FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NUMBER: 0-25464
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1387365
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
2555 ELLSMERE AVENUE
NORFOLK COMMERCE PARK
NORFOLK, VIRGINIA 23513
(Address of principal executive office)
TELEPHONE NUMBER (804) 857-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes /X/ No / /
As of May 3, 1996, there were 25,040,752 shares of the Registrant's Common Stock
outstanding.
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995.................................... 3
Condensed Consolidated Income Statements
Three Months Ended March 31, 1996 and 1995.............................. 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995.............................. 5
Notes to Condensed Consolidated Financial Statements......................
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION................................................ 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................................... 11
ITEM 5. OTHER INFORMATION......................................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................... 13
Signatures................................................................ 15
</TABLE>
2
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DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 13,116 $ 22,415
Accounts receivable................................................ 1,543 380
Merchandise inventories............................................ 72,677 40,113
Income taxes receivable............................................ 510 --
Deferred tax asset................................................. 732 720
Prepaid expenses and other current assets.......................... 2,902 2,392
----------- ------------
Total current assets........................................... 91,480 66,020
----------- ------------
Property and equipment, net.......................................... 31,015 23,091
Deferred tax asset................................................... 2,265 2,219
Goodwill, net (Note 2)............................................... 47,592 --
Other assets, net.................................................... 1,218 291
----------- ------------
TOTAL ASSETS................................................... $ 173,570 $ 91,621
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.............................................. $ 18,500 $ --
Accounts payable................................................... 32,710 19,603
Accrued liabilities................................................ 9,756 8,939
Income taxes payable............................................... -- 8,244
Current installments of obligations under capital leases........... 293 101
----------- ------------
Total current liabilities...................................... 61,259 36,887
----------- ------------
Development facility................................................. 52,630 --
Senior subordinated notes............................................ 7,000 7,000
Junior subordinated notes............................................ 7,000 7,000
Obligations under capital leases, excluding current installments..... 785 417
Other liabilities.................................................... 3,638 1,230
----------- ------------
Total liabilities.............................................. 132,312 52,534
----------- ------------
Shareholders' equity (Note 3):
Common stock, par value $0.01. Authorized 50,000,000 shares,
25,017,300 issued and outstanding at March 31, 1996.............. 250 166
Additional paid-in capital......................................... 4,144 2,980
Retained earnings.................................................. 36,864 35,941
----------- ------------
Total shareholders' equity..................................... 41,258 39,087
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $ 173,570 $ 91,621
=========== ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Net sales............................................................ $84,975 $48,733
Cost of sales........................................................ 55,905 32,275
------- -------
Gross profit................................................... 29,070 16,458
------- -------
Selling, general, and administrative expenses:
Operating expenses................................................. 24,288 14,418
Depreciation and amortization...................................... 2,212 1,175
------- -------
Total selling, general and administrative expenses............. 26,500 15,593
------- -------
Operating income..................................................... 2,570 865
Interest expense..................................................... 1,069 460
------- -------
Income before income taxes........................................... 1,501 405
Provision for income taxes........................................... 578 156
------- -------
Net income..................................................... $ 923 $ 249
------- -------
Net income per share................................................. $ 0.03 $ 0.01
======= =======
Weighted average number of common shares and common share equivalents
outstanding (Note 3):
Primary........................................................ 27,795 27,306
Fully diluted.................................................. 27,866 27,439
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1996 1995
------- -------
<S> <C> <C>
Cash Flows from operating activities:
Net income............................................................. $ 923 $ 249
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization........................................ 2,212 1,175
Loss on disposal of property and equipment........................... 60 39
Provision for deferred income taxes.................................. (58) (15)
Changes in assets and liabilities increasing (decreasing) cash and
cash equivalents, net of effects resulting from purchase of Dollar
Bills, Inc.:
Accounts receivable................................................ 293 262
Merchandise inventories............................................ (15,891) (18,200)
Prepaid expenses and other current assets.......................... (325) (69)
Other assets....................................................... (221) (14)
Accounts payable................................................... 5,312 6,868
Accrued liabilities................................................ (1,597) (1,513)
Income taxes payable............................................... (7,932) (5,954)
Other liabilities.................................................. 33 (257)
------- -------
Total adjustments................................................ (18,114) (17,678)
------- -------
Net cash used in operating activities............................ (17,191) (17,429)
------- -------
Cash flows from investing activities:
Capital expenditures................................................... (4,417) (2,585)
Proceeds from sale of property and equipment........................... -- 28
Payment for purchase of Dollar Bills, Inc., net of cash acquired....... (52,209) --
------- -------
Net cash used in investing activities............................ (56,626) (2,557)
------- -------
Cash flows from financing activities:
Repayments of revolving credit facility................................ -- (2,550)
Proceeds from revolving credit facility................................ -- 9,550
Net proceeds from notes payable to bank................................ 11,600 8,700
Principal payments under capital lease obligations..................... (138) (30)
Proceeds from exercise of stock options ............................... 426 --
Proceeds from development facility..................................... 52,630 --
------- -------
Net cash provided by financing activities........................ 64,518 15,670
------- -------
Net increase (decrease) in cash and cash equivalents..................... (9,299) (4,316)
Cash and cash equivalents at beginning of period......................... 22,415 6,016
------- -------
Cash and cash equivalents at end of period............................... $ 13,116 $ 1,700
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Dollar Tree Stores, Inc.
and subsidiaries (the "Company") at March 31, 1996, and for the three-month
period then ended, are unaudited and reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and operating results for the
interim period. The condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 1995, contained in the
Company's Annual Report on Form 10-K. The results of operations for the
three-month period ended March 31, 1996 are not necessarily indicative of the
results to be expected for the entire year ending December 31, 1996.
2. ACQUISITION OF DOLLAR BILLS, INC.
On January 31, 1996, the Company acquired all of the outstanding stock of
Dollar Bills, Inc. ("Dollar Bills"), formerly known as Terrific Promotions,
Inc., which owned and operated 136 discount variety stores under the name Dollar
Bill$, a distribution center in the Chicago area and a wholesale division. The
acquisition is accounted for by the purchase method of accounting. Amounts shown
in these financial statements include the aggregate purchase price and the
relative fair values of the assets and liabilities of Dollar Bills. The Company
financed the acquisition through borrowings under its development facility with
its commercial lenders.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight line basis over 25 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
organization.
3. STOCK SPLIT AND NET INCOME PER SHARE
In connection with a stock dividend authorized by the Board of Directors,
the Company issued one-half share for each outstanding share of Common Stock,
payable April 19, 1996 to shareholders of record as of April 5, 1996. All share
and per share data in these financial statements and accompanying notes have
been retroactively adjusted to reflect this dividend, having the effect of a
three-for-two stock split.
Primary net income per share has been computed by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding. Common share equivalents include the weighted average number of
outstanding stock options and warrants after applying the treasury method. The
market price used in applying the treasury method was $15.00 per share, restated
to $10.00 per share due to the stock split, through March 6, 1995 and the
closing market price of the stock at the end of each week thereafter.
The fully diluted computation was based on the market price of the stock at
the end of the quarter. Net income per share was the same using either primary
or fully diluted shares and share equivalents. All amounts have been adjusted to
reflect the stock split.
6
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. STOCK OPTION PLAN, STOCK INCENTIVE PLAN, EMPLOYEE STOCK PURCHASE PLAN AND
UNATTACHED WARRANTS
The Company maintains a stock option plan ("SOP") which was established on
December 16, 1993 and a stock incentive plan ("SIP") which was established on
January 1, 1995. No additional shares may be granted under the SOP and, under
the terms of the SIP, options for no more than 270,000 shares of common stock
may be granted in any calendar year.
