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 JUNE 30, 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 organization) Identification No.)
2555 ELLSMERE AVENUE
NORFOLK COMMERCE PARK
NORFOLK, VIRGINIA 23513
(Address of principal executives office)
TELEPHONE NUMBER (757) 857-4600
(Registrants 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 August 9, 1996, there were 25,846,771 shares of the Registrant's Common
Stock outstanding.
<PAGE>
DOLLAR TREE STORES, INC.
and subsidiaries
INDEX
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995.............................. 3
Condensed Consolidated Income Statements
Three months and six months ended June 30, 1996 and 1995......... 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995.......................... 5
Notes to Condensed Consolidated Financial Statements.............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................... 13
ITEM 2. CHANGES IN SECURITIES..................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 14
ITEM 5. OTHER INFORMATION......................................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 16
Signatures.................................................. 17
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30, December 31,
1996 1995
------------ --------
ASSETS
Current assets:
Cash and cash equivalents.................... $ 6,358 $ 22,415
Accounts receivable.......................... 1,915 380
Merchandise inventories ..................... 86,605 40,113
Income taxes receivable...................... 439 --
Deferred tax asset .......................... 785 720
Prepaid expenses and other current assets ... 3,206 2,392
------- -------
Total current assets..................... 99,308 66,020
------- -------
Property and equipment, net....................... 33,152 23,091
Deferred tax asset................................ 2,445 2,219
Goodwill, net (note 2) ........................... 47,139 --
Other assets, net................................. 575 291
------- -------
TOTAL ASSETS............................. $182,619 $ 91,621
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank........................ $ 20,900 $ --
Accounts payable ............................ 33,756 19,603
Accrued liabilities ......................... 9,406 8,939
Income taxes payable......................... -- 8,244
Current installments of obligations
under capital leases...................... 344 101
------ -------
Total current liabilities................ 64,406 36,887
------ -------
Development facility (note 2)..................... 41,600 --
Senior subordinated notes......................... -- 7,000
Junior subordinated notes......................... -- 7,000
Obligations under capital leases,
excluding current installments................. 1,006 417
Other liabilities................................. 3,650 1,230
------ -------
Total liabilities........................ $110,662 $ 52,534
------- -------
Shareholders' equity:
Common stock, par value $0.01. Authorized
50,000,000 shares, 25,843,780 issued and
outstanding at June 30, 1996 (note 7)....... 258 166
Additional paid-in capital................... 31,124 2,980
Retained earnings............................ 40,575 35,941
------- -------
Total shareholders' equity................... 71,957 39,087
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $182,619 $ 91,621
======= =======
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)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1996 1995 1996 1995
-------- ------- -------- --------
Net sales ............... $102,689 $ 62,885 $187,664 $111,618
Cost of sales................ 67,030 40,545 122,935 72,820
------- ------- ------- -------
Gross profit........ 35,659 22,340 64,729 38,798
------- ------- ------- -------
Selling, general, and
administrative expenses:
Operating expenses........ 25,480 16,163 49,768 30,581
Depreciation and
amortization............ 2,593 1,298 4,805 2,473
------- ------- ------- -------
Total selling, general
and administrative
expenses................ 28,073 17,461 54,573 33,054
------- ------- ------- -------
Operating income............. 7,586 4,879 10,156 5,744
Interest expense............. 1,555 686 2,624 1,146
------- ------- ------- -------
Income before income taxes... 6,031 4,193 7,532 4,598
Provision for income taxes... 2,320 1,613 2,898 1,769
------- ------- ------- -------
Net income.......... $ 3,711 $ 2,580 $ 4,634 $ 2,829
======= ======= ======= =======
Net income per share ........ $ 0.13 $ 0.09 $ 0.17 $ 0.10
======= ======= ======= =======
Weighted average number of
common shares and common
share equivalents
outstanding (note 3):
Primary ............ 28,063 27,559 27,946 27,447
Fully diluted....... 28,063 27,616 27,972 27,591
See accompanying Notes to Condensed Consolidated Financial Statements
4
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DOLLAR TREE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
---------------------
1996 1995
------- --------
Cash flows from operating activities:
Net income....................................... $ 4,634 $ 2,829
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization................. 4,805 2,473
Loss on disposal of property and equipment ... 217 123
Provision for deferred income taxes........... (291) (177)
Changes in assets and liabilities increasing
(decreasing) cash and cash equivalents,
net of effects resulting from purchase
of Dollar Bills, Inc.:
Accounts receivable........................ (79) 58
Income taxes receivable ................... (439) --
Merchandise inventories.................... (29,819) (20,950)
Prepaid expenses and other current assets.. (629) (44)
Other assets .............................. 422 (28)
Accounts payable........................... 6,358 11,640
Accrued liabilities........................ (1,947) (1,685)
Income taxes payable....................... (8,244) (5,645)
Other liabilities.......................... 45 (213)
------ -------
Total adjustments......................... (29,601) (14,448)
------- --------
Net cash used in operating activities .... (24,967) (11,619)
------- --------
Cash flows from investing activities:
Capital expenditures ............................ (8,616) (5,791)
Proceeds from sale of property and equipment..... 23 32
Payment for purchase of Dollar Bills, Inc.,
net of cash acquired............................ (52,209) --
------- -------
Net cash used in investing activities..... (60,802) (5,759)
------- -------
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.......... 14,000 6,000
Principal payments under capital
lease obligations................................ (124) (41)
Proceeds from options exercised and purchase
of shares under ESPP............................ 2,417 --
Proceeds from public offering.................... 25,819 --
Proceeds from development facility............... 52,630 --
Repayment of development facility................ (11,030) --
Repayment of senior and junior
subordinated notes.............................. (14,000) --
-------- --------
Net cash provided by financing activities. 69,712 12,959
-------- --------
Net decrease in cash
and cash equivalents............................. (16,057) (4,419)
Cash and cash equivalents at beginning of period.. 22,415 6,016
-------- --------
Cash and cash equivalents at end of period........ $ 6,358 $ 1,597
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
5
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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 June 30, 1996, and for the three- and
six-month periods 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- and six-month periods ended June 30, 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
6
<PAGE>
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 greater of the average
market price of the stock at the end of each week in the period or the market
price of the stock at the end of the period. 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.
