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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997 COMMISSION FILE NUMBER: 1-9494
TIFFANY & CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3228013
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
727 FIFTH AVENUE, 10022
NEW YORK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(212) 755-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
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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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.
As of March 25, 1997 the aggregate market value of voting stock held by
non-affiliates was $1,232,300,257. See Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters below.
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 34,779,076 shares of
Common Stock outstanding as of March 25, 1997.
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The following documents are incorporated by reference into this Annual
Report on Form 10-K: Registrant's Annual Report to Stockholders for the Fiscal
Year Ended January 31, 1997 (Parts I, II and IV) and Registrant's Proxy
Statement Dated April 8, 1997 (Part III).
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PART I
ITEM 1. BUSINESS
(a) General development of business.
Registrant (also referred to as the "Company") is the parent corporation
of Tiffany and Company ("Tiffany"). The Tiffany business was founded in 1837 and
was incorporated in New York in 1868. On May 5, 1987 Registrant completed the
initial public offering of its Common Stock.
(b) Financial information about industry segments.
Industry segment information is not provided because the Registrant
operates in a single industry segment: retail and wholesale distribution of fine
jewelry, gift and fashion accessory items. Incorporated by reference from
Registrant's Annual Report to Stockholders for the fiscal year ended January 31,
1997 (Footnote P. "Foreign Operations") is the Registrant's geographic segment
information for the fiscal years ended January 31, 1997, 1996 and 1995.
(c) Narrative description of business.
As used below, the terms "Fiscal 1994", "Fiscal 1995" and "Fiscal 1996"
refer to the fiscal years ended on January 31, 1995, 1996 and 1997,
respectively.
Products
Registrant's principal product categories are fine jewelry, timepieces,
sterling silver goods, china, crystal, stationery, writing instruments,
fragrance, leather goods, scarves and ties.
Registrant offers an extensive selection of fine jewelry at a wide range
of prices. In Fiscal 1994, 1995 and 1996, approximately 67%, 70% and 70%,
respectively, of Registrant's net sales were attributable to jewelry. See
Merchandise Purchasing, Manufacturing and Raw Materials below. Designs are
developed by employees, suppliers, independent designers and independent "name"
designers. See Designer Licenses below.
TIFFANY & CO. brand watches and clocks as well as other brands of watches
are sold. The range of TIFFANY & CO. brand sterling silver merchandise includes
flatware, hollowware (tea and coffee services, bowls, cups and trays), trophies,
key holders, picture frames and desk accessories. Crystal, glassware, china and
other tableware is sold under the TIFFANY & CO. trademark, as well as the
trademarks of well-known manufacturers. Commercial glassware is sold under the
JUDEL trademark. Custom engraved stationery, writing instruments, handbags,
wallets, scarves, men's ties and fashion accessories are sold under the TIFFANY
& CO. trademark. Fragrance products are sold under the trademarks TIFFANY,
TRUESTE, and TIFFANY FOR MEN.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 2 -
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Distribution and Marketing
Channels of Distribution
For financial reporting purposes, Registrant segments its sales as
follows:
U.S. Retail consists of retail sales from stores in the United
States and wholesale sales to independent retailers in the United
States. Wholesale sales of fragrance products to independent
retailers in the Americas are also included. See U.S. Retail below;
Direct Marketing consists of sales in the United States through a
staff of specialized sales personnel who concentrate on business
clients, and sales through direct mail catalogs. See Direct
Marketing below; and
International Retail consists of both retail and wholesale sales to
customers located outside the United States. See International
Retail below.
U.S. Retail
The Fifth Avenue store in New York accounts for the largest portion of the
Company's sales and is the focal point for marketing and public relations
efforts. Approximately 19%, 17% and 16% of total Company net sales for Fiscal
1994, 1995 and 1996, respectively, were attributable to the New York store's
retail sales. Management believes that the New York retail store will continue
to account for a substantial portion of the Company's sales. Approximately
32,450 gross square feet in the New York building are devoted to retail selling.