At March 31, 1996 and 1995, options for the following numbers of shares
(restated for the stock split) were outstanding under each plan:
<TABLE>
<CAPTION>
OPTIONS FOR SHARES OUTSTANDING
AT
-------------------------------- EXERCISE
PLAN MARCH 31, 1996 MARCH 31, 1995 PRICE/RANGE
- -------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
SOP............................. 432,328 616,436 $2.90
SIP............................. 264,888 157,500 $10.00-22.83
</TABLE>
The options above include options for 10,500 shares which were granted on
February 1, 1996, but are not included in the earnings per share computation.
On January 1, 1995, the Company also established the Dollar Tree Stores,
Inc. Employee Stock Purchase Plan (the "ESPP"). The Company reserved 225,000
shares of common stock for future issuance under the ESPP. The ESPP enables
eligible employees, as defined in the ESPP, to buy shares of common stock for
85% of fair market value on the first day or the last day of the applicable
offering period, whichever is lower. As of April 5, 1996, 5,014 shares
(post-split) have been purchased under the ESPP.
Additionally, in 1993 and 1994, the Company issued unattached warrants to
purchase a total of 2,482,178 shares of Common Stock to certain shareholders.
These warrants carry an exercise price of $1.93 and may be exercised upon the
occurrence of certain events.
The Company adopted the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as of January 1, 1996.
7
<PAGE>
5. DOLLAR TREE STORES, INC. AND SUBSIDIARIES AND DOLLAR BILLS INC. UNAUDITED
CONDENSED CONSOLIDATED PROFORMA INCOME STATEMENT
The following unaudited pro forma financial information of the Company is
based on the historical Consolidated Financial Statements of the Company for the
year ended December 31, 1995 and for the three months ended March 31, 1996
adjusted to give effect to the Company's acquisition of Dollar Bills on January
31, 1996. The unaudited pro forma condensed consolidated income statements for
the year ended December 31, 1995 and the three months ended March 31, 1996 give
effect to the transactions described as if they had occurred on January 1, 1995
and January 1, 1996, respectively. The pro forma adjustments are based upon
currently available information and upon certain assumptions that management of
the Company believes are reasonable. Final purchase adjustments may differ from
the pro forma adjustments herein. The pro forma financial information is
presented for informational purposes and does not purport to represent what the
Company's actual results of operations would have been if the transaction
described had been consummated on January 1, 1995 (for the year ended December
31, 1995) or on January 1, 1996 (for the three months ended March 31, 1996).
The pro forma financial information should be read in conjunction with the
related Notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Consolidated Financial Statements of the Company
and the Notes thereto and the Financial Statements of Dollar Bills and the Notes
thereto incorporated by reference.
The acquisition of Dollar Bills has been accounted for by the purchase
method of accounting. Accordingly, the Company established new accounting basis
for the assets and liabilities of Dollar Bills based upon the relative fair
values thereof and the aggregate purchase price paid by the Company. These
values are reflected in the Company's March 31, 1996 condensed consolidated
balance sheet.
8
<PAGE>
The unaudited pro forma condensed consolidated income statements do not
purport to be indicative of the results that would have occurred had the
transaction taken place at the beginning of the period presented or of future
results.
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Consolidated Income Statements
(In thousands except per share data)
For the Year Ended December 31, 1995 For the Three Months Ended March 31, 1996
----------------------------------------------- -------------------------------------------------
Pro Forma Pro Forma
The Company Dollar Bills Adjustments Pro Forma The Company Dollar Bills(1) Adjustments Pro Forma
----------- ------------ ----------- --------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . .$300,229 $103,850 $404,079 $ 84,975 $ 6,482 $ 91,457
Gross profit . . . . . . . . 112,679 27,497 140,176 29,070 1,803 30,873
Selling, general and
administrative
expenses . . . . . . . . . 75,967 22,201 (4,004)(2) 96,144 26,500 2,613 (529)(2) 28,743
1,980 (3) 159 (3)
Operating income (loss) . . . 36,712 5,296 44,032 2,570 (810) 2,130
Interest expense . . . . . . 2,618 505 3,850 (4) 6,973 1,069 50 324 (4) 1,443
Income (loss) before
income taxes . . . . . . . 34,094 4,791 37,059 1,501 (860) 687
Provision for income taxes. . 13,127 178 963 (5) 14,268 578 (26) 288 (5) 264
Net income (loss) . . . . . . $20,967 $ 4,613 $ 22,791 $ 923 $ (834) $ 423
====== ====== ====== ====== ====== ======
Net income per share(6) . . . $ 0.76 $ 0.83 $ 0.03 $ 0.02
====== ====== ====== ======
Weighted average number
of common shares
and common shares
equivalent outstanding. . . 27,589 27,589 27,795 27,795
====== ====== ====== ======
</TABLE>
(1)Represents January 1996 results of Dollars Bills. The Company acquired
Dollars Bills on January 31, 1996 and accordingly the Company's income statement
for the three months ended March 31, 1996 includes the results of the acquired
business beginning February 1, 1996.
(2) Represents the elimination of duplicative operating costs associated
with Dollar Bills corporate headquarters and distribution facility.
(3) Represents amortization of goodwill recognized in connection with the
acquisition of Dollar Bills which is being amortized by the Company over a 25
year period.
(4) Represents interest expense related to the borrowings under the
Company's development facility used to fund the acquisition.
(5) Represents income taxes related to the conversion of Dollars Bills to
a C Corporation at an assumed effective tax rate of 38.5%
(6) Net income per common share and pro forma income per common share is
computed by dividing net income and pro forma net income by the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents include all outstanding stock options and warrants after applying
the treasury stock method.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to the Three Months Ended March 31,
1995:
Net sales increased $36.3 million, or 74.5%, to $85.0 million for the three
months ended March 31, 1996, from $48.7 million for the three months ended March
31, 1995. Of this increase, (i) approximately 43.5%, or $15.8 million, was
attributable to the addition of 136 Dollar Bills stores in January 1996, (ii)
approximately 40.5%, or $14.7 million, was attributable to a net increase of 100
stores opened in 1995 and 1996 which are not included in the Company's
comparable store net sales calculation, and (iii) approximately 16.0%, or $5.8
million, was attributable to comparable store net sales growth, which
represented an 11.8% increase over comparable store net sales in the
corresponding quarter of the prior period. Dollar Bills stores are not included
in the comparable store net sales calculation. Because substantially all the
Company's products sell for $1.00, the increase in comparable store net sales
was a direct result of increased unit volume. Comparable store net sales were
driven primarily by an earlier Easter shopping season and a strong in-stock
position on seasonal and general merchandise throughout the quarter. The Company
opened 24 new stores during the first quarter of 1996 compared to opening 15 new
stores during the first quarter of 1995. The Company also added 136 Dollar Bills
stores in January 1996.
Management anticipates that the primary sources of future sales growth will
be new store openings and, to a lesser degree, sales increases from expanded and
relocated stores and comparable store net sales increases. Although the Company
has experienced significant increases in comparable store net sales
historically, management expects that any increases in comparable store net
sales in the future will be smaller than those experienced historically.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $12.6 million, or 76.6%, to
$29.1 million in the first quarter of 1996 from $16.5 million in the first
quarter of 1995. As a percentage of net sales, gross profit increased to 34.2%
from 33.8%, reflecting lower occupancy costs as a percentage of net sales due
primarily to the increase in comparable store sales, partially offset by a
slight increase in merchandise costs. Management expects that merchandise costs
as a percentage of net sales may continue to be higher than they have been
historically due to the addition of Dollar Bills stores, which carry a higher
proportion of consumable goods having a lower merchandise margin.
Selling, general and administrative expenses, which include operating
expenses and depreciation and amortization, increased $10.9 million, or 69.9%,
to $26.5 million in the first quarter of 1996 from $15.6 million in the first
quarter of 1995, and decreased as a percentage of net sales to 31.2% from 32.0%
during the same period. This decrease resulted primarily from reduced payroll
costs due to the comparable store net sales increase and stronger controls over
hourly payroll at the stores. During the first quarter of 1996, the Company's
selling, general and administrative expenses increased by approximately $1.8
million due to tranactional costs and expenses incurred in connection with the
Dollar Bills acquisition. Amortization of goodwill relating to the acquisition
amounted to $0.3 million during the first quarter of 1996.