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 June 30, 1996 and 1995, options for the following numbers of shares
(restated for the stock split) were outstanding under each plan:
Options for Shares Outstanding at Exercise
PLAN June 30, 1996 June 30, 1995 Price/Range
---- ------------- ------------- --------------
SOP.......... 367,041 615,672 $ 2.90
SIP.......... 477,841 180,000 $10.00 - 33.13
The options above include options for 230,540 shares, net of lapses and
cancellations, granted during the second quarter of 1996 and 22,500 shares
granted during the second quarter of 1995 which are not included in the earnings
per share calculation.
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 August 9, 1996, 6,845 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.
5. REGISTRATION STATEMENT FILED ON FORM S-3
The Company sold 750,000 shares of Common Stock on June 10, 1996, pursuant
7
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to a registration statement filed on Form S-3 under the Securities Act of 1933.
In connection with this offering, the Company received approximately $25.3
million, net of estimated offering expenses. The Company used the proceeds of
the offering to repay its 9% Senior and Junior Subordinated Notes and pay down
its development facility (see Note 2).
6. 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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 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 June 30, 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 Six Months Ended June 30, 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>
Net sales.......... $300,229 $103,850 $404,079 $187,664 $ 6,482 $194,146
Gross profit....... 112,679 27,497 140,176 64,729 1,803 66,532
Selling, general and
administrative
expenses......... 75,967 22,201 (4,004)(2) 96,144 54,573 2,613 (529)(2) 56,816
1,980 (3) 159 (3)
Operating income
(loss)........... 36,712 5,296 44,032 10,156 (810) 9,716
Interest expense... 2,618 505 3,850 (4) 6,973 2,624 50 324 (4) 2,998
Income (loss) before
income taxes..... 34,094 4,791 37,059 7,532 (860) 6,718
Provision for
income taxes..... 13,127 178 963 (5) 14,268 2,898 (26) (288)(5) 2,584
Net income (loss).. $ 20,967 $ 4,613 $ 22,791 $ 4,634 $ (834) $ 4,134
======== ======== ======== ======== ======== ========
Net income
per share(6)..... $ 0.76 $ 0.83 $ 0.17 $ 0.15
======== ======== ======== ========
Weighted average
number of common
shares and common
share equivalents
outstanding:..... 27,589 27,589 27,946 27,946
======== ======== ======== ========
</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 six months ended June 30, 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
9
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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.
NOTE 7. INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
On July 23, 1996, the shareholders of the Company approved an increase in
authorized shares of Common Stock from 50,000,000 to 100,000,000 shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
RESULTS OF OPERATIONS AND GENERAL COMMENTS
Net sales increased $39.8 million, or 63.3%, to $102.7 million for the
three months ended June 30, 1996, from $62.9 million for the three months ended
June 30, 1995. Of this increase, (i) approximately 60.8%, or $24.2 million , was
attributable to the acquisition of 136 Dollar Bill$ stores on January 31, 1996,
(ii) approximately 37.1%, or $14.8 million, was attributable to stores opened in
1995 and 1996 which are not included in the Company's comparable store net sales
calculation, and (iii) approximately 2.1%, or $0.8 million, was attributable to
comparable store net sales growth, which represented a 1.5% increase over
comparable store net sales in the corresponding quarter of the prior period.
Dollar Bill$ 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. The Company opened 29 new stores and closed three stores during the
second quarter of 1996 compared to opening 30 new stores and closing two stores
during the second quarter of 1995.
Management anticipates that the primary source 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 $13.3 million, or 59.6%, to
$35.7 million in the second quarter of 1996 from $22.3 million in the second
quarter of 1995. As a percentage of net sales, gross profit decreased to 34.7%
from 35.5%, primarily due to increased sales of domestic and consumable
products, which generally carry a lower merchandise margin, partially offset by
decreases in freight costs, markdowns and shrinkage. Management expects that the
Company's product mix will continue to contain a higher proportion of domestic
products, due to the addition of Dollar Bill$ stores and the introduction of
more domestic goods in existing stores.
Selling, general and administrative expenses, which include operating
expenses and depreciation and amortization, increased $10.6 million, or 60.8%,
10
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to $28.1 million in the second quarter of 1996 from $17.5 million in the second
quarter of 1995, and decreased as a percentage of net sales to 27.3% from 27.8%
during the same period. This decrease resulted primarily from hourly payroll
costs savings, partially offset by the amortization of goodwill recognized in
connection with the purchase of all of the outstanding stock of Dollar Bills,
Inc. During the second quarter of 1996, the Company's operating expenses
increased by approximately $0.7 million due to transactional costs and expenses
incurred in connection with the Dollar Bills acquisition. Amortization of
goodwill relating to the acquisition amounted to $0.5 million for the second
quarter of 1996.
Operating income increased $2.7 million, or 55.5%, to $7.6 million for the
second quarter of 1996 from $4.9 million for the comparable period in 1995, and
decreased as a percentage of net sales to 7.4% from 7.8% during the same period
for the reasons noted above.
INTEREST EXPENSE
Interest expense increased $0.9 million in the second quarter of 1996
compared to the second quarter of 1995 to $1.6 million from $0.7 million during
the same period. This increase is primarily a result of borrowings under the
Company's development facility in connection with the Dollar Bills acquisition,
and the amortization of deferred financing costs relating thereto.
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
RESULTS OF OPERATIONS AND GENERAL COMMENTS
Net sales increased $76.0 million, or 68.1%, to $187.7 million for the six
months ended June 30, 1996, from $111.6 million for the six months ended June
30, 1995. Of this increase, (i) approximately 52.6%, or $40.0 million , was
attributable to the acquisition of 136 Dollar Bill$ stores on January 31, 1996,
(ii) approximately 38.8%, or $29.5 million, was attributable to stores opened in
1995 and 1996 which are not included in the Company's comparable store net sales
calculation, and (iii) approximately 8.6%, or $6.5 million, was attributable to
comparable store net sales growth, which represented a 6.1% increase over
comparable store net sales in the corresponding quarter of the prior period.