Prior to September 1963, when the first branch store was opened in San
Francisco, the New York store was Tiffany's sole retail location in the United
States. Since that time, branch stores have been opened in the following cities:
Houston (1964), Beverly Hills (1964), Chicago (1966), Atlanta (1969), Dallas
(1982), Boston (1984), Costa Mesa (1988), Vienna, Virginia (Washington D.C.
area) (1990), Philadelphia (1990), Palm Beach (1991), San Diego (1992), Honolulu
(1992), Troy, Michigan (1992), Bal Harbour (1993), Maui, Hawaii (1994), Oak
Brook, Illinois (1994), Short Hills, New Jersey (1995), White Plains, New York
(1995), King of Prussia, Pennsylvania (1995), Chevy Chase, Maryland (1996) and
Bergen County, New Jersey (1996). Each of the 22 U.S. branch stores displays a
representative selection of merchandise but none maintains the extensive
selection carried by the New York store. Management currently contemplates the
opening of new branch stores in major United States cities at the rate of
approximately three per year. Lease agreements to open branches in Palo Alto,
California, Denver, Colorado and Las Vegas, Nevada and to move to a larger
location in Chicago, Illinois
- - PAGE 3 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
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have been entered into. Subject to completion of construction, Registrant
expects to open for business in Palo Alto in June, 1997 and in Denver and Las
Vegas in the fall of 1998 and to relocate its store in Chicago in October, 1997.
See Item 2. Properties below for further information concerning U.S. Retail
store leases. United States branch stores range in size from approximately 1,600
to 16,000 gross square feet and total approximately 217,000 gross square feet
devoted to retail purposes. Historically, an average of approximately 45% of the
floor space in each branch store has been devoted to retail selling. Newer
stores range from approximately 6,000 to 8,000 square feet and are designed to
devote approximately 60% of total floor space to retail selling. Among new
stores that will be opened, some will be configured in an even smaller format of
approximately 3,500 gross square feet.
Tiffany sells jewelry, watches, tableware and other products at wholesale
to approximately 237 United States independent retail locations (exclusive of
locations which sell TIFFANY fragrance products but not other TIFFANY & CO.
products). Selected merchandise is provided to these accounts at wholesale
prices that allow traditional retail jewelry mark-ups.
TIFFANY, TRUESTE and TIFFANY FOR MEN brand fragrance products are sold in
Registrant's own stores, through its Direct Marketing channel of distribution
and through wholesale distribution in the U.S. and many overseas markets.
TIFFANY, TRUESTE and TIFFANY FOR MEN products are now available in approximately
2,845 retail locations in the United States and abroad. Chanel, Inc. sells
fragrance concentrates to Tiffany. A subsidiary of Chanel, Inc. provides
production, packaging, warehousing, accounting and U.S. distribution services.
Tiffany retains control of marketing and promotion and owns all fragrance
product inventories and receivables.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 4 -
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Direct Marketing
Corporate Division sales executives call on business clients throughout
the United States, selling products drawn from the retail product line and items
specially developed for the business market, including trophies and items made
to customer specifications. Price allowances are given to business customers for
volume purchases. Corporate Division customers purchase for business gift
giving, employee service and achievement recognition awards, customer incentives
and other purposes. Products and services are marketed through a sales force of
approximately 157 persons, through advertising in newspapers and business
periodicals and through the publication of special catalogs.
Tiffany also distributes catalogs of selected merchandise to its
proprietary list of mail and telephone customers and to mailing lists rented
from third parties. Four seasonal SELECTIONS(R) catalogs are published,
supplemented by COLLECTIONS and other catalogs. The following table sets forth
certain data with respect to mail order operations for the periods indicated:
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Fiscal Years Ended January 31,
1995 1996 1997
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Number of names on catalog mailing list at
year-end (consists of customers who
purchased by mail or telephone prior to the
applicable date): 595,165 662,000 733,100
Total catalog mailings during fiscal year (in
millions): 15.0 17.5 20.6
Total mail or telephone orders received
during fiscal year: 239,485 258,879 288,133
International Retail
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Stores and boutiques included in the International Retail channel of
distribution are listed below. For locations operated by Registrant's subsidiary
corporations, Registrant records as sales the retail price charged to retail
customers. For locations operated by third-party distributors, Registrant
records as sales the wholesale price charged to the third-party distributors.