Operating income increased $1.7 million, or 197.1%, to $2.6 million for the
first three months of 1996 from $0.9 million for the comparable period in 1995,
and increased as a percentage of net sales to 3.0% from 1.8% during the same
period for the reasons noted above.
Interest expense increased $0.6 million to $1.1 million in the first quarter
of 1996 from $0.5 million during the first quarter of 1995. This increase is a
result of borrowings under the Company's Development Facility in connection with
the acquisition of Dollar Bills and the amortization of deferred financing costs
relating thereto.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements result primarily from capital
expenditures related to new store openings and working capital requirements
related to new and existing stores. The Company's working capital requirements
for existing stores are seasonal in nature and typically reach their peak near
the end of the third and the beginning of the fourth quarter of the year.
Historically, the Company has met its seasonal working capital requirements for
its existing stores and funded its store expansion program from internally
generated funds and borrowings under its credit facilities.
The Company ended the first quarter of 1996 with a high cash position due to
the quarter ending on a weekend, resulting in three days of sales remaining in
store accounts. Additionally, transitory funds remained in dormant Dollar Bills
depositary accounts. These funds were transferred into the Company's main
account in early April and are used to fund working capital requirements.
During the first three months of 1996 and 1995, net cash used in operations
was $17.2 million and $17.4 million, respectively, primarily used to build
inventory levels. During the first three months of 1996 and 1995, net cash used
in investing activities was $56.6 million and $2.6 million, respectively, the
increase consisting primarily of payment for the acquisition of Dollar Bills in
1996. Net cash provided by financing activities was $64.5 million and $15.7
million during the first three months of 1996 and 1995, the increase primarily
attributable to borrowings incurred to fund the acquisition of Dollar Bills in
1996.
The Company's borrowings under its bank facilities were $71.1 million at
March 31, 1996, and $15.7 million at March 31, 1995. There were no amounts
outstanding at December 31, 1995. Under the Company's bank facilities, an
additional $48.9 million is available at March 31, 1996.
PART II
ITEM 1. LEGAL PROCEEDINGS
On January 31, 1996, the Company bought all of the capital stock of Dollar
Bills, pursuant to a stock purchase agreement (see "Other Information--
Acquisition and Merger of Dollar Bills"). In March and April, 1996,
Michael and Pamela Alper (the "Alpers"), former shareholders of Dollar Bills,
together with a corporation they control, filed lawsuits in the state and
federal courts in Cook County, Illinois, against the Company and one of its
employees relating to the Dollar Bills transaction. The lawsuits seek to recover
compensatory damages of not less than $10 million, (tripled under the federal
antitrust law claim described below), punitive damages, attorney's fees, costs
and injunctive and other relief.
In the lawsuit, the plaintiffs claim that the Alpers were defrauded into
selling the wholesale merchandising operations which were owned by Dollar Bills;
that the Company improperly obtained and misused confidential and proprietary
information related to those operations; that the Company breached the
provisions of a confidentiality agreement which it had entered into with Dollar
Bills when negotiations regarding the acquisition began; that the Company
breached certain terms of the stock purchase agreement relating to the
acquisition; that the Company intentionally or negligently misrepresented its
intentions with respect to the wholesale merchandising operations; and that the
Company and that the co-defendant conspired to violate antitrust law by
excluding the plaintiffs as competitors in the wholesale merchandising business.
It is possible that, in the future, the plaintiffs could amend their complaint
to request that the court set aside or rescind the entire Dollar Bills
transaction. The Company emphatically denies the plaintiffs' claims and will
vigorously defend itself in this matter.
11
<PAGE>
The litigation is in its preliminary stages and discovery has only recently
commenced; however, based on management's understanding of the facts (which
facts are contested by the plaintiffs) and the advice of its lead litigation
counsel for this matter in reliance on such facts, the Company believes it is
unlikely that the plaintiffs will ultimately prevail on the merits of this
litigation. Accordingly, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect on the Company's results of
operations or financial condition. Nevertheless, particularly in light of the
contested factual circumstances, there can be no assurances regarding the
ultimate outcome of this litigation or that this litigation will not have a
material adverse effect on the Company's results of operations or financial
condition. In any event, the litigation has diverted, and is expected to
continue to divert, the efforts and attention of the Company's management.
On April 8, 1996, the National Labor Relations Board certified the results
of the March 20, 1996 election in which the employees of the Company's Norfolk
warehouse declined representation by the International Brotherhood of Teamsters.
On May 1, 1996, the Company determined that certain terra cotta potted
candles, approximately 31,170 sets of which it sold in April 1996, might contain
a defect which could create a substantial risk of injury. As required by the
Consumer Product Safety Act, the Company filed an initial report of the
potential danger with the U.S. Consumer Product Safety Commission ("CPSC") on
May 3, 1996. The Company has voluntarily stopped distribution of the product and
intends to issue a recall to customers. The Company is not aware of any serious
injuries, either to person or property, as a result of the potential defect.
Additionally, the Company is a party to ordinary routine litigation and
proceedings incidental to its business, including certain matters which may
occasionally be asserted by the CPSC, none of which is individually or in the
aggregate material to the Company.
ITEM 5. OTHER INFORMATION
Acquisition and Merger of Dollar Bills
As previously disclosed in the Company's Form 10-K, on January 31, 1996, the
Company acquired all of the outstanding capital stock of Dollar Bills. As part
of that acquisition, on April 1, 1996, Dollar Bills was merged into Dollar Tree
Stores, Inc. and ceased to exist as a separate corporate subsidiary. See Note 2
of the Notes to Condensed Consolidated Financial Statements.
Stock Dividend
On March 26, 1996, the Company's Board of Directors authorized a 50% stock
dividend having the effect of a three-for-two stock split for shareholders of
record of common stock as of April 5, 1996. Cash payments were made in lieu of
fractional shares. As of the record date, there were 16,680,275 shares of common
stock outstanding, resulting in a dividend of 8,340,076 shares of Common Stock.
Changes to Stock Option Plans
On March 26, 1996, the Company's Board of Directors authorized an amendment
to the Company's Amended and Restated Stock Option Plan (the "SOP") which made
certain administrative changes to the Plan and eliminated the Plan's Restrictive
Stock Agreement. The Restrictive Stock Agreement had previously restricted the
timing of sales of shares purchased under the SOP. Additionally, the Company's
Employee Stock Purchase Plan (the "ESPP") was clarified to specifically include
12
<PAGE>
employees of the Company's subsidiaries, as was originally intended when the
Company adopted the plan.
Effect of the Stock Split on Stock Plans
The SOP and the Company's Stock Incentive Plan contain anti-dilution
provisions requiring, upon a stock dividend or stock split, an equitable
adjustment to the exercise price and/or the number of shares that can be
purchased upon exercise. As a result of this requirement, the Company has
adjusted the number of shares of Common Stock issuable upon exercise of
outstanding options and the exercise price of such options. See Note 4 of the
Notes to Condensed Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
*10.1 Agreement for Sale and Purchase of Stock
**10.2 Credit Agreement--Dollar Tree Distribution, Inc., Dollar Tree Management, Inc.,
Dollar Tree Stores, Inc., and NationsBank, N.A., Signet Bank, Crestar Bank, and
the First National Bank of Boston (January 11, 1996)
**10.3 Commercial Notes (Development Line Notes) (January 11, 1996)
**10.4 Commercial Notes (Working Capital Line Notes) (January 11, 1996)
**10.5 Subordination Agreements
**10.6 Allonges to Subordinated Notes (senior/junior notes)
**10.7 Guaranties
**10.8 Security Agreements--Commercial--Dollar Tree Distribution, Inc., Dollar Tree
Management, Inc., Dollar Tree Stores, Inc., and NationsBank, N.A., Signet Bank,
Crestar Bank, and the First National Bank of Boston
**10.9 Negative Pledge Agreement
**10.10 Second Amendment to Subordination Agreement
**10.11 First Amendment to Credit Agreement
**10.12 Stock Pledge Agreement--Dollar Tree Stores, Inc., Dollar Tree Distribution, Inc.,
Dollar Tree Management, Inc., Dollar Bills, Inc., and NationsBank, N.A., Signet
Bank, Crestar Bank, and the First National Bank of Boston
**10.13 Corporate Guaranty to NationsBank, N.A., Signet Bank, Crestar Bank, and First
National Bank of Boston by Dollar Bills, Inc.