Dollar Bill$ 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. The Company opened 53 new stores and closed three stores during the
first six months of 1996 compared to opening 45 new stores and closing two
stores during the first six months of 1995.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $25.9 million, or 66.8%, to
$64.7 million in the first six months of 1996 from $38.8 million in the first
six months of 1995. As a percentage of net sales, gross profit decreased to
34.5% from 34.8%, primarily due to increased sales of domestic and consumable
products, which generally carry a lower merchandise margin, partially offset by
decreases in freight costs, markdowns and shrinkage and
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lower occupancy costs as a percentage of net sales. Management expects that the
Company's product mix will continue to contain a higher proportion of domestic
products, due to the addition of Dollar Bill$ stores and the introduction of
more domestic goods in existing stores.
Selling, general and administrative expenses, which include operating
expenses and depreciation and amortization, increased $21.5 million, or 65.1%,
to $54.6 million in the first six months of 1996 from $33.1 million in the first
six months of 1995, and decreased as a percentage of net sales to 29.1% from
29.6% during the same period. This decrease resulted primarily from hourly
payroll costs savings, partially offset by the amortization of goodwill
recognized in connection with the purchase of Dollar Bills, Inc. During the
first six months of 1996, the Company's operating expenses increased by
approximately $2.0 million due to transactional costs and expenses incurred in
connection with the Dollar Bills acquisition. Amortization of goodwill relating
to the acquisition amounted to $0.8 million for the first six months of 1996.
Operating income increased $4.4 million, or 76.8%, to $10.2 million for the
first six months of 1996 from $5.7 million for the comparable period in 1995,
and increased as a percentage of net sales to 5.4% from 5.1% during the same
period for the reasons noted above.
INTEREST EXPENSE
Interest expense increased $1.5 million in the first six months of 1996
compared to the first six months of 1995 to $2.6 million from $1.1 million
during the same period. This increase is primarily a result of borrowings under
the Company's development facility in connection with the Dollar Bills
acquisition, and the amortization of deferred financing costs relating thereto.
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.
In June, 1996, the Company and certain shareholders completed a public
offering; a total of 3,250,000 shares of Common Stock were sold, of which the
Company sold 750,000 newly issued shares. Total proceeds to the Company were
approximately $25.3 million, net of offering expenses. The Company used
approximately $14 million of the net proceeds to repay its 9% Subordinated Notes
(both Senior and Junior) and approximately $11.3 million to pay down its
development facility.
During the first six months of 1996 and 1995, net cash used in operations
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was $25.0 million and $11.6 million, respectively, primarily used to build
inventory levels. During the first six months of 1996 and 1995, net cash used in
investing activities was $60.8 million and $5.8 million, respectively, the
increase consisting primarily of payment for the acquisition of Dollar Bills,
Inc. in 1996. Net cash provided by financing activities was $69.7 million and
$13.0 million during the first six months of 1996 and 199, respectively, the
increase primarily attributable to borrowings incurred to fund the acquisition
of Dollar Bills in January 1996 and to capital raised during a public offering
completed in June, 1996.
The Company's borrowings under its bank facilities were $62.5 million at June
30, 1996, and $13.0 million at June 30, 1995. There were no amounts outstanding
at December 31, 1995. Under the Company's bank facilities, an additional $57.5
million is available at June 30, 1996.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 28, 1996, the Circuit Court of Cook County, Illinois, denied the
Company's motion to dismiss the lawsuit previously filed against the Company by
the former shareholders of Dollar Bills and a corporation they control
("Plaintiffs"). On July 23, 1996, the Plaintiffs filed a motion to voluntarily
dismiss the action in the Circuit Court of Cook County, Illinois, which the
Court granted. On July 26, 1996, the Plaintiffs amended their complaint in the
Federal Court alleging direct violations by the Company and one of its employees
of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder in addition to the violations previously alleged in
Federal Court against the Company. Under the new securities law claim,
Plaintiffs seek to recover exemplary and punitive damages in an amount to be
determined at trial. The Company emphatically denies the Plaintiffs' claims and
will vigorously defend itself in this matter.
This 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 litigation
counsel for this matter in reliance on such facts, the Company believes that 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.
In the second quarter of 1996, the Company terminated its relationship
with a Hong Kong trading company that accounted for approximately 6% of the
Company's purchases in 1995. The trading company had obtained payment on a
number of letters of credit issued on the Company's behalf by falsely claiming
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that conforming goods had been shipped, when in fact the trading company had
either shipped non-conforming goods or empty containers. During the second
quarter of 1996, the Company increased its previously established reserves by
approximately $400,000 for potential losses arising from the letters of credit
upon which the trading company has obtained payment. The Company has canceled
all outstanding purchase orders with the trading company. In addition to the
payments already obtained by the trading company there remains approximately
$300,000 in undrawn irrevocable letters of credit issued to the trading company
with respect to the canceled orders which have not yet reached their expiry
date. The Company has taken extensive measures, including legal action against
the trading company in the United States, which it believes have substantially
limited its exposure with respect to the remaining undrawn letters of credit.
The Company has also initiated an involuntary bankruptcy-type proceeding against
the trading company in Hong Kong. Although there can be no assurances in this
regard, the Company believes it is unlikely that its losses in connection with
this matter will significantly exceed its reserves.
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 U.S. Consumer Product Safety Commission, none of
which is individually or in the aggregate material to the Company.
ITEM 2. CHANGES IN SECURITIES
On July 23, 1996, the Company's shareholders approved an amendment to the
Company's Third Restated Articles of Incorporation increasing the number of
shares of Common Stock which the Company is authorized to issue from 50 million
to 100 million. See "SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS" below.
