to the fullest
extent permitted by law.
14. NO WAIVER. The failure by any party to exercise any right, remedy
or elections herein contained or permitted by law shall not constitute or be
construed as a waiver or relinquishment for the future exercise of such right,
remedy or election, but the same shall continue and remain in full force and
effect. All rights and remedies that any party may have at law, in equity or
otherwise upon breach of any term or condition of this Agreement, shall be
distinct, separate and cumulative rights and remedies and no one of them,
whether exercised or not, shall be deemed to be in exclusion of any other right
or remedy.
15. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the matters herein contained and any
agreement hereafter made shall be ineffective to effect any change or
modification, in whole or in part, unless such agreement is in writing and
signed by the party against whom enforcement of the change or modification is
sought.
16. GOVERNING LAWS. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida without reference to the
laws of any other state.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly exercised by their authorized representatives as of the date first above
written.
SUNGLASS HUT INTERNATIONAL, INC.
By:______________________________________________
Jack B. Chadsey,
President and Chief Executive Officer
HAUSLEIN & COMPANY, INC.
By:______________________________________________
James N. Hauslein,
President and Chief Executive Officer
Agreed to And Acknowledged:
_________________________________________________
James N. Hauslein, Individually
-4-
EXHIBIT 10.12
SUNGLASS HUT INTERNATIONAL, INC.
STOCK AWARD AGREEMENT
This STOCK AWARD AGREEMENT made as of the 1st day of April, 1997, by and between
SUNGLASS HUT INTERNATIONAL, INC., a Florida corporation (the "Company"), and
Edward L. Grund (the "Executive").
BACKGROUND
The Compensation Committee of the Company has determined that it is in
the best interests of the Company and its shareholders to recognize the
Executive's performance and to provide incentive to the Executive based upon
increases in the value of the Company's common stock by making a grant to him of
shares of the Company's Common Stock.
NOW, THEREFORE, in consideration of the covenants and of the mutual
promises contained herein, the parties hereto , intending to be legally bound
hereby, agrees as follows.
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meaning set forth below:
(a) "Agreement" shall mean this Stock Award Agreement and
any amendments thereto.
(b) "Committee" shall mean the Compensation Committee of the
Board of Directors of the Company.
(c) "Common Stock" shall mean the common stock of the Company
as described in the Company's Articles of Incorporation, or such other stock as
shall be substituted therefor.
(d) "Company" shall mean Sunglass Hut International, Inc., a
Florida corporation, or any successor to the Company.
2. AWARD OF RESTRICTED STOCK. As of the date of this Agreement, the
Committee has granted to the Executive twenty-five thousand (25,000) shares of
Common Stock (the "Awarded Stock"). The shares of Awarded Stock shall be issued
promptly hereafter in the Executive's name and shall be free of any restrictions
or limitations other than those imposed by law.
3. TAXES. Prior to the Company's delivery of the shares of Awarded
Stock to the Executive, the Executive shall pay to the Company, or make
arrangements satisfactory to the Committee for payment of, any federal, state or
local taxes of any kind required by law to be withheld with respect to the
Awarded Stock and the Company shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to Executive any
<PAGE>
federal, state, or local taxes of any kind required by law to be withheld with
respect to such Awarded Stock.
4. AMENDMENT, MODIFICATION AND ASSIGNMENT. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by the Executive and the Committee.
No waiver by either party of any breach by the other party hereto of any
condition or provision of this Agreement shall be deemed a waiver of any other
conditions or provisions of this Agreement. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. This Agreement shall not be assigned by the Executive in whole or in
part. The rights and obligations created hereunder shall be binding on the
Executive and his heirs and legal representatives and on the successors and
assigns of the Company.
5. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT. The grant of the Awarded Stock
shall not be construed as giving the Executive the right to be retained in
the employ of the Company nor affect in any way the right of the Company to
terminate such employment at any time, with or without cause.
(b) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in this Agreement shall preclude the Company from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(c) SEVERABILITY. If any provision of this Agreement is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify this Agreement under any applicable law, such provision
shall be construed or deemed amended to conform to applicable law (or if such
provision cannot be so construed or deemed amended without materially altering
the purpose or intent of this Agreement, such provision shall be stricken as to
such jurisdiction and the remainder of this Agreement shall remain in full force
and effect).