**10.14 Security Agreement--Commercial--Dollar Bills, Inc., NationsBank, N.A., Signet
Bank, Crestar Bank, First National Bank of Boston
**10.15 Non-Competition Agreements--Michael Alper and Pamela Alper
10.16 Letter Agreement on Extensions of Development Loan Maturity Date and Development
Line Extension Request by DollarTree Stores, Inc. dated March 27, 1996
10.17 Waivers of Certain Rights under 9% Senior Subordinated Notes due April 1, 1997
10.18 Waivers of Certain Rights under 9% Junior Subordinated Notes due April 1, 1997
10.19 Fourth Amendment to Dollar Tree Stores, Inc. Amended and Restated Stock Option
Plan (with forms of Second Amendment to 1993 Stock Option Agreement and Second
Amendment to 1994 Stock Option Agreement)
13
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.20 Technical Clarification to Dollar Tree Stores, Inc. Employee Stock Purchase Plan
10.21 Second Amendment to the Amended and Restated Dollar Tree Stores, Inc. Deferred
Compensation Plan
10.22 Consent to Amendment of 9% Senior Subordinated Notes due April 1, 1997 with form
of Second Allonge
10.23 Consent to Amendment of 9% Junior Subordinated Notes due April 1, 1997 with form
of Second Allonge
10.24 Second Allonge to 9% Senior Subordinated Notes due April 1, 1997
10.25 Second Allonge to 9% Junior Subordinated Notes due April 1, 1997
</TABLE>
- ------------
* Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 14, 1996, filed with the Securities and Exchange
Commission.
** Previously filed as an exhibit to the Company's 1995 Annual Report on Form
10-K, filed with the Securities and Exchange Commission.
(b) Reports on Form 8-K
1. The Company filed a Form 8-K on January 19, 1996, announcing that the
Company had signed an agreement on January 16, 1996, to purchase all of the
outstanding stock of Dollar Bills. This announcement stated that the transaction
was expected to close January 31, 1996.
2. The Company filed a Form 8-K on February 14, 1996, outlining the
above-referenced acquisition, in compliance with information required under Item
2 of the Form 8-K.
3. The Company filed a Form 8-K/A on April 12, 1996, amending the Form 8-K
filed on February 14, 1996 (discussed in #2 above), to include information
required under Item 7 of the Form 8-K. The Form 8-K/A included, as exhibit, the
following financial statements and pro forma information:
A. Audited financial statements of Dollar Bills for the fiscal years
ended September 30, 1995 and 1994.
B. Unaudited interim financial information for the year ended December
31, 1995 for Dollar Bills.
C. Unaudited pro forma condensed consolidated financial statements as of
and for the year ended December 31, 1995, relating to the business
combination.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE: May 13, 1996
DOLLAR TREE STORES, INC.
By /s/ MACON F. BROCK, JR.
.....................................
Macon F. Brock, Jr.
President and Chief Executive Officer
By /s/ H. RAY COMPTON
.....................................
H. Ray Compton
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
15
Exhibit 10.16
NATIONSBANK, N.A.
CRESTAR BANK
SIGNET BANK
THE FIRST NATIONAL BANK OF BOSTON
March 27, 1996
Mr. H. Ray Compton
Dollar Tree Stores, Inc.
2555 Ellsmere Road
Norfolk, VA 23513
Re: Dollar Tree Stores, Inc. - Extensions of the Development Loan Maturity
Date and of the Development Loan Commitment Termination Date
Dear Ray:
For convenience, capitalized terms used in this letter will have the
meanings assigned to them in the Credit Agreement among the undersigned and
Dollar Tree Stores, Inc., Dollar Tree Distribution, Inc., and Dollar Tree
Management, Inc. dated as of January 11, 1996, as amended by a First Amendment
to Credit Agreement dated as of January 31, 1996, pursuant to which Dollar
Bills, Inc. was added as a party to the Credit Agreement (as amended, such
agreement is hereinafter referred to as the "Credit Agreement"). Pursuant to
Section 2.3 of the Credit Agreement, you have requested that we extend the
Development Loan Commitment Termination Date with respect to the currently
unused and available portion of the aggregate Development Loan Commitment, which
is $7,370,000 for an additional 90 day period. We hereby agree to extend the
Development Loan Commitment Termination Date for such amount for a period of 90
days to April 9, 1997.
Further, we are willing to and hereby agree to extend the Development Loan
Maturity Date an additional 90 days to April 9, 1997. Consequently, unless it
becomes due and payable sooner under the Credit Agreement, the unpaid principal
amount of the Development Loan and all accrued and unpaid interest thereon shall
now be due and payable in full on April 9, 1997.
To formalize all of this, in accordance with Section 2.3 of the Credit
Agreement, we have each pre-executed a Development Line Extension Request and
would ask that you execute it and return it to us for our files. An extra
original is enclosed for you to keep for your records.
<PAGE>
Except as modified and extended hereby, the terms of the Credit Agreement remain
unaltered. As you know, the next consideration date as set forth in Exhibit
2.3(a) of the Credit Agreement is July 9, 1996, and any request to extend the
Development Loan Commitment Termination Date with respect to any unused portions
of the Development Line must be made by Stores in writing on the form attached
to the Credit Agreement as Exhibit 2.3(b) at least 20 days prior to such
consideration date.
We are glad to be able to accommodate this request and hope you will not
hesitate to contact us if you have any questions.
NATIONSBANK, N.A.
By: /s/ Monique S. Adams
------------------------
Title: Vice President
------------------------
CRESTAR BANK
By: /s/ Bruce W. Nave
------------------------
Title: Vice President
------------------------
SIGNET BANK
By: /s/ James A. Whitman
------------------------
Title: Vice President
------------------------
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Judith Kelly
------------------------
Title: Vice President
------------------------
<PAGE>
Development Line Extension Request
----------------------------------
We hereby request a 90 day extension of the Commitment Termination Date
from January 10, 1997, to April 9, 1997, of $7,370,000, which we certify to be
available under the Development Line in accordance with Section 2.3 of the
Credit Agreement.
Sincerely,
Dollar Tree Stores, Inc.
By: /s/ H. Ray Compton
------------------------
Title: Executive Vice President
------------------------
Date: March 27, 1996
------------------------
ACCEPTED:
Extended Commitment Amount:
NationsBank, N.A.
By: /s/ Monique S. Adams $2,453,158.00
--------------------
Title: Vice President
-------------------
Date: 3/27/96
-------------------
Crestar Bank
By: /s/ Bruce W. Nave $1,537,171.00
-------------------
Title: Vice President
-------------------
Date: 4/8/96
-------------------
Signet Bank
By: /s/ James A. Whitman $1,537,171.00
--------------------
Title: Vice President
-------------------
Date: 4/8/96
-------------------
<PAGE>
The First National Bank of Boston
By: /s/ Judith Kelly $1,842,500.00
------------------
Title: Vice President
------------------
Date: 4/10/96
------------------
EXHIBIT 10.17
WAIVER
March 31, 1996
The undersigned Holder of Dollar Tree Stores, Inc. ("Issuer") 9% Senior
Subordinated Note due April 1, 1997 ("Note"), in the original principal amount
of $6,965,000 hereby waives the Holder's right contained in Section 5 of the
Note to require the Issuer to redeem such Note on or after January 1, 1996, and
agrees that the Holder will not exercise such right until on or after April 1,
1997. This Waiver shall not affect any of the Holder's other rights and remedies
pursuant to the Note.