Articles of Amendment containing the amendment approved by the shareholders
became effective with the Virginia State Corporation Commission on August 7,
1996. The amendment increased the number of authorized but unissued shares of
the Company's Common Stock but had no material effect on outstanding shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on July 23, 1996,
the following individuals were elected to the Board of Directors:
Votes For Votes Withheld
------------ ----------------
Macon F. Brock, Jr. 24,142,023 141,716
Allan Karp 24,141,903 141,836
Frank Doczi 24,141,340 142,399
Alan Wurtzel 24,142,955 140,784
J. Douglas Perry, John F. Megrue, H. Ray Compton, and Thomas A. Saunders, III,
continue as directors after the meeting and no elections were held with
respect to their offices.
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In addition, the following proposals were approved at the Company's
Annual Meeting:
1. Amendment to the Company's Articles of Incorporation to increase the number
of authorized shares of Common Stock to 100,000,000.
Affirmative Votes Negative Votes Votes Withheld
24,070,000 135,857 77,882
2. Amendment to the Company's Employee Stock Purchase Plan allowing employees
of subsidiaries to participate.
Affirmative Votes Negative Votes Votes Withheld
24,188,327 18,506 76,906
ITEM 5. OTHER INFORMATION
Registered Public Offering
On June 14, 1996, the Company and certain shareholders completed a public
offering of Common Stock pursuant to an effective registration statement (the
"June Offering"). A total of 3,250,000 shares were sold, of which the Company
sold 750,000 shares and certain shareholders sold 2,500,000 shares, at a price
to the public of $36.00 per share. After deducting for the underwriters discount
and expenses of the offering, the total proceeds to the Company were
approximately $25.3 million.
The Company used approximately $14 million of the net proceeds from the
June Offering to repay its 9% Senior Subordinated Notes due 1997 and its 9%
Junior Subordinated Notes due 1997 and approximately $11.3 million to reduce the
outstanding balance under the Company's development facility. See Notes 2 and 5
of the Notes to Condensed Consolidated Financial Statements.
Grant of Options
On April 24, 1996, options for 231,575 shares of Common Stock were
granted under the Company's Stock Incentive Plan ("SIP"). An additional 2,000
shares were granted in June, 1996. The options vest over a three-year period and
have exercise prices ranging from $31.00 to $33.125 per share.
On July 22, 1996, options to purchase 4,000 shares of Common Stock each
were granted to Frank Doczi and Alan Wurtzel as continuing directors, under the
terms of the SIP. These options are immediately exercisable and have an exercise
price of $28.25 per share.
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ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
3.1 Third restated Articles of Incorporation of Dollar Tree Stores, Inc.,
as amended
* 10.1 Technical Clarification to Dollar Tree Stores, Inc. Employee Stock
Purchase Plan executed May 3, 1996.
10.2 Second Amendment to Credit Agreement, dated June 17, 1996, by and
among the Company, Dollar Tree Distribution, Inc., Dollar Tree
Management, Inc., Nationsbank, N.A., Signet Bank, Crestar Bank,
and First National Bank of Boston.
10.3 Letter Agreement, dated June 28, 1996, by and among the Company,
Dollar Tree Distribution, Inc., Dollar Tree Management, Inc.,
Nationsbank, N.A., Signet Bank, Crestar Bank, and First National
Bank of Boston, regarding certain changes to credit lines.
* Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1996, filed with the
Securities and Exchange Commission.
(B) Reports on Form 8-K
Form 8-K/A, filed on April 12, 1996, amending the Form 8-K filed
on February 14, 1996, was previously reported in the Company's
Form 10-Q for the period ended March 31, 1996. The Form 8-K/A
included information required under Item 7 of the Form 8-K, in
relation to the acquisition of Dollar Bills, Inc.
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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: August 14, 1996
DOLLAR TREE STORES, INC.
By: /s/ H. Ray Compton
-------------------------------
H. Ray Compton
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
17
EXHIBIT 3.1
THIRD RESTATED ARTICLES OF INCORPORATION
OF
DOLLAR TREE STORES, INC.
(as amended)
ARTICLE I
NAME
The name of the Corporation is DOLLAR TREE STORES, INC.
ARTICLE II
PURPOSES AND POWERS
The purpose for which the Corporation is organized is to engage in any
lawful business not required by the Virginia Stock Corporation Act to be stated
in the Articles of Incorporation.
The Corporation shall have all of the corporate powers of any character
which are not prohibited by law or required to be stated in the Articles of
Incorporation.
ARTICLE III
CAPITAL STOCK
A. Authorized Shares. The aggregate number of shares that the Corporation
shall have authority to issue is Ten Million (10,000,000) shares of Preferred
Stock, One Cent ($.01) par value per share, and One Hundred Million
(100,000,000) shares of Common Stock, One Cent ($.01) par value per share.
B. Preferred and Common Stock. The designations, preferences, voting powers
and relative, participating, optional other special rights of the Preferred
Stock and the Common Stock, and the qualifications, limitations and restrictions
of such preferences and rights, shall be in accordance with Sections B(1)
through B(6) of this Article III.
1. Issuance of Preferred Stock. The Preferred Stock may be issued from
time to time, in one or more series, each of which series shall be designated by
such appropriate designations as may be stated in such amendment or amendments
to these Articles of Incorporation providing for the issuance of the stock of
such series as may be adopted by the Board of Directors from time to time, a
copy of which amendment or amendments shall have been filed with and made
effective (without shareholder approval) by the State Corporation Commission of
Virginia as required by law. Subject to the provisions hereof, all shares of any
one series shall be alike in every particular and except for the relative rights
and preferences as to which there may be variations between different series as
set forth in this Article III, all shares of Preferred Stock shall be alike in
every particular. The Board of Directors shall have power and authority, subject
to all the provisions of these Articles and of the Virginia Stock Corporation
Act, to state and determine, in the amendment or amendments providing for the
issue of each series of Preferred Stock, the number of shares of each such
series authorized to be issued and the preferences and relative, participating,
optional and other rights pertaining to each such series, and the
qualifications, limitations or restrictions thereof, including, full power and
authority to determine, as to the Preferred Stock of each such series (a) the
rate of dividend, the time of payment, whether dividends shall be cumulative and
if so, the dates from which
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dividends shall be cumulative, and the extent of participation rights, if any,
(b) any right to vote with holders of shares of any other series or class and
any right to vote as a class, either generally or as a condition to specified
corporate action, and the number of votes, if any, to be exercised for each
share, (c) the price at and the terms and conditions on which shares may be
redeemed, (d) the amount payable upon shares in event of involuntary
liquidation, (e) the amount payable upon shares in event of voluntary
liquidation, (f) sinking fund provisions for the redemption or purchase of
shares, (g) the terms and conditions on which shares may be converted if the
shares of any series are issued with the privilege of conversion, and (h) any
other designations, rights, preferences or limitations that are now or hereafter
permitted by law and are not inconsistent with the provisions of this Section
B(1).
