<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1996
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________
Commission File Number: 0-24614
BABY SUPERSTORE, INC.
(Exact Name of Registrant as Specified in Charter)
South Carolina 57-0527831
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1201 Woods Chapel Road 29334
Duncan, South Carolina (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (864)968-9292
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
At December 11, 1996, there were 19,238,908 shares of Common Stock, no par
value, outstanding.
Page 1 of 17
Exhibits Begin on Page 17
1
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BABY SUPERSTORE, INC.
FORM 10-Q FOR THE QUARTER ENDED OCTOBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
a. Condensed consolidated balance sheets as of October 30, 1996 3-4
and January 31, 1996
b. Condensed consolidated statements of operations for the thirteen and
thirty-nine weeks ended October 30, 1996 and October 25, 1995 5
c. Condensed consolidated statements of cash flows for the thirty-nine
weeks ended October 30, 1996 and October 25, 1995 6
d. Notes to unaudited condensed consolidated financial statements - 7-9
October 30, 1996
e. Independent accountant's report on review of interim financial
information 14
Item 2. Management's Discussion and Analysis of Financial 10-13
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Change in Securities 15
Item 3. Defaults in Senior Securities 15
Item 4. Other Information 15
Item 5. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
BABY SUPERSTORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 30, January 31,
1996 1996
(Unaudited) (1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 44,794 $ 72,353
Marketable securities 38,984 35,292
Receivables 4,975 5,441
Merchandise inventories 100,460 101,402
Prepaid income taxes 8,867 695
Other current assets 107 396
-------- --------
Total current assets 198,187 215,579
-------- --------
PROPERTY AND EQUIPMENT, NET 66,163 52,046
-------- --------
OTHER ASSETS:
Deferred debt issuance costs 2,872 3,350
Deferred income taxes 1,155 444
Utility deposits 330 226
-------- --------
TOTAL ASSETS $268,707 $271,645
======== ========
(1) Derived from audited financial statements.
See notes to unaudited condensed consolidated financial statements.
3
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BABY SUPERSTORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(In thousands, except share data)
October 30, January 31,
1996 1996
(Unaudited) (1)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 51,621 $ 47,400
Accrued expenses 9,553 5,979
Accrued interest 389 1,760
Income taxes payable -- 272
-------- --------
Total current liabilities 61,563 55,411
OTHER DEFERRED CREDITS 2,492 2,381
4 7/8% CONVERTIBLE SUBORDINATED
NOTES DUE 2000 115,000 115,000
-------- --------
TOTAL LIABILITIES 179,055 172,792
-------- --------
SHAREHOLDERS' EQUITY:
Common Stock; no par value, 50,000,000 shares
authorized, 19,237,558 (October 30, 1996)
and 19,223,184 (January 31, 1996)
shares issued and outstanding 71,310 71,108
Retained earnings 18,342 27,745
-------- --------
Total shareholders' equity 89,652 98,853
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $268,707 $271,645
======== ========
(1) Derived from audited financial statements.
See notes to unaudited condensed consolidated financial statements.
4
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BABY SUPERSTORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 30, October 25, October 30, October 25,
1996 1995 1996 1995
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Net sales $ 111,254 $ 71,653 $ 320,588 $ 203,479
Cost of sales 81,040 51,672 251,039 145,535
--------- --------- --------- ---------
Gross profit 30,214 19,981 69,549 57,944
Selling, general and administrative 29,407 16,617 81,520 45,046
costs
Merger-related charge 1,279 --- 1,279 ---
---------- ------------ ---------- ------------
Income (Loss) from operations (472) 3,364 (13,250) 12,898
Other (income) expense (102) --- (94) 160
Interest expense 1,563 396 4,683 396
Interest income (1,108) (811) (3,332) (1,477)
---------- ---------- --------- ---------
Income (Loss) before income taxes (825) 3,779 (14,507) 13,819
Income tax provision (benefit) 173 1,444 (5,102) 5,280
---------- --------- ---------- --------
Net income (loss) $ (998) $ 2,335 $ (9,405) $ 8,539
========== ========= ========= =========
Income (Loss) per common share $ (0.05) $ 0.12 $ (0.49) $ 0.44
========= ========== ========== ==========
Weighted average common
shares outstanding 19,236 19,732 19,232 19,542
========== ========= ========= ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
BABY SUPERSTORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
October 30, October 25,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (9,405) $ 8,539
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 6,661 3,580
Amortization of debt issuance costs 478 43
Writedown and loss on disposition of property 452 174
Deferred income taxes (711) 5
Changes in assets and liabilities that provided (used) cash:
Receivables 466 (2,082)
Merchandise inventories 942 (32,814)
Prepaid income taxes (8,172) 425
Prepaid and other assets 172 (11)
Accounts payable 4,221 11,555
Accrued expenses 3,574 2,186
Accrued interest (1,371) 353
Income taxes payable (272) (187)
Other deferred credits 111 110
----------- ----------
Net cash used in operating activities (2,854) (8,124)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (21,217) (16,464)
Purchase of marketable securities (3,693) ---
---------- ------------
Net cash used in investing activities (24,910) (16,464)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Public offering of Common Stock, net of offering expenses --- 28,566
Proceeds from issuance of Common Stock 205 884
Costs incurred in convertible subordinated note offering --- (3,531)
Proceeds from convertible subordinated note offering --- 115,000
Payments to redeem Common Stock --- (2)
------------- --------------
Net cash provided by financing activities 205 140,917
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (27,559) 116,329
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 72,353 13,682
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 44,794 $130,011
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 4,003 $ 5,037
Interest paid $ 5,575 $ ---
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
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BABY SUPERSTORE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 30, 1996
1. Basis of presentation:
The accompanying condensed financial statements are unaudited. These
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements, and should be read in conjunction with the annual report.
In the opinion of management, all adjustments necessary for a fair presentation
of such financial statements have been included. Interim results are not
necessarily indicative of results that may be expected for a full year.