- - PAGE 5 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
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International Locations
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LOCATIONS OPERATED BY REGISTRANT'S SUBSIDIARIES
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FREE-STANDING STORES JAPAN: MITSUKOSHI DEPARTMENT STORES
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Tokyo (Ginza Flagship Store) Tokyo (Nihombashi) Takamatsu
London, England Tokyo (Shinjuku)(2) Matsuyama
Zurich, Switzerland Tokyo (Ginza) Hirakata
Munich and Frankfurt, Germany Tokyo (Ikebukuro) Kobe
Milan and Florence, Italy (Faraone) Yokohama Nagoya (Hoshigaoka)
Hong Kong (Peninsula Hotel) Sendai Nagoya (Sakae)
Hong Kong (Landmark Center) Sapporo Niigata
Taipei, Taiwan (Regent Galleria) Osaka Chiba
Singapore (Raffles Hotel) Kurashiki Kagoshima
Singapore (Ngee Ann City) Hiroshima Okinawa
Toronto, Canada
Sydney, Australia
Seoul, Korea (Grand Hyatt Hotel)
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JAPAN: NON-MITSUKOSHI DEPARTMENT STORES JAPAN: OTHER MITSUKOSHI LOCATIONS
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Kawasaki, (Saikaya Department Store) (NON-DEPARTMENT STORE LOCATIONS)
Kokura, (Izutsuya Department Store) Hilton Hotel, Nagoya, Japan
Kumamoto, (Tsuruya Department Store) Hotel Okura, Kobe, Japan
Kyoto, (Daimaru Department Store) Tokyo Bay Hotel, Tokyo, Japan
Hamamatsu, (Matsubishi Department Store) Royal Hotel, Osaka, Japan
Oita, (Tokiwa Department Store) Nagano, Japan (Specialty Store)
Osaka (Shinsaibashi), (Daimaru Department Store) Fukuoka, Japan (Specialty Store)
Osaka (Umeda), (Daimaru Department Store) Kanazawa, Japan (Specialty Store)
Sagamihara (Isetan Department Store) The Landmark, Yokohama, Japan
OTHER DEPARTMENT STORE LOCATIONS ASIA-PACIFIC: MITSUKOSHI DEPARTMENT STORES
Hong Kong (Sogo Department Store) Tainan, Taiwan
Kaohsiung, Taiwan (Hanshin Department Store)
Taipei, Taiwan (Sogo Department Store)
Melbourne, Australia (Daimaru Department Store)
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LOCATIONS OPERATED BY LOTTE TRADING CO., LTD. LOCATIONS OPERATED BY MITSUKOSHI LIMITED AND AFFILIATES
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Lotte World Department Store, Seoul (Duty-free) DEPARTMENT STORE LOCATIONS
Lotte Department Store, Seoul (Duty-free) (Duty-paid) Taipei, Taiwan
Hotel Lotte, Seoul (Lobby boutique) (Duty-free) Tokyo (Nihombashi), Japan (Faraone)
Hotel Paradise, Pusan (Duty-free) NON-DEPARTMENT STORE LOCATIONS
Hotel Lotte, Pusan (Duty-free)(Duty-paid) Moana Surfrider Hotel, Honolulu, Hawaii
Tumon Sands Plaza, Guam
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LOCATIONS OPERATED BY OTHER THIRD PARTIES
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DFS: Australia, Saipan, Singapore (2) and Taiwan
DFS: Hong Kong
Holt-Renfrew: Montreal, Vancouver, Calgary, Ottawa
Central JTC, Bangkok, Thailand
Plaza Indonesia, Jakarta, Indonesia
Rustan's Department Store, Manila, Philippines (2)
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TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 6 -
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The preceding listing does not include international "trade accounts",
i.e. non-U.S. retailers to which TIFFANY & CO. or FARAONE brand merchandise is
sold on a wholesale basis, but which do not operate a dedicated TIFFANY & CO. or
FARAONE boutique within their respective stores.
As of March 25, 1997, Mitsukoshi Limited of Japan and its affiliated
companies ("Mitsukoshi") owned 4,270,000 shares, or 12.3% of the Registrant's
Common Stock. Mr. Yoshiaki Sakakura, Chairman and Chief Executive Officer of
Mitsukoshi, was appointed a director of the Registrant on November 15, 1989, and
will continue to serve as a director if elected by Registrant's stockholders at
their annual meeting scheduled to be held on May 15, 1997.