The SK Equity Fund, L.P.
By: SK Partners, L.P.
-----------------------
/s/ Allan Karp
-----------------------
Allan Karp
EXHIBIT 10.18
WAIVER
March 31, 1996
The undersigned Holder of Dollar Tree Stores, Inc. ("Issuer") 9% Junior
Subordinated Note due April 1, 1997 ("Note"), in the original principal amount
of $ 1,575,000 hereby waives the Holder's right contained in Section 5 of the
Note to require the Issuer to redeem such Note on or after January 1, 1996, and
agrees that the Holder will not exercise such right until on or after April 1,
1997. This Waiver shall not affect any of the Holder's other rights and remedies
pursuant to the Note.
/s/ J. Douglas Perry
---------------------------
J. Douglas Perry
<PAGE>
WAIVER
March 31, 1996
The undersigned Holder of Dollar Tree Stores, Inc. ("Issuer") 9% Junior
Subordinated Note due April 1, 1997 ("Note"), in the original principal amount
of $ 1,575,000 hereby waives the Holder's right contained in Section 5 of the
Note to require the Issuer to redeem such Note on or after January 1, 1996, and
agrees that the Holder will not exercise such right until on or after April 1,
1997. This Waiver shall not affect any of the Holder's other rights and remedies
pursuant to the Note.
/s/ Joan P. Brock
---------------------------
Joan P. Brock
<PAGE>
WAIVER
March 31, 1996
The undersigned Holder of Dollar Tree Stores, Inc. ("Issuer") 9% Junior
Subordinated Note due April 1, 1997 ("Note"), in the original principal amount
of $ 700,000 hereby waives the Holder's right contained in Section 5 of the Note
to require the Issuer to redeem such Note on or after January 1, 1996, and
agrees that the Holder will not exercise such right until on or after April 1,
1997. This Waiver shall not affect any of the Holder's other rights and remedies
pursuant to the Note.
/s/ Jean T. Compton
---------------------------
Jean T. Compton
<PAGE>
WAIVER
March 31, 1996
The undersigned Holder of Dollar Tree Stores, Inc. ("Issuer") 9% Junior
Subordinated Note due April 1, 1997 ("Note"), in the original principal amount
of $ 1,575,000 hereby waives the Holder's right contained in Section 5 of the
Note to require the Issuer to redeem such Note on or after January 1, 1996, and
agrees that the Holder will not exercise such right until on or after April 1,
1997. This Waiver shall not affect any of the Holder's other rights and remedies
pursuant to the Note.
/s/ Macon F. Brock
---------------------------
Macon F. Brock
<PAGE>
WAIVER
March 31, 1996
The undersigned Holder of Dollar Tree Stores, Inc. ("Issuer") 9% Junior
Subordinated Note due April 1, 1997 ("Note"), in the original principal amount
of $ 1,575,000 hereby waives the Holder's right contained in Section 5 of the
Note to require the Issuer to redeem such Note on or after January 1, 1996, and
agrees that the Holder will not exercise such right until on or after April 1,
1997. This Waiver shall not affect any of the Holder's other rights and remedies
pursuant to the Note.
/s/ Patricia W. Perry
--------------------------
Patricia W. Perry
EXHIBIT 10.19
FOURTH AMENDMENT TO
DOLLAR TREE STORES, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
THIS FOURTH AMENDMENT ("Amendment") to the Dollar Tree Stores, Inc. Amended
And Restated Stock Option Plan ("Plan") made this 1st day of February, 1996 by
Dollar Tree Stores, Inc. ("Company"). All capitalized terms in this Amendment
not otherwise defined shall have their respective meanings under the Plan.
WHEREAS, the Company's Common Stock is traded publicly on the Nasdaq
National Market System and the issuance of Option Stock under the Plan has been
registered pursuant to an effective registration statement (No. 33-92816) under
the Securities Act of 1933, as amended (the "Registration"); and
WHEREAS, the Restrictive Stock Agreement, as amended, contains several
provisions (including representations and warranties of exercising Participants
and piggy-back registration rights) which are unnecessary given the
Registration; and
WHEREAS, the Restrictive Stock Agreement, as amended, also limits the
amount of Option Stock that can be sold by Participants who have exercised their
Options and purchased such stock under the Plan ("Resale Limitations"); and
WHEREAS, the Company believes that the Resale Limitations are unnecessary
given the success of the registered public offerings of the Company's Common
Stock on March 6 and August 23, 1995 and the continued active public trading in
the Company's Common Stock; and
WHEREAS, as a consequence of the foregoing, the Company believes that the
Restrictive Stock Agreement is no longer desireable and no longer serves its
original purpose; and
WHEREAS, the Company also wishes to amend the Plan to make simplifying and
cost-saving administrative changes with regards to (i) partial exercises of
stock options and (ii) notification to participants of certain capital changes.
NOW THEREFORE, the Board of Directors hereby adopts this Amendment upon the
following terms and conditions effective February 1, 1996.
<PAGE>
1. Plan Amendments. The Plan is amended as follows:
---------------
1.1. Section 1.17 is restated in its entirety as follows:
1.17 Plan. Dollar Tree Stores, Inc. Amended and Restated Stock
----
Option Plan, including without limitation, the Stock Option Agreement.
1.2. The content of Section 1.18 is deleted and replaced by the designation
"[Reserved]".
1.3. Section 5.3 paragraph 1 is restated in its entirety as follows:
A Participant is entitled to exercise the 1993 Option or the 1994 Option in
whole or in part at any time. Notwithstanding anything to the contrary, the
Deemed Exercise Date must occur before the occurrence of a Lapse of the
Option or the Option (or unexpired portion thereof) will be null, void and
of no further effect. The Optionee is entitled to exercise the Option in
whole of in part at any time the Deemed Exercise Date occurs before the
occurrence of a Lapse of the Option. The Option shall be deemed to be
exercised five (5) Business Days after the later of (i) the date a copy of
the first page of the Stock Option Agreement (or other reasonably suitable
evidence of the Option being exercised) has been presented to the Company
at the Company's office designated for such purpose together with the
Exercise Subscription Form annexed thereto duly executed and in proper form
for exercise and (ii) the date payment in full of the Exercise Price for
the number of Stock Option Agreement Shares specified in such form is, or
is arranged to be, received by the Company, all subject to the terms and
conditions hereof ("Deemed Exercise Date").
1.4. Section 5.3 paragraph 3 of the Plan is deleted.
1.5. Former Section 5.3 paragraph 4 of the Plan is restated in its entirety
as follows:
Upon exercise of the 1993 Option or the 1994 Option, in whole or in part,
in conformity with the foregoing provisions, the Company shall transfer to
the Participant of the Stock Option Agreement appropriate evidence of
ownership of any shares of Option Stock or other securities or property
(including any money) to which the Participant is entitled, registered, or
otherwise placed in, or payable to the order of, the Participant, and shall
<PAGE>
deliver such evidence of ownership and any other securities or property
(including money) to the person or persons entitled to receive the same,
together with an amount in cash in lieu of any fraction of a share as
provided in the Stock Option Agreement.