2. Effect of new accounting pronouncement:
The Company was required to adopt Statement of Financial Accounting
Standards (SFAS No. 121) "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" as of February 1, 1996. In accordance
with this statement, the Company evaluates long-lived assets (primarily
leasehold improvements) based on several factors including, but not limited to,
management's plans for future operations, recent operating results and projected
cash flows. When the Company commits to closing specific stores, the leasehold
improvements and certain other fixed assets are written down to fair market
value. The adoption of this statement did not have a material effect
on the Company's financial statements.
3. Inventories:
Inventories are valued at the lower of cost, as determined using the
retail method applied on the average cost basis, or market.
4. Long-term debt:
On September 27, 1995, the Company sold $115 million of 4 7/8%
convertible subordinated notes due 2000. The notes are convertible, at the
security holder's option, into Common Stock at any time on or before October 1,
2000, unless previously redeemed by the Company, at a conversion price of
$53.875 per share. Interest is payable semi-annually on April 1st and October
1st.
7
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5. Income taxes:
Income taxes are provided based upon management's estimate of the
annual effective tax rate.
6. Stock split:
The Company effected a three-for-two stock split in the form of a stock
dividend in February 1995. All common share and per share data reflect this
stock split.
7. Stock options and stock purchase plan:
During the quarter ended October 30, 1996, stock options for the
purchase of 394,250 shares of Common Stock were granted at fair market value
under the Stock Incentive Plan, subject to shareholder approval at the next
annual or special meeting of an increase in the shares authorized under the
Stock Incentive Plan.
8. Net income (loss) per common share:
Net income (loss) per common share is computed based upon the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares are represented by shares under option or warrant.
The 4 7/8% convertible subordinated notes were determined not to be
Common Stock equivalents at the issuance date based on the yield to maturity and
are anti-dilutive under the "if converted" method. Therefore, the common
equivalent shares represented by the 4 7/8% convertible subordinated notes are
excluded from both the primary and fully diluted net income (loss) per share
calculations.
9. Merger agreement:
On October 2, 1996, the Company announced the execution of a definitive
Merger Agreement pursuant to which Toys "R" Us, Inc. will acquire Baby
Superstore,Inc. in an exchange of shares. Under the terms of the Agreement,
Baby Superstore shareholders will receive .8121 of a share of Toys "R" Us stock
for each Baby Superstore share, and Jack Tate, founder, Chairman and Chief
Executive Officer of Baby Superstore, will receive .5150 of a share for each
Baby Superstore share. The Merger, which has been approved by both Boards of
Directors, is subject to approval by Baby Superstore shareholders. The
transaction is anticipated to close around the end of January 1997. Mr. Tate,
holder of approximately 46% of Baby Superstore common stock, has entered into
an agreement to vote, and has granted Toys "R" Us an irrevocable proxy to vote,
his shares in favor of the merger.
8
<PAGE>
10. Inventory adjustment:
Recently the Company determined to take steps to strengthen its
internal controls and position the Company for future growth. Among other
things, the Company has undertaken a comprehensive review of its inventory
control system and has initiated implementation of a new system that the Company
believes will enable it to better manage inventory. During the transition to the
new inventory control system, the Company will conduct full physical chain-wide
inventory counts on a quarterly basis until reliability of the system is
assured. The first of these chain-wide counts was completed at the end of July
1996, and resulted in an inventory reduction of approximately $12 million
pre-tax. The Company recorded the entire adjustment in its second quarter. An
additional chain-wide physical inventory was taken at the end of October 1996.
The book to physical adjustment arising from such count required no material
adjustment.
9
<PAGE>
BABY SUPERSTORE, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks (Third Quarter) Ended October 30, 1996 Compared to Thirteen Weeks
(Third Quarter) Ended October 25, 1995:
During the thirteen weeks ended October 30, 1996, the Company opened
six stores, one of which was a relocation of an existing store, compared to
seven store openings, one of which was a relocation, in the comparable period of
1995. At the end of the thirteen weeks ended October 30, 1996, the Company
operated 73 stores, compared to 52 stores at October 25, 1995. During the
thirteen weeks ended October 30, 1996, sales increased 55% to $111.3 million,
compared to $71.7 million in the same period of the previous fiscal year. This
increase reflects sales from new store openings as well as a 2% decline in
comparable store sales. The Company considers stores that have not expanded and
are older than twelve months as comparable, and there were 40 such stores at
October 30, 1996. Comparable store sales were negatively impacted by opening new
stores in existing markets and by efforts to reduce inventory levels.
Gross profit was $30.2 million, or 27.2% of sales for the thirteen
weeks ended October 30, 1996 compared to $20.0 million, or 27.9% of sales for
the same period of the previous fiscal year. The decrease in gross margin was
due primarily to the increased share of business represented by commodities, a
low margin category.
Selling, general and administrative costs for the thirteen weeks ended
October 30, 1996 were $29.4 million, or 26.4% of sales, compared to $16.6
million, or 23.2% of sales for the same period of the previous fiscal year. The
increase in selling, general and administrative costs was primarily attributable
to necessary increases in infrastructure in such areas as operations, loss
prevention, accounting, inventory control and merchandising. In addition,
selling, general, and administrative costs as a percentage of sales were
adversely impacted by the lower than anticipated comparable store sales.
Merger-related charges incurred during the third quarter of 1996
related to the Toys "R" Us merger totaling $1.3 million, were included in
operating expenses for the period.
As a result of the above factors, the loss from operations for the
thirteen weeks ended October 30, 1996 was $472,000, or (0.4%) of sales, compared
to net income from operations of $3.4 million, or 4.7% of sales, for the same
period of the previous fiscal year.
Net interest expense for the quarter was $455,000, compared to net
interest income of $415,000 in the third quarter of 1995. The increase in
interest expense is due to the $115 million convertible subordinated notes,
issued September 27, 1995 which bear an interest rate of 4 7/8%.
10
<PAGE>
Merger-related costs expensed during the quarter are not deductible for
income tax purposes. As a result the Company did not recognize an income tax
benefit for these expenses. Excluding the effect of these non-deductible
charges, the Company's effective income tax rate for the thirteen weeks ended
October 30, 1996 was 38.0%, compared to 38.2% in the comparable period in 1995.