From 1972 through July 1993, selected TIFFANY & CO. products, principally
jewelry and watches, were purchased from Tiffany by Mitsukoshi for distribution
in Japan in TIFFANY & CO. boutiques. Under the agreement with Tiffany by which
Mitsukoshi purchased and distributed TIFFANY & CO. products in Japan (the
"Distribution Agreement"), all sales transactions between Tiffany and Mitsukoshi
were denominated in U.S. dollars. Registrant recorded wholesale sales to
Mitsukoshi as revenue and Mitsukoshi received the merchandise into inventory and
recorded revenue on the final sale in Japanese yen to the ultimate consumer.
Mitsukoshi established retail prices for TIFFANY & CO. merchandise in Japan and
bore responsibility for management of inventory and the risk of currency
fluctuations between the Japanese yen and the U.S. dollar.
In 1992, Registrant assumed the operation of four TIFFANY & CO. boutiques
previously operated by Mitsukoshi in third-party department stores in Japan.
Registrant now operates nine boutiques in Japan in non-Mitsukoshi department
stores.
On June 12, 1993, Registrant, through its affiliated companies, entered
into an agreement (the "93 Agreement") to realign its business relationship with
Mitsukoshi. Under the 93 Agreement, Registrant's wholly owned subsidiary,
Tiffany & Co. Japan Inc. ("Tiffany-Japan") assumed merchandising and marketing
responsibilities in the operation of TIFFANY & CO. boutiques previously operated
by Mitsukoshi in its stores and other locations in Japan. The changeover in
responsibilities from the Distribution Agreement to the 93 Agreement occurred
during the month of July 1993. Under the 93 Agreement, Mitsukoshi no longer
purchases TIFFANY & CO. merchandise for sale in Japan. Instead, Mitsukoshi acts
for Tiffany-Japan in the sale of merchandise owned by Tiffany-Japan and
Registrant recognizes as revenues the retail price charged to the ultimate
consumer in Japan. Tiffany-Japan holds inventories for sale, establishes retail
prices, bears the risk of currency fluctuations, provides one or more brand
managers in each boutique, controls merchandising and display within the
boutiques, manages inventory and controls and funds all advertising and
publicity programs with respect to TIFFANY & CO. merchandise. Mitsukoshi
provides and maintains boutique facilities, staffs the boutiques with retail
employees and assumes credit and certain other risks. Tiffany-Japan pays
Mitsukoshi fees aggregating 27% of net retail sales made in such boutiques.
Tiffany-Japan also pays
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Mitsukoshi an incentive fee of 5% of the amount by which boutique sales increase
year-to-year, calculated on a per-boutique basis. In Tokyo, TIFFANY & CO.
boutiques may be established only in Mitsukoshi's stores and TIFFANY & CO. brand
jewelry may be sold only in such boutiques, or in a "flagship store" (see
below). The mutual obligations described in this paragraph will expire on
October 15, 2001.
In Fiscal 1994, 1995 and 1996, respectively, sales made in TIFFANY & CO.
boutiques located in Mitsukoshi's stores constituted 21%, 21% and 18% of
Registrant's net sales and Mitsukoshi's wholesale purchases from Tiffany
constituted, respectively, 3%, 2% and 2% of Registrant's net sales.
Because the inventory repurchased and to be repurchased by Tiffany from
Mitsukoshi under the 93 Agreement was previously sold by Tiffany to Mitsukoshi,
Registrant reversed the sales and related gross profit associated with the
repurchase. Accordingly, in 1993 Registrant established a $57.5 million reserve
for product returns. As of January 31, 1997 approximately (Yen)1.48 billion
($12.2 million) of TIFFANY & CO. inventory remained to be repurchased by Tiffany
within the period ending February 28, 1998. The price for inventories to be
repurchased by Tiffany is payable in Japanese yen.