2. Dividends. The holders of the Preferred Stock shall be entitled to
receive dividends as and when declared by the Board of Directors out of funds
legally available therefor. Dividends on the Preferred Stock of each series
shall be at such rates or to such extent, payable in such manner, under such
conditions and on such dates as shall be stated in the amendment to the Articles
of Incorporation providing for the issuance of each such series of Preferred
Stock. The holders of Common Stock shall be entitled to receive such dividends
as may from time to time be declared by the Board of Directors out of funds
legally available therefor, subject to the rights of the series of Preferred
Stock outstanding from time to time. Dividends on Preferred Stock shall be in
preference to dividends on Common Stock, unless otherwise determined by the
Board in the amendment or amendments providing for an issue of Preferred Stock.
3. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, there shall be paid
to the holders of shares of Preferred Stock of each series the fixed amount per
share payable in the event of liquidation, dissolution or winding up of the
Corporation, stated in the amendment of the Articles of Incorporation providing
for the issuance of each such series of Preferred Stock, plus the unpaid
dividends accrued thereon, if such dividends be cumulative, before any sum shall
be paid to, or any assets distributed among, the holders of the Common Stock,
but the holders of the Preferred Stock shall be entitled to no further payment
or distribution than as provided above. If amounts payable to holders of shares
of Preferred Stock on liquidation, dissolution or winding up are not paid in
full, the shares of Preferred Stock shall share in any distribution of assets
(other than by way of dividends) on a basis determined by the Board in the
amendment or amendments providing for the issue of each series of Preferred
Stock, or, in the absence of such determination, the shares of Preferred Stock
shall share ratably on a share for share basis in accordance with the sums which
would be payable in such distribution if all sums payable were discharged in
full. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of the Common Stock shall be
entitled, in proportion to the number of shares of Common Stock so held, to
payment or distribution of any assets remaining after all required payments to
holders of Preferred Stock. A liquidation, dissolution or winding up of the
Corporation, as such terms are used in this Section B(3), shall not be deemed to
be occasioned by or to include any consolidation or merger of the Corporation
with or into any other corporation or corporations or a sale, lease or
conveyance of all or part of
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its assets.
4. Redemption. The Preferred Stock of each series shall be subject to
redemption if so provided, and at the prices, and upon the terms and
conditions stated, in the amendment to the Articles of Incorporation providing
for the issuance of each such series of Preferred Stock.
5. Voting. The holders of each series of the Preferred Stock shall
have no voting power except as may be required by law, or as may be provided,
and upon the terms and conditions stated, in the amendment to the Articles of
Incorporation providing for the issuance of each such series of Preferred Stock.
Except as set forth hereinabove, the entire and exclusive voting rights are
vested in the holders of the Common Stock. Each holder of the Common Stock shall
have one vote for each share held by him, and each holder of any series of
Preferred Stock when and if entitled to vote shall also have such votes for each
share held by him as provided in the amendment to the Articles of Incorporation
providing for the issuance of each such series of Preferred Stock.
6. Pre-emptive Rights. No holder of any share of capital stock of the
Corporation, whether now or hereafter authorized or outstanding, shall have any
pre-emptive or preferential right to purchase or subscribe to purchase i) any
shares of stock of any class of the Corporation or other security that the
Corporation may determine to issue, whether share of stock or other security to
be issued is now or hereafter authorized, ii) any warrants, rights or options to
purchase any stock or other security , or iii) any obligation convertible into
any such stock or other security or into warrants, rights or options to purchase
any such stock or other security.
ARTICLE IV
DIRECTORS
The number of directors shall be fixed by the By-Laws. In the absence of
such a provision in the By-Laws, the number of directors shall be nine. Upon the
effective date of these Third Restated Articles of Incorporation, the Board of
Directors shall divide the directors of the corporation into three classes as
nearly equal in number as possible. The term of office of the first class of
directors shall expire at the first annual meeting of stockholders after the
initial election dividing directors into such classes, that of the second class
shall expire at the second annual meeting after such election, and that of the
third class at the third annual meeting after such election. At each annual
meeting of stockholders, successors to the class of directors whose terms shall
then expire and any other nominees for election as a director of such class
shall be elected to hold office until the third succeeding annual meeting. If
the number of directors is changed, any newly created directorships or decrease
in directorships shall be so apportioned among the classes by the Board of
Directors as to make all classes as nearly equal in number as possible.
Vacancies resulting from an increase in the number of directors may be created
and filled by action of the Board of Directors between annual meetings of
stockholders. A director may be removed only if the number of votes cast to
remove the director constitutes more than two-thirds (2/3) of the votes entitled
to be cast at an election of directors.
ARTICLE V
INDEMNIFICATION
A. Definitions. For purposes of this Article, the following definitions
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<PAGE>
shall apply:
"Act" means the Virginia Stock Corporation Act, as it exists on the
date hereof or is hereafter amended, or any successor or comparable provision of
law if such Act is repealed.
"eligible person" means a person who is or was a director or officer of
the Corporation, or while serving as such director or officer, is or was serving
at the request of the Corporation as a director, trustee, partner or officer of
another corporation, affiliated corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. A person shall be considered to be
serving an employee benefit plan at the Corporation's request if his duties to
the Corporation also impose duties on, or otherwise involve services by, him to
the plan or to participants in or beneficiaries of the plan.