As a result of the factors described above, the net loss for the
thirteen weeks ended October 30, 1996 was $998,000, or ($0.05) per share and
(0.9%) of sales, compared to net income of $2.3 million, or $0.12 per share and
3.3% of sales for the same period in 1995.
Thirty-nine Weeks Ended October 30, 1996 Compared to Thirty-nine Weeks Ended
October 25, 1995:
During the thirty-nine weeks ended October 30, 1996, the Company opened
14 stores, two of which were relocations of existing stores, compared to ten
store openings, including three relocations, in the comparable period of 1995.
During the thirty-nine weeks ended October 30, 1996, sales increased 58% to
$320.6 million, compared to $203.5 million in the same period of the previous
fiscal year. This increase reflects sales from new store openings as well as a
2% increase in comparable store sales. There were 40 stores included in the
comparable store calculation at October 30, 1996.
Gross profit for the thirty-nine weeks ended October 30, 1996 was $69.5
million, or 21.7% of sales, compared to $57.9 million, or 28.5% of sales for the
same period of the previous fiscal year. An inventory adjustment of
approximately $12 million was recorded in the second quarter of 1996. The
reduction related to a variety of circumstances including among others,
markdowns and inventory shrinkage. In addition to the approximate $12 million
second quarter inventory reduction, the Company incurred year-to-date markdowns
far in excess of historical levels. These markdowns were primarily related to
price reductions in national and private label apparel and shoes as well as SKU
reduction initiatives.
Selling, general and administrative costs for the thirty-nine weeks
ended October 30, 1996 were $81.5 million, or 25.4% of sales, compared to $45.0
million, of 22.1% of sales for the same period of the previous fiscal year. As
previously mentioned, the increase in selling, general and administrative
expenses as a percentage of sales is due primarily to infrastructure additions
in operations and home office support personnel.
As a result of the above factors, the loss from operations for the
thirty-nine weeks ended October 30, 1996 was $13.3 million, or 4.1% of sales,
compared to income from operations of $12.9 million, or 6.3% of sales, for the
same period of the previous fiscal year.
Net interest expense for the thirty-nine weeks ended October 30, 1996
was $1.4 million compared to net interest income of $1.1 million for the same
period of the previous fiscal year. This was primarily attributable to interest
expense associated with the Company's 4 7/8%, $115 million convertible
subordinated notes issued on September 27, 1995. The unexpended proceeds are
currently invested principally in cash equivalents or marketable securities
with maturities of one year or less.
11
<PAGE>
As a result of the factors described above, the net loss for the
thirty-nine weeks ended October 30, 1996 was $9.4 million or ($0.49) per share
and (2.9%) of sales, compared to $8.5 million net income, or $0.44 per share and
4.2% of sales for the same period of the previous fiscal year.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash used in operating activities was $2.9 million during the
thirty-nine weeks ended October 30, 1996, compared to net cash used of $8.1
million in the same period of 1995. Such decrease was due primarily to inventory
reduction efforts which lowered merchandise inventories during the thirty-nine
weeks ended October 30, 1996.
Net cash flows used in investing activities totaled $24.9 million for
the thirty-nine weeks ended October 30, 1996, compared to $16.5 million for the
same period of the previous fiscal year. This increase in cash usage was
primarily due to the purchase of $3.7 million of marketable securities during
the thirty-nine week period ended October 30, 1996 as well as increased capital
expenditures compared to the same period of 1995. Capital expenditures in 1996
related primarily to costs associated with 14 new store openings while capital
expenditures for the comparable 1995 period included costs to complete the
Company's distribution and home office facility in Duncan, SC, the purchase of
the Company's warehouse in Simpsonville, SC and costs associated with 10 new
store openings.
Net cash flows provided by financing activities were $205,000 during
the thirty-nine weeks ended October 30, 1996, compared to net cash provided of
$140.9 million in the same period of the previous fiscal year. The Company
received $28.6 million from a public offering of Common Stock in March 1995 and
$111.5 million net proceeds from the convertible subordinated note offering in
September 1995.
Cash, cash equivalents and marketable securities totaled $83.8 million
at October 30, 1996. Such amounts were invested principally in Federal agency
discount notes and municipal and corporate debt securities with terms to
maturity of one year or less when purchased.
The Company estimates that capital expenditures for fiscal 1996 will be
approximately $30 to $40 million. During the remainder of fiscal 1996, the
Company plans to open approximately six additional stores, an estimated two of
which are expected to be relocations of existing stores.
Baby Superstore has never paid cash dividends on its Common Stock and
has no intention of paying cash dividends in the foreseeable future.
12
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IMPACT OF INFLATION:
The Company does not believe inflation has had or is likely to have a
material adverse effect on its results of operations.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT:
In October 1995, Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," was issued and is effective for
the Company on February 1, 1996. As permitted by SFAS No. 123, the Company will
continue to apply APB Opinion No. 25, which recognizes compensation cost based
on the intrinsic value of the equity instrument awarded to its stock based
compensation awards to employees and will disclose the required proforma effect
on net income and earnings per share.
13
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INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Baby Superstore, Inc.
We have reviewed the accompanying condensed consolidated balance sheets
of Baby Superstore, Inc. as of October 30, 1996 and the related condensed
consolidated statements of operations and of cash flows for the thirteen and
thirty-nine week periods ended October 30, 1996. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Baby Superstore, Inc. and
subsidiaries as of January 31, 1996, and the related consolidated statements of
income and of cash flows for the year then ended (not presented herein); and in
our report dated March 29, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of January 31, 1996 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Deloitte & Touche LLP
November 22, 1996
14
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BABY SUPERSTORE, INC.
Part II - Other Information
Item 1. LEGAL PROCEEDINGS:
None.
Item 2. CHANGES IN SECURITIES:
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES:
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
Item 5. OTHER INFORMATION:
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibits:
10.1* Agreement and Plan of Merger Among Toys "R" Us Inc.,
Baby Superstore, Inc. and Jack Tate
10.2* Shareholders Agreement
10.3 Employment Agreement
10.4 Extended Benefit Agreement
10.5 Amended and Restated 1994 Baby Superstore, Inc.
Stock Incentive Plan
11.1 Computation of net income(loss) per common share
* Filed with Form 8-K dated October 2, 1996.