1.6. Section 5.4 is restated in its entirety as follows:
5.4 Lapse of Option. In the event a Participant ceases to be an
---------------
Employee with the Employer for any reason (i.e., death, disability,
retirement, or voluntary or involuntary termination of employment initiated
by the Participant or by the Employer, with or without cause) the
Participant's rights and privileges under this Plan or the Option shall
lapse and shall be null, void, and of no further effect ("Lapse"). In the
case of termination of employment with the Employer for any reason other
than Death, Disability or Retirement, the date of Lapse shall be the date
the Employee ceases to be an Employee. In the case of termination of
employment with the Company on account of Death, Disability, or Retirement,
the date of Lapse shall be one year following the date of Death,
Disability, or Retirement. To the extent the Participant has exercised an
Option and the Deemed Exercise Date occurs before Lapse, the Participant
shall be entitled to retain any shares of Option Stock received upon such
exercise.
1.7. Section 7.4 is restated in its entirety as follows:
7.4 Entire Agreement. This Plan and the Stock Option Agreement
----------------
embody the entire agreement and understanding with respect to the subject
matter contained herein and therein.
2. Amendment and Restatement of Plan Exhibits. Exhibits 1 and 2 to the
------------------------------------------
Plan (1993 and 1994 Stock Option Agreements) shall be amended and restated in
substantially the forms attached hereto.
WITNESS the signature of the undersigned officer of Dollar Tree Stores,
Inc.
DOLLAR TREE STORES, INC.
By /s/ H. Ray Compton
............................
H. Ray Compton
Executive Vice President
<PAGE>
SECOND AMENDMENT TO 1993 STOCK OPTION AGREEMENT
THIS SECOND AMENDMENT ("Amendment" TO THE 1993 STOCK OPTION AGREEMENT
("Agreement") made effective the ____ day of ____ 1996, by and between DOLLAR
TREE STORES, INC. ("Company") and the undersigned OPTIONEE ("Optionee").
WHEREAS, Company adopted an Amended and Restated Stock Option Plan on
December 16, 1993, which has been amended from time to time ("Plan").
WHEREAS, pursuant to the Plan, the Company entered into an Agreement with
the Optionee which was amended in 1995.
WHEREAS, the Company and Optionee wish to eliminate the requirement for a
Restrictive Stock Agreement and make certain other amendments to the
Agreement.
NOW THEREFORE, the Optionee and Company hereby amend the Agreement as
follows:
1. The sentence appearing immediately before Article 1 is deleted in
its entirety.
2. Any reference to "Restrictive Stock Agreement" contained in the
Agreement (including those contained in Section 1.15, Section 2.2, Section
2.3 and Article 3) is hereby deleted.
3. Section 1.16 is deleted in its entirety.
4. Section 2.3 is amended and restated in its entirety as follows:
2.3 Lapse of Option. In the event an Optionee ceases to be
---------------
an Employee with the Company for any reason (i.e., Death, Disability,
Retirement, or voluntary or involuntary termination of employment
initiated by the Optionee or by the Employer, with or without cause), the
Optionee's rights and privileges under the Plan or this Option shall
lapse and shall be null, void, and of no further effect ("Lapse"). In the
case of termination of employment with the Employer for any reason other
than Death, Disability or Retirement, the date of Lapse shall be the date
the Employee ceases to be an Employee. In the case of termination of
employment with the Company on account of Death, Disability, or
Retirement, the date of Lapse shall be the later of (i) one year
following the date of Death, Disability, or Retirement, or (ii) February
1, 1997.
5. The first paragraph of Section 6.4 is deleted in its entirety.
6. The body of Article 7 is amended and restated in its entirety as
follows:
1
<PAGE>
In the case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Option Stock)
or any sale or transfer of all or substantially all of the assets of the
Company to the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, the Optionee
shall have the right thereafter to exercise the Option for the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by an Optionee of the number of
shares of Option Stock for which the Option may have been exercised
immediately prior to such consolidation, merger, sale or transfer.
Adjustments for events subsequent to the effective date of such a
consolidation, merger and sale of assets shall be as nearly equivalent as
may be practicable to the adjustments provided for in the Option. In any
such event, effective provisions shall be made in the certificate of
incorporation or bylaws of the resulting or surviving corporation, in any
contract of sale, conveyance, lease or transfer, or otherwise so that the
provisions set forth herein of the protection of the rights of Optionees
shall thereafter continue to be applicable; any such resulting or surviving
corporation shall expressly assume the obligation to deliver, upon
exercise, such shares of stock, other securities, cash and property. The
provisions of this Article 7 shall similarly apply to successive
consolidations, mergers, sales, leases or transfers.
7. Article 8 is amended and restated in its entirety as follows:
ARTICLE 8
COMPLIANCE WITH SECURITY LAWS
The Optionee represents, warrants and covenants that the Optionee
has acquired the Option, and will acquire the shares upon exercise
thereof, for investment only and not with a view to, or for the resale in
connection with, any distribution or public offering of the Option or the
shares within the meaning of Securities Act of 1933, as amended (the
"Act") or any applicable state securities laws. The Optionee acknowledges
that the shares which may be acquired in connection upon exercise of the
Option may not be transferred or resold except pursuant to the
registration requirements of the Act and applicable state securities laws
or pursuant to exemptions therefrom. Unless a registration statement is
in effect as to the issuance of shares purchased, all stock certificates
issued to the Optionee will bear a legend describing the above
restrictions on transfer and resale, and Optionee agrees that the Company
may place a stop order on its transfer books barring transfer or resale
until there is compliance with the registration requirements of the Act
and applicable state securities laws. As a result of these restrictions,
the Optionee may have to hold the shares indefinitely and hereby confirms
that Optionee is capable of bearing the economic risks of an investment
in shares of the Company and by reason of Optionee's knowledge and
experience in financial and business matters in general, and investments
in particular, has evaluated the merits and risks of an investment
2
<PAGE>
therein. Optionee understands and agrees that, upon exercise of the
Option in part or in full, Optionee will be deemed to have reaffirmed the
representations and warranties contained in this section and to have
confirmed that the covenants of this section remain in full force and
effect.
IN WITNESS HEREOF, Dollar Tree Stores, Inc. has caused this Amendment to
Stock Option Agreement to be executed by its officer thereunto duly authorized
and Optionee has executed this Stock Option Agreement as of the day set forth
above.
DOLLAR TREE STORES, INC.
By
----------------------------
Its:
---------------------
-------------------------
Optionee's Signature
3
<PAGE>
SECOND AMENDMENT TO 1994 STOCK OPTION AGREEMENT
THIS SECOND AMENDMENT ("Amendment") TO THE 1994 STOCK OPTION AGREEMENT
("Agreement") made effective the ____ day of ______ 1996, by and between DOLLAR
TREE STORES, INC. ("Company") and the undersigned OPTIONEE ("Optionee").
WHEREAS, Company adopted an Amended and Restated Stock Option Plan on
December 16, 1993, which has been amended from time to time ("Plan").
WHEREAS, pursuant to the Plan, the Company entered into an Agreement with the
Optionee which was amended in 1995.
WHEREAS, the Company and Optionee wish to eliminate the requirement for a
Restrictive Stock Agreement and make certain other amendment to the Agreement.
NOW THEREFORE, the Optionee and Company hereby amend the Agreement as
follows:
1. The sentence appearing immediately before Article 1 is deleted in its
entirety.
2. Any reference to "Restrictive Stock Agreement" contained in the
Agreement (including those contained in Section 1.15, Section 2.2, Section
2.3 and Article 3) is hereby deleted.
3. Section 1.16 is deleted in its entirety.
4. Section 2.3 is amended and restated in its entirety as follows:
2.3 Lapse of Option. In the event an Optionee ceases to be an
---------------
Employee with the Company for any reason (i.e. Death, Disability, Retirement,
or voluntary or involuntary termination of employment initiated by the
Optionee or by the Employer, with or without cause), the Optionee's rights
and privileges under the Plan or this Option shall lapse and shall be null,
void, and of no further effect ("Lapse"). In the case of termination of
employment with the Employer for any reason other than Death, Disability or
Retirement, the date of Lapse shall be the date the Employee ceases to be an
Employee. In the case of termination of employment with the Company on
account of Death, Disability, or Retirement, the date of Lapse shall be the
later of (i) one year following the date of Death, Disability, or Retirement,
or (ii) February 1, 1997.