"expenses" includes, without limitation, counsel fees, expert witness
fees, and costs of investigation, litigation and appeal, as well as any amounts
expended in asserting a claim for indemnification.
"liability" means the obligation to pay a judgment, settlement,
penalty, fine (including any excise tax assessed with respect to any employment
benefit plan), or reasonable expenses incurred with respect to a proceeding.
"party" includes, without limitation, an individual who was, is, or is
threatened to be made a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed action, suit,
or proceeding whether civil, criminal, administrative, or investigative and
whether formal or informal.
B. Indemnification of Officers and Directors.
1. To the full extent that the Act permits the limitation or
elimination of the liability of directors and officers, no director or officer
of the Corporation made a party to any proceeding shall be liable to the
Corporation or its stockholders for monetary damages arising out of any
transaction, occurrence or course of conduct, whether occurring prior or
subsequent to the effective date of this Article V.
2. To the full extent permitted by the Act, the Corporation shall
indemnify any eligible person who was or is a party to any proceeding, including
a proceeding brought by or in the right of the Corporation or brought by or on
behalf of the stockholders of the Corporation, against any liability incurred by
him in connection with such proceeding unless he engaged in willful misconduct
or a knowing violation of the criminal law. To the same extent, the Board of
Directors is hereby empowered, by a majority vote of a quorum of disinterested
directors, to enter into a contract to indemnify any director or officer against
liability and/or to advance or reimburse his expenses in respect to any
proceedings arising from any act or omission, whether occurring before or after
the execution of such contract.
3. The provisions of this Article V shall be applicable to all
proceedings commenced after it becomes effective, arising from any act or
omission, whether occurring before or after such effective date. No amendment or
repeal of this Article V shall impair or otherwise diminish the rights
4
<PAGE>
provided under this Article V (including those created by contract) with respect
to any act or omission occurring prior to such amendment or repeal. The
Corporation shall promptly take all such actions and make all such
determinations and authorizations as shall be necessary or appropriate to comply
with its obligation to make any indemnity against liability, or to advance any
expenses, under this Article V and shall promptly pay or reimburse all
reasonable expenses, including attorneys' fees, incurred by any such director or
officer in connection with such actions and determinations or proceedings of any
kind arising therefrom.
4. The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that the director or officer did not meet any
standard of conduct that is a prerequisite to the limitation or elimination of
liability provided in Section B(1) of this Article V or to his entitlement to
indemnification under Section B(2) of this Article V.
5. No indemnification under Section B(2) of this Article V (unless
ordered by a court of law) shall be made by the Corporation without a
determination in the specific case that indemnification is proper in the
circumstances because the proposed indemnitee has met the standard of conduct
that is a prerequisite to his entitlement to indemnification under Section B(2)
of this Article V.
The determination shall be made:
(a) By the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(b) If a quorum cannot be obtained under subsection (a) of this Section
B(5), by majority vote of a committee duly designated by the Board of Directors
(in which designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to the proceeding;
(c) By special legal counsel:
i) selected by the Board of Directors in the manner prescribed in
subsection (a) of this Section B(5) or its committee in the manner
prescribed in subsection (b) of this Section B(5); or
ii) if a quorum of the Board of Directors cannot be obtained
under subsection (a) of this Section B(5) and a committee
cannot be designated under subsection (b) of this Section
B(5), selected by a majority vote of the full Board of
Directors including directors who are parties; or
(d) By the stockholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not be
voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is appropriate, except that if the determination is made by
special legal counsel, such authorizations and evaluations shall be made by
those entitled under subsection (c) of this Section B(5) to select counsel.
Notwithstanding the foregoing, in the event there has been a change in
the composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification, an advance or
reimbursement is claimed, any determination as to such indemnification,
5
<PAGE>
advance or reimbursement shall be made by special legal counsel agreed upon by
the Board of Directors and the proposed indemnitee. If the Board of Directors
and the proposed indemnitee are unable to agree upon such special legal counsel,
the Board of Directors and the proposed indemnitee each shall select a nominee,
and the nominees shall select such special legal counsel.
6. (a) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director or officer (and may do so for a person referred
to in Section B(7) of this Article V) who is a party to a proceeding in advance
of final disposition of the proceeding or the making of any determination under
Section B(2) of this Article V if the director, officer or person furnishes to
the Corporation:
i) a written statement, executed personally, of his good faith belief
that he has met the standard of conduct that is a prerequisite to his
entitlement to indemnification under Section B(2) of this Article V; and
ii) a written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he did not meet
such standard of conduct.
(b) The undertaking required by paragraph (ii) of subsection (a)
of this Section B(6) shall be an unlimited general obligation but need not be
secured and may be accepted without reference to financial ability to make
repayment.
(c) Authorizations of payments under this Section B(6) shall be
made by the persons specified in Section B(5) of this Article V.
7. The Board of Directors is hereby empowered, by majority vote of a
quorum consisting of disinterested directors, to cause the Corporation to
indemnify or contract to indemnify any person not specified in Section B(2) of
this Article V who was, is or may become a party to any proceeding, by reason of
the fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, to the same or a lesser extent as if such
person were specified as one to whom indemnification is granted in Section B(2)
of this Article V. The provisions of Sections B(3) through B(6) of this Article
V shall be applicable to any indemnification provided pursuant to this Section
B(7).
8. The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article V and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by him in any
such capacity or arising from his status as such, whether or not the Corporation
would have power to indemnify him against such liability under the provisions of
this Article V.