Incorporated herein by reference.
b. Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated
October 2, 1996 announcing the execution of a definitive
Merger Agreement with Toys "R" Us.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
BABY SUPERSTORE, INC.
(Registrant)
Date: December 13, 1996 /s/ Jack P. Tate
------------------------ -------------------------
Jack P. Tate
Chairman of the Board and Chief
Executive Officer
(Principal executive officer of
the Registrant)
Date: December 13, 1996 /s/ Jodi L. Taylor
------------------------ ---------------------------
Jodi L. Taylor
Chief Financial Officer
(Principal financial officer of the
Registrant)
16
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EMPLOYMENT AGREEMENT
AGREEMENT by and between Baby Superstore, Inc., a South Carolina
corporation (the "Company") and Jodi L. Taylor (the "Executive"), dated as of
October 1, 1996.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall
<PAGE>
not be so extended.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
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prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Window Period. For the purpose of this Agreement, the "Window
Period" shall mean the period beginning on the first anniversary of the
Effective Date and ending upon the second anniversary of the Effective Date.
5. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the
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Executive was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary ("Annual Base Salary") of
$145,000. During the Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(ii) Retention Bonus. If the Executive remains
continuously employed by the Company during the Employment Period, the Executive
shall be awarded a bonus ("the Retention Bonus") in an amount equal to the
product of (1) two and (2) the Executive's Annual Base Salary. Such bonus shall
be paid within 30 days after the last day of the Employment Period, unless the
Executive shall elect to defer the receipt of such Retention Bonus. Such bonus
shall be paid in lieu of the payments described in paragraph (a) of Section 7 of
this Agreement.
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(iii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event, except with the prior written consent of the
Executive, shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the date hereto or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event, except with the prior written consent of the Executive, shall such plans,
practices, policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the date hereto or, if more favorable
to the Executive, those provided generally at any time after the Effective Date
to other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the date hereto or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies, unless the
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Executive provides prior, written consent to other reimbursement policies,
practices or proceedings.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the date hereto or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies unless the Executive
provides prior, written consent to other fringe benefit plans, practices,
programs or policies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the date hereto or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies
unless the Executive provides prior, written consent to other office size,
furnishing or appointments or other secretarial assistance.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
120-day period immediately preceding the date hereto or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies, unless the
Executive provides prior, written consent to other vacation plans, policies,
programs or practices.
6. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 13(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company
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shall terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board or
the Chief Executive Officer of the Company which specifically identifies
the manner in which the Board or Chief Executive Officer believes that
the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
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Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 5(a) of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 5(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 5(a)(i)(B) hereof
or the Company's requiring the Executive to travel on Company business
to a substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 12(c) of this Agreement.
For purposes of this Section 6(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination pro-
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vision in this Agreement relied upon, (ii) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
7. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability; Without Good Reason during Window
Period. If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason, or, during the Window Period, the
Executive shall voluntarily terminate employment without Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid and (2) any compensation previously deferred by the
Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in
clauses (1) and (2) shall be hereinafter referred to as the
"Accrued Obligations"); and
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B. the amount equal to the product of (1) two and the
Executive's Annual Base Salary; and
(ii)for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 5(b)(iv) of this Agreement
if the Executive's employment had not been terminated or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until two years after the Date of Termination and to
have retired on the last day of such period;
(iii) all stock options held by the Executive which were granted
prior to the Effective Date shall vest and become immediately
exercisable;
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 7(b) shall
include, without
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limitation, and the Executive's estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any time
during the 120-day period immediately preceding the date hereto or, if more
favorable to the Executive's estate and/or the Executive's beneficiaries, as in
effect on the date of the Executive's death with respect to other peer
executives of the Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 7(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the date hereto or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason prior to the Window
Period. If the Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive (x) his Annual
Base Salary through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment prior to the commencement of the Window Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination.
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8. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
13(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
9. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
10. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 10) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such
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interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount equal to the lesser of (i) $200,000 and (ii) an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt of Payments
would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 10(c), all
determinations required to be made under this Section 10, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte and Touche, L.L.P. or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 10, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 10(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred
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and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 10(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company
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shall determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount of
such payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 10(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 10(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 10(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
11. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 11 con-
15
<PAGE>
stitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
13. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Jodi L. Taylor
Baby Superstore, Inc.
Woods Chapel Road
Duncan, South Carolina 29334
16
<PAGE>
If to the Company:
Baby Superstore, Inc.
Woods Chapel Road
Duncan, South Carolina 29334
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 6(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
17
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
Jodie L. Taylor
BABY SUPERSTORE, INC.
By
18
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FORM OF AGREEMENT
AGREEMENT by and between Baby Superstore, Inc., a South
Carolina corporation (the "Company") and Linda M. Robertson (the "Executive"),
dated as of _______ __, 1996.
IT IS HEREBY AGREED AS FOLLOWS:
For three years after the date of termination for any reason
of the Executive's employment with the Company, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or policy, the
Company shall provide welfare benefits to the Executive and/or the Executive's
family at least equal, in the aggregate, to those benefits provided under the
most favorable of the welfare benefit plans, practices, policies and programs
(including, without limitation, medical, prescription, dental, disability,
employee life, group life, accidental death and travel accident insurance plans
and programs) in effect for the Executive at any time during the 120-day period
immediately preceding the date hereto or, if more favorable to the Executive,
those provided generally at any time after the date hereto to other peer
executives of the Company and its affiliated companies, provided, however, that
if the Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided plan,
the medical and other welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable period of
eligibility.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
Linda M. Robertson
BABY SUPERSTORE, INC.
By
<PAGE>
1994 BABY SUPERSTORE, INC. STOCK INCENTIVE PLAN
AMENDED AND RESTATED AS OF SEPTEMBER 30, 1996
I. PURPOSES
A. The purposes of the 1994 Baby Superstore, Inc. Stock Incentive Plan are to
(i) provide an incentive and reward to key employees of the Company, and
consultants and advisors to the Company, who are and have been in a position to
contribute materially to improving the Company's profits, (ii) aid in the growth
of the Company, and (iii) encourage ownership of Shares by employees.