5. The body of Article 7 is amended and restated in its entirety as
follows:
1
<PAGE>
In the case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the
company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Option Stock)
or any sale or transfer of all or substantially all of the assets of the
Company to the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, the Optionee
shall have the right thereafter to exercise the Option for the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by an Optionee of the number of
shares of Option Stock for which the Option may have been exercised
immediately prior to such consolidation, merger, sale or transfer.
Adjustments for events subsequent to the effective date of such a
consolidation, merger and sale of assets shall be as nearly equivalent as
may be practicable to the adjustments provided for in the Option. In any
such event, effective provisions shall be made in the certificate of
incorporation or bylaws of the resulting or surviving corporation, in any
contract of sale, conveyance, lease or transfer, or otherwise so that the
provisions set forth herein of the protection of the rights of Optionees
shall thereafter continue to be applicable; any such resulting or surviving
corporation shall expressly assume the obligation to deliver, upon
exercise, such shares of stock, other securities, cash and property. The
provisions of this Article 7 shall similarly apply to successive
consolidations, mergers, sales, leases or transfers.
6. Article 8 is amended and restated in its entirety as follows:
ARTICLE 8
COMPLIANCE WITH SECURITY LAWS
The Optionee represents, warrants and covenants that the Optionee has
acquired the Option, and will acquire the shares upon exercise thereof, for
investment only and not with a view to, or for the resale in connection
with, any distribution or public offering of the Option or the shares
within the meaning of Securities Act of 1933, as amended (the "Act") or any
applicable state securities laws. The Optionee acknowledges that the shares
which may be acquired in connection upon exercise of the Option may not be
transferred or resold except pursuant to the registration requirements of
the Act and applicable state securities laws or pursuant to exemptions
therefrom. Unless a registration statement is in effect as to the issuance
of shares purchased, all stock certificates issued to the Optionee will
bear a legend describing the above restrictions on transfer and resale, and
Optionee agrees that the Company may place a stop order on its transfer
books barring transfer or resale until there is compliance with the
registration requirements of the Act and applicable state securities laws.
As a result of these restrictions, the Optionee may have to hold the shares
indefinitely and hereby confirms that Optionee is capable of bearing the
economic risks of an investment in shares of the Company and by reason of
Optionee's knowledge and experience in financial and business matters in
general, and investments in particular, has evaluated the merits and risks
2
<PAGE>
of an investment therein. Optionee understands and agrees that, upon
exercise of the Option in part or in full, Optionee will be deemed to have
reaffirmed the representations and warranties contained in this section and
to have confirmed that the covenants of this section remain in full force
and effect.
IN WITNESS HEREOF, Dollar Tree Stores, Inc. has caused this Amendment to
Stock Option Agreement to be executed by its officer thereunto duly authorized
and Optionee has executed this Stock Option Agreement as of the day set forth
above.
DOLLAR TREE STORES, INC.
By
-----------------------
Its:
---------------------
-------------------------
Optionee's Signature
3
EXHIBIT 10.20
TECHNICAL CLARIFICATION TO
DOLLAR TREE STORES, INC.
EMPLOYEE STOCK PURCHASE PLAN
THIS TECHNICAL CLARIFICATION TO DOLLAR TREE STORES, INC. EMPLOYEE STOCK
PURCHASE PLAN, made this 1st day of October, 1995, by Dollar Tree Stores, Inc.
("Company").
WHEREAS, the Company adopted the Dollar Tree Stores, Inc. Employee Stock
Purchase Plan ("Plan") with the intent that participation in the Plan be
available to employees of the Company's wholly-owned subsidiaries on the same
basis as employees of the Company; and
WHEREAS, the Board of Directors of the Company have authorized this
technical clarification to the Plan to make clear that participation in the Plan
is available to employees of the Company's wholly-owned subsidiaries on the same
basis as employees of the Company.
NOW THEREFORE, the Company hereby adopts this technical clarification to
the Dollar Tree Stores, Inc. Employee Stock Purchase Plan upon the following
terms and conditions:
1. Section 1.8 of the Plan is hereby amended and restated in its entirety
as follows:
1.8 Employee. A common law employee of the Company or any Subsidiary
Corporation.
2. Section 3.1 is hereby amended and restated in its entirely as follows:
3.1 Conditions of Eligibility. An Eligible Recipient is an Employee
who: (1) customarily works more than 20 hours per week, and (2) has been
employed by the Company or any Subsidiary Corporation for one (1) year.
3. Section 8.3 shall be amended by inserting "or any Subsidiary
Corporation" after the "Company."
IN TESTIMONY WHEREOF, and as evidence of the adoption of this technical
clarification by Dollar Tree Stores, Inc., it has caused the same to be signed
by its officer, thereunto duly authorized in writing by the Board of Directors
as of the date set forth above.
DOLLAR TREE STORES, INC.
By: /s/ H. Ray Compton
---------------------------------------
Executive Vice President
Date Executed: May 3, 1996
EXHIBIT 10.21
SECOND AMENDMENT TO
AMENDED AND RESTATED DOLLAR TREE STORES, INC.
DEFERRED COMPENSATION PLAN
THIS SECOND AMENDMENT ("Amendment") TO THE AMENDED AND RESTATED DOLLAR TREE
STORES, INC. DEFERRED COMPENSATION PLAN ("Plan") effective as of the 14th day of
December, 1995 by Dollar Tree Stores, Inc. ("Company").
WHEREAS, the Board of Directors of the Company has noted the loyalty and
extraordinary services of the Participants who have been selected to participate
in the Plan; and
WHEREAS, effective December 14, 1995, the Compensation Committee of the
Board of Directors voted to reward the Participants' services by distributing
all remaining Transaction Benefits.
NOW THEREFORE, the Board of Directors hereby adopts this Amendment upon the
following terms and conditions effective December 14, 1995:
1. Article 7 is added to the Plan as follows:
ARTICLE 7
PAYMENT OF REMAINING TRANSACTION BENEFITS
AND TERMINATION OF PLAN
Notwithstanding any other provision in this Plan, including but not limited
to Article 3, each Participant's remaining Transaction Benefit as of December 1,
1995 shall be paid to each Participant as such time as the Board shall determine
but no later than February 29, 1996. Following the payment of all Transaction
Benefits, this Plan shall terminate according to Section 2.3 and Article 5.
WITNESS, the signatures of the undersigned officers.
DOLLAR TREE STORES, INC.
By: /s/ H. Ray Compton
--------------------------------
Date Executed: Mar. 25, 1996
---------------------
<PAGE>
DOLLAR TREE MANAGEMENT, INC.
By: /s/ H. Ray Compton
---------------------------------
Date Executed: Mar. 25, 1996
---------------------
DOLLAR TREE DISTRIBUTION, INC.
By: /s/ H. Ray Compton
--------------------------------
Date Executed: Mar. 25, 1996
---------------------
2
EXHIBIT 10.22
CONSENT TO AMENDMENT OF 9% SENIOR SUBORDINATED NOTES
DUE APRIL 1, 1997
================================================================================
The undersigned holders of Dollar Tree Stores, Inc. (the "Issuer") 9%
Senior Subordinated Notes due April 1, 1997 (the "Notes"), hereby consent to the
Issuer modifying the terms of the Notes in substantially the form of the Second
Allonge attached hereto as Exhibit A. This consent may be signed in
counterparts.
CONSENTED to this 3rd day of May, 1996.
THE SK EQUITY FUND, L.P.
By: SK PARTNERS, L.P.