Under the 93 Agreement, Tiffany-Japan reserved the right to make TIFFANY &
CO. brand jewelry available for sale in Tokyo in a single "flagship store",
i.e., a TIFFANY & CO. store not located within a larger department store;
however, Tiffany-Japan was required to offer to Mitsukoshi the opportunity to
participate in the capitalization and ownership of a corporation which would
operate the flagship store.
In lieu of forming such a corporation, Mitsukoshi, Tiffany and
Tiffany-Japan entered into an Agreement dated February 23, 1996 (the "FSS
Agreement") governing the operation of a 7,700 square foot TIFFANY & CO. store
in premises (the "Premises") located in Tokyo's Ginza shopping district (the
"Flagship Store"). The FSS Agreement will expire on September 30, 2001. The
Premises are leased by a third party to Tiffany-Japan for a fixed annual rental
and subleased by Tiffany-Japan to Mitsukoshi on a percentage-of-sales basis (the
"Sublease"). Tiffany-Japan completed, at its cost, all necessary improvements to
equip the Premises and delivered the Premises to Mitsukoshi in May of 1996.
Under the FSS Agreement, Tiffany-Japan bears all costs of operating the
Premises. Tiffany-Japan selects and furnishes its own merchandise for display in
the Flagship Store, prices the merchandise for retail sale, bears all risk of
loss until the merchandise is sold to a customer and determines all issues of
display, packaging, signage and advertising. Mitsukoshi acts for Tiffany-Japan
in the sale of the merchandise, collects and holds the sales proceeds, makes
credit available to customers, bears all credit losses and provides its
point-of-sale transaction processing system (the "POS System"). Tiffany-Japan
provides all necessary staff other than ten employees provided by Mitsukoshi.
After compensating Tiffany-Japan on a percentage-of-sales basis for Sublease
rent and staffing, Mitsukoshi retains 8.3% of net sales for most sales
transactions in the Flagship Store. Management of the Flagship Store, other than
with respect to the POS System, is the responsibility of Tiffany-Japan.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 8 -
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Under separate agreements, Mitsukoshi operates a FARAONE boutique in its
Nihombashi store in Tokyo, a TIFFANY & CO. boutique in its department store in
Taipei, and TIFFANY & CO. boutiques in Honolulu and on the island of Guam.
Tiffany sells merchandise to Mitsukoshi for resale in these boutiques on a
wholesale basis.
Wholesale distribution of TIFFANY & CO. jewelry and/or watches is also
made through independent distributors in Australia, Europe, Indonesia, Japan,
Korea, the Middle East, the Philippines, Saipan, Singapore, Taiwan, Thailand,
Argentina, Brazil, Honduras, Mexico, Panama and Uruguay.
In October 1989, Registrant completed the purchase of a controlling
interest in the parent corporation of Faraone, S.p.A. ("Faraone"), a
manufacturing jeweler which operates retail jewelry stores under the FARAONE
tradename in Milan and Florence and offers its products at wholesale to other
retailers in Europe and through a Mitsukoshi-operated FARAONE boutique in Japan.
Faraone also offers TIFFANY & CO. products in its stores and through its
wholesale distribution, and FARAONE products are offered in certain TIFFANY &
CO. stores.
Registrant expects to continue to open stores in locations outside the
United States. However, the timing and success of this program will depend upon
many factors, including Registrant's ability to obtain suitable retail space on
satisfactory economic terms and the extent of consumer demand for TIFFANY & CO.
products in overseas markets. Such demand varies from market to market. TIFFANY
& CO. boutiques have now been installed in nearly all current Mitsukoshi
department stores in Japan. Future expansion in Japan will, to some extent, be
dependent upon Mitsukoshi opening new department stores. However, under its
agreement with Mitsukoshi, Tiffany has retained certain rights so that it may
undertake further development in Japan on its own initiative, and Tiffany also
operates and plans to operate additional boutiques in stores other than
Mitsukoshi in locations outside of Tokyo.
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Tiffany began its ongoing program of international expansion through
proprietary retail stores in 1986 with the establishment of the London store.