(d) GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State
of Florida.
(e) HEADINGS. Headings are given to the Sections and
Subsections of this Agreement solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of this Agreement or any provision thereof.
(f) INTERPRETATION. The Executive accepts the Awarded Stock
subject to all of the terms and provisions of the Plan and this Agreement. The
Executive hereby accepts as
2
<PAGE>
binding, conclusive and final all decisions or interpretations of the Committee
or the Board upon any questions arising under the Plan and this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
SUNGLASS HUT INTERNATIONAL, INC.
By:_____________________________________
JACK B. CHADSEY, President and Chief
Executive Officer
________________________________________
EDWARD L. GRUND
EXHIBIT 10.13
SUNGLASS HUT INTERNATIONAL, INC.
RESTRICTED STOCK AGREEMENT
This RESTRICTED STOCK AGREEMENT made as of the 1st day of April, 1997, by and
between SUNGLASS HUT INTERNATIONAL, INC., a Florida corporation (the "Company"),
and Edward L. Grund (the "Executive").
BACKGROUND
The Compensation Committee of the Company has determined that it is in
the best interests of the Company and its shareholders to recognize the
Executive's performance and to provide incentive to the Executive to remain an
executive with the Company and enhance the Company's profitability by making a
grant to him of Restricted Stock subject to and in accordance with the Sunglass
Hut International, Inc. 1996 Executive Incentive Compensation Plan (the "Plan")
and the terms of this Agreement. The Plan is incorporated herein by reference
and made a part of this Agreement, and any term used in this Agreement and not
defined herein shall have the meaning set forth in the Plan.
NOW, THEREFORE, in consideration of the covenants and of the mutual
promises contained herein, the parties hereto , intending to be legally bound
hereby, agrees as follows.
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meaning set forth below:
(a) "Agreement" shall mean this Restricted Stock Agreement
and any amendments thereto.
(b) "Award" shall mean the award of Restricted Stock under
this Agreement.
(c) "Cause" shall mean (i) the willful failure or refusal of
the Executive to perform the duties or render the services reasonably assigned
to him from time to time by the Company's Chief Executive Officer or Board of
Directors (except during reasonable vacation periods or sick leave), (ii) the
Executive's unsatisfactory performance of his duties as an employee of the
Company which continues after notice and a reasonable opportunity to cure, (iii)
the charging or indictment of the Executive in connection with a felony, (iv)
the association, directly or indirectly, of the Executive, for his profit or
financial benefit, with any person, firm, partnership, association, entity or
corporation that competes in any material way with the Company, (v) the
disclosing or using of any material trade secret or confidential information of
the Company at any time by the Executive, except as required in connection with
his duties to the Company, or (vi) the breach by the Executive of his fiduciary
duty or duty of trust to the Company.
<PAGE>
(d) "Change in Control" shall mean a Change in Control as
defined in Section 9(b) of the Plan.
(e) "Committee" shall mean the Compensation Committee of the
Board of Directors of the Company.
(f) "Common Stock" shall mean the common stock of the Company
as described in the Company's Articles of Incorporation, or such other stock as
shall be substituted therefor.
(g) "Company" shall mean Sunglass Hut International, Inc., a
Florida corporation, or any successor to the Company.
(h) Disability" shall mean a permanent and total disability
(within the meaning of Section 22(e) of the Code), as determined by a medical
doctor satisfactory to the Committee.
(i) "Disposition" shall mean any sale, transfer, encumbrance,
gift, donation, assignment, pledge, hypothecation, or other disposition, whether
similar or dissimilar to those previously enumerated, whether voluntary or
involuntary, and including, but not limited to, any disposition by operation of
law, by court order, by judicial process, or by foreclosure, levy or attachment.
(j) "Earnings Per Share" shall mean earnings per share of the
Company, as reflected in the audited annual financial statements of the Company
for the year, excluding the impact of extraordinary items, non-recurring charges
and/or Watch Station and other non-Sunglass Hut business units that may be
established in the future.
(k) "Restricted Stock" shall mean the Common Stock awarded
to the Executive under the terms of this Agreement.