II. DEFINITIONS
A. For purposes of this Plan the following terms shall have the definition which
is attributed to them below, unless another definition is clearly indicated by a
particular usage and context.
1. "Agreement" means the written document issued by the Committee to a
Participant whereby an Award is made to that Participant.
2. "Award" means the issuance pursuant to this Plan of an Option, an
SAR or Restricted Stock.
3. "Awarded Shares" means Shares subject to outstanding Awards.
4. "Board" means the Company's Board of Directors.
5. "Cause" means theft or destruction of property of the Company, a
Parent or Subsidiary, disregard of Company rules or policies, or
conduct evidencing willful or wanton disregard of the interest of the
Company. Such determination shall be made by the Committee based on
information presented by the Company and the Participant and shall be
final and binding on all parties to the Agreement.
6. "Code" means the Internal Revenue Code of 1986, as amended.
7. "Committee" means the Stock Incentive Plan Committee appointed by
the Board pursuant to Section 3.1.
<PAGE>
8. "Company" means Baby Superstore, Inc., a corporation incorporated
under the laws of the state of South Carolina, and any successor
thereto.
9. "Consultant" means any person or entity that provides services to
the Company as a consultant or advisor.
10. "Effective Date of Grant" means the effective date on which the
Committee makes an Award.
11. "Employee" means any individual who performs services as a common
law employee for the Company, a Parent or Subsidiary, and is included
on the regular payroll of the Company, a Parent or Subsidiary.
12. "Fair Market Value" means the value established by the Committee
based upon such factors as the Committee in its sole discretion shall
decide including, but not limited to, a valuation prepared by an
independent third party appraiser selected or approved by the
Committee. If at any time the Shares are traded on an established
trading system, it means the last sale price reported on any stock
exchange or over-the-counter trading system on which Shares are trading
on a specified date or, if not so trading, the average of the closing
bid and asked prices for a Share on a specified date. If no sale has
been made on the specified date, then prices on the last preceding day
on which any such sale shall have been made shall be used in
determining fair market value under either method prescribed in the
previous sentence.
13. "Incentive Stock Option" means any option granted under this Plan
which meets the requirements of Code ss. 422A and any regulations or
rulings promulgated thereunder and is designated by the Committee as an
Incentive Stock Option.
14. "Nonqualified Stock Option" means any Option granted under this
Plan which is not an Incentive Stock Option.
15. "Option" means the right to purchase from the Company a stated
number of Shares at a specified price.
16. "Option Price" means the purchase price per Share subject to an
Option and shall be fixed by the Committee.
17. "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time
of the granting of the Award, each of the corporations (other than the
Company) owns stock possessing
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50% or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain within the meaning of
Code ss. 425(e) and any regulations or rulings promulgated thereunder.
18. "Participant" means an Employee or a Consultant who has received an
Award under this Plan.
19. "Permanent and Total Disability" shall have the same meaning as
given to that term by Code ss. 22(e)(3) and any regulations or rulings
promulgated thereunder.
20. "Plan" means this 1994 Baby Superstore, Inc. Stock Incentive Plan,
as evidenced herein and as amended from time to time.
21. "Restricted Stock" means Shares issued to the Participant pursuant
to Section 9 which are subject to the restrictions of this Plan and the
Agreement.
22. "Restriction Period" means a period commencing on the Effective
Date of Grant and ending on such date or upon the achievement of such
performance or other criteria as the Committee shall determine. The
Restriction Period may, in the sole discretion of the Committee, be
structured to provide for a release of restrictions in installments.
23. "SAR" means stock appreciation rights issued to a Participant
pursuant to Section 8.
24. "SAR Price" means the base value established by the Committee for
an SAR on the Effective Date of Grant used in determining the amount of
benefit, if any, paid to a Participant.
25. "Share" means one share of the common stock of the Company.
26. "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the granting
of the Award, each of the corporations (other than the last
corporation) in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the
other corporations in such chain, within the meaning of Code ss. 425(f)
and any regulations or rulings promulgated thereunder.
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<PAGE>
27. "1933 Act" means the Securities Act of 1933, as amended.
28. "1934 Act" means the Securities Exchange Act of 1934, as amended.
III. ADMINISTRATION
A. This Plan shall be administered by a Committee of not less than two members.
The members of the Committee shall be appointed by the Board. The Board may from
time to time remove members from or add members to the Committee. Vacancies on
the Committee, howsoever caused, shall be filled by the Board.
B. The action of a majority of the Committee at which a quorum is present, or an
action approved in writing by a majority of the Committee, shall be the valid
action of the Committee.
C. The Committee shall from time to time at its discretion designate the
Employees and Consultants who shall be Participants, determine all the terms and
conditions as set forth in Section 6.1 or otherwise, including the type of Award
to be made to each, the exercise period, expiration date and other applicable
time periods for each Award, the number of Shares subject to each Award, with
respect to each Option whether it is an Incentive Stock Option or Nonqualified
Stock Option and, if applicable, the Option Price or SAR Price and the general
terms of the Award.
D. The interpretation and construction by the Committee of any provisions of
this Plan or of any Option granted under it and all actions of the Committee
shall be final and binding on all parties hereto. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to this Plan or any Award granted under it.
IV. ELIGIBILITY
A. Each Participant shall be an Employee who is a key employee or a Consultant
of the Company, a Parent or a Subsidiary as selected by the Committee in its
sole discretion from time to time.
B. A Participant may hold more than one Award, but only on the terms and subject
to the restrictions set forth in this Plan.
V. SHARES SUBJECT TO AWARD
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<PAGE>
A. The securities subject to the Awards shall be 450,000 Shares.
B. In the event that any outstanding Award under this Plan expires or is
terminated for any reason, the Awarded Shares subject to that Award may again be
the subject of an Award under this Plan.
VI. TERMS AND CONDITIONS
A. Awards granted pursuant to this Plan shall be authorized by the Committee
under terms and conditions approved by the Committee and shall be evidenced by
Agreements in such form as the Committee shall from time to time approve, which
Agreements shall contain or shall be subject to the following terms and
conditions, whether or not such terms and conditions are specifically included
therein:
1. Number of Shares. Each Award shall state the number of Shares to
which it pertains.