9. Every reference herein to directors, officers, employees or agents
shall include former directors, officers, employees and agents and their
respective heirs, executors and administrators. The indemnification hereby
provided and provided hereafter pursuant to the power hereby conferred by this
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Article V on the Board of Directors shall not be exclusive of any other rights
to which any person may be entitled, including any right under policies of
insurance that may be purchased and maintained by the Corporation or others,
with respect to claims, issues or matters in relation to which the Corporation
would not have the power to indemnify such person under the provisions of this
Article V. Nothing herein shall prevent or restrict the power of the Corporation
to make or provide for any further indemnity, or provisions for determining
entitlement to indemnity, or provisions for indemnification agreements, By-Laws,
or other arrangements (including, without limitation, creation of trust funds or
security interests funded by letters of credit or other means) approved by the
Board of Directors (whether or not any of the directors of the Corporation shall
be a party to or beneficiary of any such agreements, By-Laws or arrangements);
provided, however, that any provision of such agreements, By-Laws or other
arrangements shall not be effective if and to the extent that it is determined
to be contrary to this Article V or applicable laws of the Commonwealth of
Virginia, but other provisions of any such agreements, By-Laws or other
arrangements shall not be affected by any such determination.
10. Each provision of this Article V shall be severable, and an adverse
determination as to any such provision shall in no way affect the validity of
any other provision.
ARTICLE VI
AMENDMENTS
Adoption of an amendment to Article IV or this Article VI of these Third
Restated Articles of Incorporation, or Articles II(3), II(5), III(2), III(3), or
III(4) of the Second Restated By-Laws requires, of each voting group entitled to
vote thereon, approval of the amendment by more than two-thirds of all the votes
entitled to be cast by that voting group. Adoption of all other amendments to
the Articles of Incorporation requires, of each voting group entitled to vote
thereon, approval of the amendment by a majority of a quorum of the voting
group. Nothing in this Article VI shall be construed to require shareholder
approval of an amendment or amendments to these Articles of Incorporation
providing for the issuance of any series of Preferred Stock in accordance with
Article III(B) of these Articles of Incorporation.
ARTICLE VII
MISCELLANEOUS
A. The Corporation elects not to be governed by Article 14 of the Act,
entitled "Affiliated Transactions."
B. The Corporation elects not to be governed by Article 14.1 of the Act,
entitled "Control Share Acquisitions," and such Article shall not apply to
acquisitions of shares of the Corporation.
7
EXHIBIT 10.2
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT is entered into as of June 17,
1996, by and among the Obligors party to the Credit Agreement referred to below,
the Lenders party to the Credit Agreement, and the Administrative Agent and L/C
Agent party thereto.
PRELIMINARY STATEMENTS:
A. Dollar Tree Distribution, Inc., Dollar Tree Management, Inc., and Dollar
Tree Stores, Inc. and NationsBank, N.A., Signet Bank, Crestar Bank, and the
First National Bank of Boston entered into a Credit Agreement dated as of
January 11, 1996, which Credit Agreement was amended by a First Amendment to
Credit Agreement dated as of January 31, 1996, by and among the parties to the
Credit Agreement and Dollar Bills, Inc. (which subsequently merged with and into
Dollar Tree Stores, Inc.) (the "Credit Agreement"). The capitalized terms used
herein which are not otherwise defined shall have the meanings assigned to them
in the Credit Agreement.
B. The Obligors and the Lenders have, on the terms and conditions stated
below, agreed to amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendment to Section 7.13(d). Effective as of March 31, 1996, Section
7.13(d) of the Credit Agreement is hereby amended to reflect that Parent's
consolidated Current Ratio as of December 31, 1995, must be greater than 1.2,
not 2.0.
2. Amendment to Permit Issuance of Additional Standby Letter of Credit.
Effective as of May 20, 1996, the Credit Agreement is hereby amended as
follows:
(a) The definition of "Letter of Credit" in Section 1.1 is amended and
restated in its entirety to read as follows:
"Letter of Credit" means a letter of credit, either standby or
documentary, issued by the L/C Agent or by NationsBank, N.A., as the
case may be, as contemplated by Section 3.2.
(b) The first sentence of Section 3.2.4 of the Credit Agreement is
amended and restated in its entirety to read as follows:
Each Letter of Credit shall be a documentary Letter of Credit issued
for the account of Distribution to support purchases of inventory for
resale in Distribution's business, except that (i) a standby letter
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of credit has been issued by NationsBank, N.A. for the account of
Stores for workmen's compensation premium liability not to exceed at
any time $3,000,000 (which premium liability is currently $983,692) for
the benefit of Liberty Mutual Insurance Group, it being understood that
Distribution shall remain primarily liable for said standby letter of
credit reimbursement obligation hereunder as if the letter of credit
had been issued for its own account, and (ii) a standby letter of
credit has been issued by NationsBank, N.A. for the account of
Distribution not to exceed at any time $1,500,000 for the benefit of
Simple Symbol Ltd. For purposes of this Agreement, NationsBank, N.A.
shall serve as L/C Agent with respect to these two standby Letters of
Credit, even if the L/C Agent changes, and references herein to L/C
Agent shall be deemed to include NationsBank, N.A. with respect to said
standby Letters of Credit.
2. Representations and Warranties of the Obligors. The Obligors, jointly
and severally, represent and warrant as follows:
(a) The execution, delivery, and performance by the Obligors of this
Agreement and the Credit Agreement, as amended hereby, are within the Obligors'
corporate powers, have been duly authorized by all necessary corporate action,
and do not contravene (i) their charters, bylaws, or other organizational
documents, and (ii) any law or any contractural restriction binding on or
affecting the Obligors, and each of the Obligors is validly existing and good
standing under the laws of the jurisdiction in which it was incorporated.
(b) No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory bodies required for the
due execution, delivery, and performance by the Obligors of this Agreement and
the Credit Agreement, as amended hereby.
(c) This Agreement, the Credit Agreement as amended hereby, and the
Loan Documents constitute legal, valid, and binding obligations of each of the
Obligors, enforceable against each of the Obligors in accordance with their
respective terms.
(d) There is no pending or threatened action or proceeding affecting
any of the Obligors before any court, governmental agency, or arbitrator which
is likely to materially adversely affect the financial condition or operations
of any of the Obligors or which purports to affect the legality, validity or
enforceability of this Agreement, the Credit Agreement as amended hereby, or any
of the Loan Documents.