2. AWARD OF RESTRICTED STOCK. As of the date of this Agreement, the
Committee has granted the Award to the Executive, consisting of two hundred
thousand (200,000) shares of Common Stock. Such shares shall be issued promptly
hereafter in the Executive's name.
3. DELIVERY OF RESTRICTED STOCK.
(a) The restrictions on the Restricted Stock shall lapse, and
the shares of the Restricted Stock shall be delivered to the Executive,
cumulatively according to the following schedule (provided in each case that the
Executive is an employee of the Company or any of its subsidiaries on such
relevant vesting date):
66,667 shares on April 1, 1998
2
<PAGE>
66,667 shares on April 1, 1999
66,666 shares on April 1, 2000
(b) The restrictions on all of the shares of Restricted Stock
shall also lapse, and all such shares of Restricted Stock shall be delivered to
the Executive (or his beneficiaries or estate pursuant to Section 7 hereof in
the event of his death), promptly after the first to occur of the following:
(i) termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's death or
Disability; or
(ii) the occurrence of a Change in Control of the
Company.
(c) One or more stock certificates evidencing the Restricted
Stock shall be issued in the name of the Executive. All such stock certificates
shall bear the following legend:
"The shares of the Common Stock evidenced by this Certificate
are subject to the terms and conditions of a Restricted Stock
Agreement dated April 1, 1997 between the registered owner and
Sunglass Hut International, Inc.; such shares are subject to
forfeiture under the terms of said Agreement; and such shares
shall not be sold, transferred, assigned, pledged, encumbered
or otherwise alienated or hypothecated except pursuant to the
provisions of said Agreement, a copy of which is available
from Sunglass Hut International, Inc. upon request."
Until certificates evidencing the shares of the Restricted Stock are delivered
without restrictions to the Executive in accordance with the terms of this
Agreement, the Executive shall (upon request by the Company) deposit with the
Company stock powers or other instruments of transfer or assignment, duly
endorsed in blank with signature guaranteed, corresponding to each certificate
for Restricted Stock. If the Executive shall fail to provide the Company with
any such stock power or other instrument of transfer or assignment, the
Executive hereby irrevocably appoints the Secretary of the Company as his
attorney-in-fact to execute and deliver any such power or other instrument which
may be necessary to effectuate the transfer of the Restricted Stock (or
assignment of distributions thereon) on the books and records of the Company.
(d) The Executive shall not effect a Disposition of any
shares of Restricted Stock unless, until and to the extent the restrictions
imposed upon such stock shall have lapsed in accordance with this Agreement. Any
attempt to effect a Disposition of any shares of Restricted Stock prior to the
date on which the restrictions have lapsed, shall be void ab initio.
4. FORFEITURE UPON TERMINATION OF EMPLOYMENT.
(a) Subject to paragraph (b) of this Section 4, if the
Executive's employment with the Company and its subsidiaries is terminated for
any reason prior to the date on which the
3
<PAGE>
restrictions on shares of Restricted Stock have lapsed pursuant to Section 3
hereof, the shares of Restricted Stock with respect to which the restrictions
have not so lapsed shall be returned to the Company and shall be deemed to have
been forfeited by the Executive. The Committee shall have the power and
authority to enforce on behalf of the Company any rights of the Company under
this Agreement in the event of the Executive's forfeiture of the shares of
Restricted Stock pursuant to this Agreement.
(b) Notwithstanding the foregoing, the restrictions on any
shares of Non-Forfeited Stock shall lapse, and the Non-Forfeited Stock shall be
promptly delivered to the Executive, upon the Company's termination of the
Executive's employment other than for Cause.
5. RIGHTS WITH RESPECT TO RESTRICTED STOCK.
(a) Except as otherwise provided in this Agreement, the
Executive shall have, with respect to all shares of Restricted Stock, all the
rights of a shareholder of the Company, including the right to vote the
Restricted Stock and the right to receive cash dividends, if any, as may be
declared on the Restricted Stock from time to time. Any shares of Common Stock
issued to the Executive as a dividend with respect to Restricted Stock shall
have the same status and bear the same legend as the Restricted Stock.