2. Date. Each Award shall state the Effective Date of Grant.
3. Price. With respect to each Award or portion thereof, which requires
payment of an Option Price, it shall state the Option Price. With
respect to an SAR, it shall state the SAR Price.
4. Method and Time of Payment. With respect to an Award, or portion
thereof, which requires payment of an Option Price, the Option Price
shall be payable on the exercise of the Award and shall be paid in (i)
cash, (ii) Shares, including Shares acquired pursuant to this Plan, or
(iii) part in cash and part in Shares. Shares transferred in payment of
the Option Price shall be valued as of date of transfer based on their
Fair Market Value.
5. Transfer of Option or Stock. No Award, Option, SAR, or Restricted
Stock (prior to the expiration of the Restriction Period) shall be
transferable by the Participant, except by will or the laws of descent
and distribution upon the Participant's death and subject to any other
limitations of this Plan. In addition to any other restriction
hereunder or otherwise provided in the Agreement with the Participant,
no Shares acquired pursuant to an Award of any type may be sold,
transferred or otherwise disposed of prior to the end of the six month
period which begins on the Effective Date of Grant of such Award.
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<PAGE>
6. Recapitalization. The Committee shall make appropriate adjustments
in the number of Awarded Shares or in the Option Price or SAR Price in
order to give effect to changes made in the number of outstanding
Shares as a result of a merger, consolidation, recapitalization,
reclassification, combination, stock dividend, stock split, or other
relevant change.
7. Investment Purpose.
a. The Company shall not be obligated to sell or issue any
Shares pursuant to any Award unless such Shares are at that
time effectively registered or exempt from registration under
the 1933 Act. The determination of whether a Share is exempt
from registration shall be made by the Company's legal counsel
and its determination shall be conclusive and binding on all
parties to the Agreement.
b. Notwithstanding anything in this Plan to the contrary, each
Award under this Plan shall be granted on the condition that
the purchases of Shares thereunder shall be for investment
purposes and not with a view for resale or distribution except
that in the event the Shares subject to such Award are
registered under the 1933 Act, or in the event of a resale of
such Shares without such registration that would otherwise be
permissible, such condition shall be inoperative if in the
opinion of counsel for the Company such condition is not
required under the 1933 Act or any other applicable law,
regulation, or rule of any governmental agency.
8. Other Provisions. Awards authorized under this Plan may contain any
other provisions or restrictions as the Committee in its sole and
absolute discretion shall deem advisable including, but not limited to:
a. Offering Options in tandem with or reduced by other
Options, SARs or other employee benefits and reducing one
Award by the exercise of another option, SAR or benefit; or
b. Providing for the issuance to the Participant upon exercise
of an Option and payment of the exercise price thereof with
previously owned Shares, of an additional Award for the number
of shares so delivered, having such other terms and conditions
not inconsistent with this Plan as the Committee shall
determine.
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<PAGE>
9. Duration of Award. Each Award shall be for a term of up to ten years
from the Effective Date of Grant as determined in the sole discretion
of the Committee.
B. The Company may place such legends on stock certificates representing the
Shares as the Company, in its sole discretion, deems necessary or appropriate to
reflect restrictions under this Plan, the Agreement, the Code, the securities
laws or otherwise.
C. Notwithstanding any provision herein to the contrary, employment shall be at
the pleasure of the board of directors, of its designees, of the Company, a
parent or Subsidiary, as the case may be, at such compensation as the
appropriate board or designee shall determine. Nothing contained in this Plan or
in any Award granted pursuant to it shall confer upon any Participant any right
to continue in the employ of the Company, Parent or Subsidiary, as the case may
be, or to interfere in any way with the right of the Company, Parent or
Subsidiary to terminate employment at any time. So long as the Participant shall
continue to be an Employee or Consultant, the Award shall not be affected by any
change of the Participant's duties or position except to the extent the
Agreement with the Participant provides otherwise.
D. Any person entitled to exercise an Option or an SAR may do so in whole or in
part by delivering to the Company at its principal office, attention Corporate
Secretary, a written notice of exercise. The written notice shall specify the
number of shares for which an Option or SAR is being exercised.
1. With respect to an Option, the notice shall be accompanied by full
payment of the Option Price for the Shares being purchased.
2. During the Participant's lifetime, an Option or SAR may be exercised
only by the Participant, or on the Participant's behalf by the
Participant's legal guardian.
E. Notwithstanding any provision herein to the contrary, in the event of a
Change of Control, all Options shall vest according to the terms and conditions
of this Section 6.5.
1. Vesting. Any Option held by any employee of the Company (the
"Optionee") shall vest at the earlier of a) the date or dates for
vesting of shares provided in the Option Agreement or Agreements to
which the Optionee is a signatory and b) the date of termination of the
Optionee's employment with the Company or any successor thereto,
provided that the
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<PAGE>
Optionee receives notice of termination during the period commencing on
the Effective Date and ending on the fourth anniversary of such date,
and that either the Optionee's employment is terminated by the Company
other than for Cause, Disability, death, or Retirement, or the Optionee
terminates employment for Good Reason.
2. Change of Control. For purposes of this section 6.5, a "Change of
Control" shall mean:
a. The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not
constitute a Change of Control: (1) any acquisition directly
from the Company, (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (4) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (1), (2) and (3) of subsection (iii) of this Section
c; or
b. Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE>
c. Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of
the assets of the Company (a "Business Combination"), in each
case, unless, following such Business Combination, (1) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively,
the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (2) no Person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (3) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
d. Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Effective Date. For purposes of this section 6.5, the "Effective
Date" shall mean the date on which a Change of Control occurs.
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4. Disability. For purposes of this section 6.5, "Disability" shall
mean the absence of the Optionee from the Optionee's duties with the
Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Optionee or the
Optionee's legal representative.
5. Retirement. For purposes of this section 6.5, "Retirement" shall
mean the termination of employment by the Optionee due to his voluntary
normal or early retirement under a pension plan sponsored by his
Employer or its affiliates, as defined in such plan.