4. Reference to and Effect On the Loan Documents.
(a) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," or words of like import
referring to the Credit Agreement and each reference in the other Loan Documents
to "the Credit Agreement" "thereunder" "thereof" of words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
2
<PAGE>
(b) Except as specifically amended above, the Credit Agreement and the
Notes, and all of the Loan Documents are and shall continue to be in full force
and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Agreement shall
not, except as expressly provided herein, operate as a waiver of any right,
power, or remedy of any Lender, Agent, or L/C Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
6. Governing Law. This Second Amendment to Credit Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
7. Multiple Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
Agreement, and any of the parties hereby may execute this Agreement by signing
any such counterpart.
WITNESS whereof, the parties hereto have caused this Second Amendment to
Credit Agreement to be executed by the respective officers thereunto duly
authorized as of the date first above written.
DOLLAR TREE STORES, INC.
By: /s/ H. Ray Compton
Title: Executive Vice President
DOLLAR TREE DISTRIBUTION, INC.
By: /s/ H. Ray Compton
Title: Executive Vice President
DOLLAR TREE MANAGEMENT, INC.
By: /s/ H. Ray Compton
Title: Executive Vice President
3
<PAGE>
NATIONSBANK, N.A.
By: /s/ Monique Adams
Title:
CRESTAR BANK
By: /s/ Bruce Nave
Title:
SIGNET BANK
By: /s/ James Whitham
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Judith Kelly
Title:
4
NATIONSBANK, N.A.
CRESTAR BANK
SIGNET BANK
THE FIRST NATIONAL BANK OF BOSTON
June 28, 1996
Mr. H. Ray Compton
Dollar Tree Stores, Inc.
2555 Ellsmere Road
Norfolk, VA 23513
Re: Dollar Tree Distribution, Inc. - Income of Working Capital Line;
Dollar Tree Stores, Inc. - Second Extension 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, and as further amended by a
Second Amendment to Credit Agreement dated as of June 17, 1996 (as amended, such
agreement is hereinafter referred to as the "Credit Agreement"). First, you have
requested that the Working Capital Line be increased by Eighteen Million, Four
Hundred Thousand and No/100 Dollars ($18,400,000)to Seventy-eight Million, Four
Hundred Thousand and No/100 Dollars ($78,400,000.00). We consent to that
increase and have instructed our legal counsel to prepare immediately amendments
to the Working Capital Notes and such other amendments to the Loan Documents and
the Intercompany Loan Documents for your signature and delivery to and signature
by the respective Lenders as are necessary to reflect and permit this increase.
Further, you agree to provide such other documentation as we or our counsel deem
necessary and appropriate to effect this increase.
In addition, the Development Line will be decreased by said amount
($18,400,000) to $41,600,000 (which is the principal amount currently
outstanding). We will also instruct our counsel to prepare such amendments to
the Development Line Notes and the Loan Documents for your signature and for
delivery to and signature by the Lenders as are necessary to reflect and permit
this decrease. Further, you agree to provide such additional documentation as we
or our counsel deem necessary or appropriate to effect this decrease.
Second, pursuant to Section 2.3 of the Credit Agreement, you have
requested that we extend the Development Loan Commitment Termination Date for an
additional 90 day period. We hereby agree to extend the Development Loan
Commitment Termination Date for a period of 90 days to July 8, 1997. As you
know, due to the decrease in the Development Line, you have no current
availability thereunder.
1
<PAGE>
Further, we are willing to and hereby agree to extend the Development
Loan Maturity Date an additional 90 days to July 8, 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 July 8, 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.
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 October 7, 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 these requests and hope you will
not hesitate to contact us if you have any questions. This letter may be
executed in multiple counterparts, each of which when read together shall
constitute one agreement.
NATIONSBANK, N.A.
By: /s/ Monique Adams
Title:
CRESTAR BANK
By: /s/ Bruce Nave
Title:
SIGNET BANK
By: /s/ James Whitham
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Judith Kelly
Title:
2
<PAGE>
Seen and Agreed to:
Dollar Tree Stores, Inc.
By: /s/ H. Ray Compton
-----------------------------
Title: Executive Vice President
Dollar Tree Distribution, Inc.
By: /s/ H. Ray Compton
-----------------------------
Title: Executive Vice President
Dollar Tree Management, Inc.
By: /s/ H. Ray Compton
-----------------------------
Title: Executive Vice President
3
<PAGE>
Development Line Extension Request
We hereby request a 90 day extension of the Development Loan Commitment
Termination Date and Development Loan Maturity Date from April 9, 1997 to July
8, 1997. We certify that $0 is currently available under the Development Line in
accordance with Section 2.3 of the Credit Agreement. This Development Line
Extension Request may be executed in multiple counterparts, each of which when
read together shall constitute one agreement.
Sincerely,
Dollar Tree Stores, Inc.
By: /s/ H. Ray Compton
----------------------------
Title: Executive Vice President
Date: June 7, 1996
ACCEPTED:
NATIONSBANK, N.A.
By: /s/ Monique Adams
Title:
Date: June 26, 1996
CRESTAR BANK
By: /s/ Bruce Nave
Title:
Date: June 28, 1996
SIGNET BANK
By: /s/ James Whitham
Title:
Date: June 28, 1996
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Judith Kelly
Title:
Date: July 2, 1996
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 6,358
<SECURITIES> 0
<RECEIVABLES> 2,354
<ALLOWANCES> 0
<INVENTORY> 86,605
<CURRENT-ASSETS> 99,308
<PP&E> 52,806
<DEPRECIATION> 19,654
<TOTAL-ASSETS> 182,619
<CURRENT-LIABILITIES> 64,406
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0
0
<COMMON> 258
<OTHER-SE> 71,699
<TOTAL-LIABILITY-AND-EQUITY> 182,619
<SALES> 187,664
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<CGS> 122,935
<TOTAL-COSTS> 122,935
<OTHER-EXPENSES> 54,573
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<INTEREST-EXPENSE> 2,624
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<INCOME-TAX> 2,898
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</TABLE>