(b) In the event that the Common Stock, as a result of a
stock split or stock dividend or combination of shares or any other change or
exchange for other securities, by reclassification, reorganization or otherwise,
is increased or decreased or changed into or exchanged for a different number or
kind of shares of stock or other securities of the Company or of another
corporation, the number of shares of the Restricted Stock shall be
appropriately adjusted to reflect such change. If any such adjustment shall
result in a fractional share, such fraction shall be disregarded.
6. TAXES.
(a) The Executive agrees that he shall not make an election
(a "Section 83(b) Election") pursuant to Section 83(b) of the Internal Revenue
Code of 1986, as amended, to include the value of the Restricted Stock in his
gross income for 1997. In the event that notwithstanding the foregoing, the
Executive shall make a Section 83(b) Election with regard to the Restricted
Stock, then all of the Restricted Stock, and any dividends received by the
Executive with respect thereto, immediately shall be forfeited by the Executive
and shall be returned to the Company, and this Agreement shall be void ab
initio.
(b) The Executive shall, no later than the date as of which
any restrictions referred to in this Agreement hereof shall lapse, pay to the
Company, or make arrangements satisfactory to the Compensation Committee for
payment of, any federal, state or local taxes of any kind required by law to be
withheld with respect to the Restricted Stock with respect to which the
restrictions have lapsed, and the Company shall, to the extent permitted by law,
have
4
<PAGE>
the right to deduct from any payment of any kind otherwise due to Executive
any federal, state, or local taxes of any kind required by law to be withheld
with respect to such Restricted Stock.
7. DELIVERY UPON DEATH. In the event of the Executive's death while
employed by the Company and its subsidiaries, any shares of Restricted Stock
that previously had not been forfeited pursuant to Sections 3 or 4 hereof shall
be delivered, without continuance of any restrictions provided for in this
Agreement, to the beneficiary or beneficiaries designated by the Executive, or
if the Executive has not so designated any beneficiary, or no designated
beneficiary survives the Executive, such shares shall be delivered to the
personal representative of the Executive's estate.
8. AMENDMENT, MODIFICATION AND ASSIGNMENT. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by the Executive and the Committee.
No waiver by either party of any breach by the other party hereto of any
condition or provision of this Agreement shall be deemed a waiver of any other
conditions or provisions of this Agreement. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. This Agreement shall not be assigned by the Executive in whole or in
part. The rights and obligations created hereunder shall be binding on the
Executive and his heirs and legal representatives and on the successors and
assigns of the Company.
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT. The grant of the Award shall not
be construed as giving the Executive the right to be retained in the employ
of the Company nor affect in any way the right of the Company to terminate such
employment at any time, with or without cause.
(b) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in this Agreement shall preclude the Company from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(c) SEVERABILITY. If any provision of this Agreement is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify this Agreement or the Award under any applicable law, such
provision shall be construed or deemed amended to conform to applicable law (or
if such provision cannot be so construed or deemed amended without materially
altering the purpose or intent of this Agreement and the Award, such provision
shall be stricken as to such jurisdiction and the remainder of this Agreement
and the Award shall remain in full force and effect).
(d) NO TRUST OR FUND CREATED. Neither this Agreement nor the
Award shall create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between the Company and the Executive or any
other person. To the extent that the Executive or
5
<PAGE>
any other person acquires a right to receive payments from the Company pursuant
to this Agreement, such right shall be no greater than the right of any
unsecured general creditor of the Company.
(e) GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State
of Florida.
(f) HEADINGS. Headings are given to the Sections and
Subsections of this Agreement solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of this Agreement or any provision thereof.
(g) INTERPRETATION. The Executive accepts the Restricted
Stock subject to all of the terms and provisions of the Plan and this Agreement.
The Executive hereby accepts as binding, conclusive and final all decisions or
interpretations of the Committee or the Board upon any questions arising under
the Plan and this Agreement.
(h) PLAN CONTROLS. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
SUNGLASS HUT INTERNATIONAL, INC.
By:_____________________________________
JACK B. CHADSEY, President and Chief
Executive Officer
________________________________________
EDWARD L. GRUND
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<TOTAL-LIABILITY-AND-EQUITY> 354,016
<SALES> 138,249
<TOTAL-REVENUES> 138,249
<CGS> 86,472
<TOTAL-COSTS> 86,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,542
<INCOME-PRETAX> 490
<INCOME-TAX> 198
<INCOME-CONTINUING> 292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 292
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