By /s/ Thomas A. Saunders, III
--------------------------------
General Partner
/s/ Thomas A. Saunders, III
-----------------------------------
THOMAS A. SAUNDERS, III
/s/ Allan W. Karp
-----------------------------------
ALLAN W. KARP
/s/ John F. Megrue
-----------------------------------
JOHN F. MEGRUE
/s/ Christopher K. Reilly
-----------------------------------
CHRISTOPHER K. REILLY
<PAGE>
EXHIBIT A
SECOND ALLONGE TO 9% SENIOR SUBORDINATED NOTE
DUE APRIL 1, 1997
================================================================================
This Second Allonge to 9% Senior Subordinated Notes due April 1, 1997 (the
"Notes"), made by Dollar Tree Stores, Inc. (the "Issuer"), is issued in
accordance with Section Seven of the Notes with the written consent of the
Issuer and the holders of at least a majority in aggregate principal amount of
the Notes then outstanding and provides as follows:
1. Section 2.2 is hereby added to the Notes, providing as follows:
Section 2.2. Optional Prepayment by Issuer. The Issuer may repay
-----------------------------
this Note without penalty or premium, in whole or in part, at any
time, so long as the Issuer funds such prepayment through a Public
Offering; provided, however, that if such prepayment is in full, the
Issuer simultaneously prepays in full all of its Senior 9% Notes and
Junior 9% Notes, and if such prepayment is in part, the Issuer
simultaneously prepays all of its Senior 9% Notes and Junior 9% Notes
in the same proportion as the amount of prepayment tendered for this
Note bears to the total outstanding principal sum of this Note.
2. This Allonge makes no other changes in the terms and conditions of the
Notes.
IN WITNESS WHEREOF, the Issuer has executed this Allonge under its
corporate seal effective as of May 3, 1996.
[SEAL] DOLLAR TREE STORES, INC.
By:
--------------------------------
Title:
--------------------------
EXHIBIT 10.23
CONSENT TO AMENDMENT OF 9% JUNIOR SUBORDINATED NOTES
DUE APRIL 1, 1997
================================================================================
The undersigned holders of Dollar Tree Stores, Inc. (the "Issuer") 9%
Junior Subordinated Notes due April 1, 1997 (the "Notes"), hereby consent to the
Issuer modifying the terms of the Notes in substantially the form of the Second
Allonge attached hereto as Exhibit A. This consent may be signed in
counterparts.
CONSENTED to this 3rd day of May, 1996.
/s/ J. Douglas Perry
-----------------------------------
J. DOUGLAS PERRY
/s/ Patricia W. Perry
-----------------------------------
PATRICIA W. PERRY
/s/ Macon F. Brock, Jr.
-----------------------------------
MACON F. BROCK, JR.
/s/ Joan P. Brock
-----------------------------------
JOAN P. BROCK
/s/ Jean T. Compton
-----------------------------------
JEAN T. COMPTON
<PAGE>
EXHIBIT A
SECOND ALLONGE TO 9% JUNIOR SUBORDINATED NOTE
DUE APRIL 1, 1997
================================================================================
This Second Allonge to 9% Junior Subordinated Notes due April 1, 1997 (the
"Notes"), made by Dollar Tree Stores, Inc. (the "Issuer"), is issued in
accordance with Section Seven of the Notes with the written consent of the
Issuer and the holders of at least a majority in aggregate principal amount of
the Notes then outstanding and provides as follows:
1. Section 2.2 is hereby added to the Notes, providing as follows:
Section 2.2. Optional Prepayment by Issuer. The Issuer may repay
-----------------------------
this Note without penalty or premium, in whole or in part, at any
time, so long as the Issuer funds such prepayment through a Public
Offering; provided, however, that if such prepayment is in full, the
Issuer simultaneously prepays in full all of its Senior 9% Notes and
Junior 9% Notes, and if such prepayment is in part, the Issuer
simultaneously prepays all of its Senior 9% Notes and Junior 9% Notes
in the same proportion as the amount of prepayment tendered for this
Note bears to the total outstanding principal sum of this Note.
2. This Allonge makes no other changes in the terms and conditions of the
Notes.
IN WITNESS WHEREOF, the Issuer has executed this Allonge under its
corporate seal effective as of May 3, 1996.
[SEAL] DOLLAR TREE STORES, INC.
By:
--------------------------------
Title:
--------------------------
EXHIBIT 10.24
SECOND ALLONGE TO 9% SENIOR SUBORDINATED NOTE
DUE APRIL 1, 1997
================================================================================
This Second Allonge to 9% Senior Subordinated Notes due April 1, 1997 (the
"Notes"), made by Dollar Tree Stores, Inc. (the "Issuer"), is issued in
accordance with Section Seven of the Notes with the written consent of the
Issuer and the holders of at least a majority in aggregate principal amount of
the Notes then outstanding and provides as follows:
1. Section 2.2 is hereby added to the Notes, providing as follows:
Section 2.2. Optional Prepayment by Issuer. The Issuer may repay
------------------------------
this Note without penalty or premium, in whole or in part, at any
time, so long as the Issuer funds such prepayment through a Public
Offering; provided, however, that if such prepayment is in full, the
Issuer simultaneously prepays in full all of its Senior 9% Notes and
Junior 9% Notes, and if such prepayment is in part, the Issuer
simultaneously prepays all of its Senior 9% Notes and Junior 9% Notes
in the same proportion as the amount of prepayment tendered for this
Note bears to the total outstanding principal sum of this Note.
2. This Allonge makes no other changes in the terms and conditions of the
Notes.
IN WITNESS WHEREOF, the Issuer has executed this Allonge under its
corporate seal effective as of May 3, 1996.
[SEAL] DOLLAR TREE STORES, INC.
By: /s/ H. Ray Compton
--------------------------------
Title: Executive Vice President
--------------------------
EXHIBIT 10.25
SECOND ALLONGE TO 9% JUNIOR SUBORDINATED NOTE
DUE APRIL 1, 1997
================================================================================
This Second Allonge to 9% Junior Subordinated Notes due April 1, 1997 (the
"Notes"), made by Dollar Tree Stores, Inc. (the "Issuer"), is issued in
accordance with Section Seven of the Notes with the written consent of the
Issuer and the holders of at least a majority in aggregate principal amount of
the Notes then outstanding and provides as follows:
1. Section 2.2 is hereby added to the Notes, providing as follows:
Section 2.2. Optional Prepayment by Issuer. The Issuer may repay
-----------------------------
this Note without penalty or premium, in whole or in part, at any
time, so long as the Issuer funds such prepayment through a Public
Offering; provided, however, that if such prepayment is in full, the
Issuer simultaneously prepays in full all of its Senior 9% Notes and
Junior 9% Notes, and if such prepayment is in part, the Issuer
simultaneously prepays all of its Senior 9% Notes and Junior 9% Notes
in the same proportion as the amount of prepayment tendered for this
Note bears to the total outstanding principal sum of this Note.
2. This Allonge makes no other changes in the terms and conditions of the
Notes.
IN WITNESS WHEREOF, the Issuer has executed this Allonge under its
corporate seal effective as of May 3, 1996.
[SEAL] DOLLAR TREE STORES, INC.
By: /s/ H. Ray Compton
--------------------------------
Title: Executive Vice President
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S FORM
10-Q FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 13,116
<SECURITIES> 0
<RECEIVABLES> 2,053
<ALLOWANCES> 0
<INVENTORY> 72,677
<CURRENT-ASSETS> 91,480
<PP&E> 48,723
<DEPRECIATION> 17,708
<TOTAL-ASSETS> 173,570
<CURRENT-LIABILITIES> 61,259
<BONDS> 0
0
0
<COMMON> 250
<OTHER-SE> 41,008
<TOTAL-LIABILITY-AND-EQUITY> 173,570
<SALES> 84,975
<TOTAL-REVENUES> 84,975
<CGS> 55,905
<TOTAL-COSTS> 55,905
<OTHER-EXPENSES> 26,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,069
<INCOME-PRETAX> 1,501
<INCOME-TAX> 578
<INCOME-CONTINUING> 923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