6. Good Reason. For purposes of this section 6.5, "Good Reason" shall
have the meaning ascribed to it in the Company's Director Severance
Policy.
VII. INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
A. The Committee in its sole discretion may designate whether an Award to an
Employee is to be considered an Incentive Stock Option or a Nonqualified Stock
Option. An Award to a Consultant may be only a Nonqualified Stock Option. The
Committee may grant both an Incentive Stock Option and a Nonqualified Stock
Option to the same Employee. However, where both an Incentive Stock Option and a
Nonqualified Stock Option are awarded at one time, such Awards shall be deemed
to have been awarded in separate grants, shall be clearly identified, and in no
event will the exercise of one such Award affect the right to exercise the other
such Award except to the extent the Agreement with the Participant provides
otherwise.
B. Any Award to an Employee designated by the Committee as an Incentive Stock
Option will be subject to the general provisions applicable to all Awards
granted under this Plan. In addition, the aggregate Fair Market Value of Shares
(determined at the Effective Date of Grant) with respect to which Incentive
Stock Options granted under all Incentive Stock Option Plans of the Company, a
Parent or Subsidiary, are exercisable by the Employee for the first time during
any calendar year shall not exceed $100,000.
C. The Option Price shall be established by the Committee in its sole
discretion. With respect to an Incentive Stock Option, the Option Price shall
not be less than 100% of the Fair Market Value of a Share on the Effective Date
of Grant. With respect to a Nonqualified Stock Option, the Option Price shall
not be less
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than 50% of the Fair Market Value of a Share on the Effective Date of Grant.
D. Any Award to an Employee will be considered to be a Nonqualified Stock Option
to the extent that any or all of the grant is in conflict with Section 7.2 or
with any requirement for Incentive Stock Options pursuant to Code ss. 422A and
the regulations issued thereunder.
E. An Option may be terminated as follows:
1. During the period of continuous employment with the Company, Parent
or Subsidiary, an Option will be terminated only if it has been fully
exercised or it has expired by its terms.
2. Upon termination of employment, the Option will terminate upon the
earliest of (i) the full exercise of the Option, (ii) the expiration of
the Option by its terms, and (iii) not more than three months following
the date of employment termination; provided, however, should
termination of employment (A) result from the death or Permanent and
Total Disability of the Participant, such period shall be one year or
(B) be for Cause, the Option will terminate on the date of employment
termination. For purposes of this Plan, a leave of absence approved by
the Company shall not be deemed to be termination of employment except
with respect to an Incentive Stock Option as required to comply with
Code ss. 422A and the regulations issued thereunder.
3. Subject to the terms of the Agreement with the Participant, if a
Participant shall die or becomes subject to a Permanent and Total
Disability prior to the termination of employment with the Company,
Parent or Subsidiary and prior to the termination of an Option, such
Option may be exercised to the extent that the Participant shall have
been entitled to exercise it at the time of death or disability, as the
case may be, by the Participant, the estate of the Participant or the
person or persons to whom the Option may have been transferred by will
or by the laws of descent and distribution.
F. Except as otherwise expressly provided in the Agreement with the Participant,
in no event will the continuation of the term of an Option beyond the date of
termination of employment allow the Participant, or his beneficiaries or heirs,
to accrue additional rights under this Plan, or to purchase more Shares through
the exercise of an Option than could have been purchased on the day that
employment was terminated.
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G. A Participant shall have no rights as a stockholder with respect to any
Shares subject to an Option until the date of the issuance of a stock
certificate to him for such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 6.1(f).
H. The continuous employment of a Consultant will be deemed terminated for
purposes of this Plan upon receipt of written notice from the Company to the
effect that the Company will no longer transact business with the Consultant.
VIII. STOCK APPRECIATION RIGHTS
A. The Committee, in its sole discretion, may grant to a Participant an SAR.
B. The SAR Price shall be established by the Committee in its sole discretion.
The SAR Price shall not be less than 100% of Fair Market Value of a Share on the
Effective Date of Grant for an SAR issued in tandem with an Incentive Stock
Option and for other SARs, shall not be less than 50% of Fair Market Value of a
Share on the Effective Date of Grant.
C. Upon exercise of an SAR, the Participant shall be entitled, subject to the
terms and conditions of this Plan and the Agreement, to receive the excess of
each Share being exercised under the SAR (i) the Fair Market Value of a Share on
the date of exercise over (ii) the SAR Price for such Share.
D. At the sole discretion of the Committee, the payment of such excess shall be
made in (i) cash, (ii) Shares, or (iii) a combination of cash and Shares. Shares
used for this payment shall be valued at their Fair Market Value on the date of
exercise of the applicable SAR.
E. An Award of an SAR shall be considered an Award for purposes of the number of
Shares subject to an Award pursuant to Section 5.1, unless the Agreement making
the Award of the SAR provides that the exercise of an SAR results in the
termination of an unexercised Option for the same number of Shares.
F. An SAR may be terminated as follows:
1. During the period of continuous employment with the Company, Parent
or Subsidiary, an SAR will be terminated
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only if it has been fully exercised or it has expired by its terms.
2. Upon termination of employment, the SAR will terminate upon the
earliest of (i) the full exercise of the SAR, (ii) the expiration of
the SAR by its terms, and (iii) not more than three months following
the date of employment termination; provided, however, should
termination of employment (I) result from the death or Permanent and
Total Disability of the Participant, such three month period shall be
one year or (II) be for Cause, the SAR will terminate on the date of
employment termination. For purposes of this Plan, a leave of absence
approved by the Company shall not be deemed to be termination of
employment unless otherwise provided in the Agreement or by the Company
on the date of the leave of absence.
3. Subject to the terms of the Agreement with the Participant if a
Participant shall die or becomes subject to a Permanent and Total
Disability prior to the termination of employment with the Company,
Parent or Subsidiary and prior to the termination of an SAR, such SAR
may be exercised to the extent that the Participant shall have been
entitled to exercise it at the time of death or disability, as the case
may be, by the Participant, the estate of the Participant or the person
or persons to whom the SAR may have been transferred by will or by the
laws of descent and distribution.
4. Except as otherwise expressly provided in the Agreement with the
Participant, in no event will the continuation of the term of an SAR
beyond the date of termination of employment allow the Employee, or his
beneficiaries or heirs, to accrue additional rights under this Plan,
have additional SARs available for exercise or to receive a higher
benefit than the benefit payable as if the SAR was exercised on the
date of employment termination.
G. If an SAR which was considered an Award for purposes of Section 8.5 is
terminated or unexercised for any reason, the number of Shares of such SAR that
were unexercised shall be again available for Award under this Plan.
H. The Participant shall have no rights as a stockholder with respect to an SAR.
In addition, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or rights except as provided in Section 6.1(f).
-13-
<PAGE>
IX. RESTRICTED STOCK
A. The Committee may award to a Participant Restricted Stock under such terms or
conditions as the Committee, in its sole discretion, shall determine and as
otherwise provided herein.
B. Restricted Stock shall be Shares which are subject to a Restriction Period.
C. Should the Participant terminate employment for any reason, all Restricted
Stock which is still subject to the Restriction Period shall be forfeited and
returned to the Company for no payment.
D. Upon such forfeiture, Shares representing such forfeited restricted Stock
shall become available for Award under the Plan.
E. The Committee may require under such terms and conditions as it deems
appropriate or desirable that the certificates for Restricted Stock awarded
under this Plan may be held by the Company or its designee until the Restriction
Period expires. In addition, the Committee may place upon such certificate such
legend as the Committee deems necessary or appropriate and may require as a
condition of any receipt of Restricted Stock that the Participant shall deliver
a stock power endorsed in blank relating to the Restricted Stock.
X. AMENDMENT OR DISCONTINUANCE OF PLAN
A. The Board may at any time amend, suspend, or discontinue this Plan; provided,
however, that without further approval of the shareholders of the Company no
amendments by the Board shall:
1. Change the class of Employees eligible to participate; or
2. Except as provided in Section 5, increase the number of
Shares which may be subject to Options granted under this
Plan.
B. No amendment to this Plan shall alter or impair any Award granted under this
Plan without the consent of the holders thereof.
XI. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
Directors or as members of
-14-
<PAGE>
the Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees, actually incurred in
connection with the defense of any pending, threatened or possible action, suit
or proceeding, or in connection with any pending, threatened or possible appeal
therein, to which they or any of them may be a party by reason of any actual or
alleged action taken or failure to act under or in connection with this Plan or
any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by the Company) or paid
by them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such Committee member is liable for gross negligence or
willful misconduct in the performance of his duties; provided that within sixty
days after institution of any such action, suit or proceeding a Committee member
shall in writing offer the Company the opportunity, at its own expense, to
handle and defend the same.
XII. NO OBLIGATION TO EXERCISE OPTION OR SAR
The granting of an Option or SAR shall impose no obligation upon the Participant
to exercise such Option.
XIII. EFFECTIVE DATE; DURATION OF PLAN
A. This Plan shall become effective as of July 20, 1994.
B. No Award may be made after the tenth anniversary of the effective date of
this Plan.
XIV. EFFECT OF PLAN
The making of an Award under this Plan shall not give the Participant any right
to similar grants in future years or any right to be retained in the employ of
the Company, the Parent or a Subsidiary, but a Participant shall remain subject
to discharge to the same extent as if this Plan were not in effect.
-15-
<PAGE>
BABY SUPERSTORE INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 30, October 25, October 30, October 25,
1996 1995 1996 1995
------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (998,000) $ 2,335,000 $ (9,405,000) $ 8,539,000
============== ============= ============= ==============
Weighted average shares outstanding
during the period:
Common Stock 19,235,911 19,182,974 19,232,279 18,998,847
Net effect of dilutive stock options
and warrants - based on the treasury
stock method using the average
market price --- 549,474 --- 543,411
-------------- --------------- ------------------- --------------
Weighted average common and common
equivalents shares outstanding 19,235,911 19,732,448 19,232,279 19,542,258
============== ============= ============ ============
PRIMARY NET INCOME (LOSS)
PER COMMON SHARE $ (0.05) $ 0.12 $ (0.49) $ 0.44
=================== ============= ================ ================
Weighted average shares outstanding
during the period:
Common Stock 19,235,911 19,182,974 19,232,279 18,998,847
Net effect of dilutive stock options
and warrants - based on the treasury
stock method using the greater of
ending or average market price --- 549,474 --- 543,411
--------------- --------------- -------------------- ---------------
Weighted average common and common
equivalent shares outstanding 19,235,911 19,732,448 19,232,279 19,542,258
============== ============ ============= ============
FULLY DILUTED NET INCOME
(LOSS) PER COMMON SHARE $ (0.05) $ 0.12 $ (0.49) $ 0.44
================= =============== ================ ================
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-Q for quarterly period ended October 30, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JAN-29-1997 JAN-29-1997
<PERIOD-END> OCT-30-1996 OCT-30-1996
<CASH> 44,794 0
<SECURITIES> 38,984 0
<RECEIVABLES> 4,975 0
<ALLOWANCES> 0 0
<INVENTORY> 100,460 0
<CURRENT-ASSETS> 198,187 0
<PP&E> 84,776 0
<DEPRECIATION> (18,613) 0
<TOTAL-ASSETS> 268,707 0
<CURRENT-LIABILITIES> 61,563 0
<BONDS> 115,000 0
0 0
0 0
<COMMON> 71,310 0
<OTHER-SE> 18,342 0
<TOTAL-LIABILITY-AND-EQUITY> 268,707 0
<SALES> 111,254 320,588
<TOTAL-REVENUES> 111,254 320,588
<CGS> 81,040 251,039
<TOTAL-COSTS> 30,686 82,799
<OTHER-EXPENSES> (102) (94)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,563 4,683
<INCOME-PRETAX> (825) (14,507)
<INCOME-TAX> 173 (5,102)
<INCOME-CONTINUING> (998) (9,405)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (998) (9,405)
<EPS-PRIMARY> (0.05) (0.49)
<EPS-DILUTED> 0 0
</TABLE>