Company-operated international TIFFANY & CO. stores and boutiques range in size
from approximately 500 to 13,000 gross square feet and total approximately
145,000 gross square feet devoted to retail purposes. The following chart
details the growth in the Company's stores and boutiques since fiscal 1987 on a
worldwide basis:
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Worldwide Retail Locations
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Registrant's Subsidiary Companies Independent
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North America and Europe Asia-Pacific, Middle East and North America
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End of
Fiscal: U.S. Canada Europe Japan Elsewhere Mitsukoshi Others Total
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1987 8 0 2 0 0 21 0 31
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1988 9 0 3 0 1 21 0 34
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1989 9 0 5 0 2 24 0 40
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1990 12 0 5 0 3 27 0 47
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1991 13 1 7 0 4 38 2 65
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1992 16 1 7 7 4 36 4 75
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1993 16 1 6 37 5 8 7 80
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1994 18 1 6 37 7 8 8 85
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1995 21 1 6 38 9 7 16 98
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1996 23 1 6 39 12 4 19 104
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TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 10 -
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Advertising and Promotion
Tiffany regularly advertises its business, primarily in newspapers and
magazines. Prior to 1996, television advertising was used only on a limited
basis in Japan. Beginning in 1996, prime-time television advertising was tested
in the New York market. This test was deemed successful and management expects
to continue and expand the use of television advertising. Cooperative
advertising funds are received from certain merchandise vendors and the Company
also provides its domestic and international third-party distributors with
cooperative advertising funds. In Fiscal 1994, 1995 and 1996, Tiffany spent
approximately $31.0 million, $37.2 million and $43.9 million, respectively, on
worldwide advertising, net of amounts contributed by vendors to Tiffany, but
inclusive of cooperative advertising funds contributed by Tiffany to third party
distributors and amounts expended to print and mail catalogs and brochures.
Public Relations (promotional) activity is also a significant aspect of
Registrant's business. Management believes that Tiffany's image is enhanced by a
program of charity sponsorships, grants and merchandise donations. The Company
also engages in an aggressive program of retail promotions and media activities
to maintain consumer awareness of the Company and its products. Each year,
Tiffany publishes its well-known Blue Book which showcases fine jewelry and
other merchandise. Tiffany's New York window displays are another important
aspect of Tiffany's promotional efforts. In its New York store, Tiffany displays
table settings created by leading interior decorators and by prominent hosts and
hostesses. John Loring, Tiffany's Design Director, is the author of several
books featuring TIFFANY & CO. products. Registrant considers these and other
promotional efforts important in maintaining Tiffany's image as an arbiter of
taste and style.
Trademarks
The designations TIFFANY(R) and TIFFANY & CO.(R) are the principal
trademarks of Tiffany, as well as serving as tradenames. Tiffany has obtained
and is the proprietor of trademark registrations for TIFFANY and TIFFANY & CO.
for a variety of product categories in the United States and in other countries.
Over the years, Tiffany has maintained a program to protect its trademarks and
has instituted legal action where necessary to prevent others either from
registering or using marks which are considered to create a likelihood of
confusion with the Company or its products. Tiffany has been generally
successful in such actions and management considers that its United States
trademark rights in TIFFANY and TIFFANY & CO. are strong. However, use of the
designation TIFFANY by third parties (often small companies) on unrelated goods
or services, frequently transient in nature, may not come to the attention of
Tiffany or may not rise to a level of concern warranting legal action. Despite
the general fame of the TIFFANY and TIFFANY & CO. name and mark for the
Company's products and services, Tiffany is not the sole person entitled to use
the name TIFFANY in every category in every country of the world; third parties
have registered the name TIFFANY in the United States in the food services
category, and in a number of foreign countries in respect of certain product
categories (including, in a few countries, the categories of fragrance,
cosmetics, jewelry, eyeglass frames, clothing and
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tobacco products) under circumstances where Tiffany's rights were not
sufficiently clear under local law, and/or where management concluded that
Tiffany's foreseeable business interests did not warrant the expense of
litigation.
Designer Licenses
Tiffany has been the sole licensee for jewelry designed by Elsa Peretti,
Paloma Picasso and the late Jean Schlumberger since 1974, 1980 and 1956,
respectively. In 1992, Tiffany acquired trademark and other rights necessary to
sell the designs of the late Mr. Schlumberger under the TIFFANY-SCHLUMBERGER
trademark. Ms. Peretti and Ms. Picasso retain ownership of copyrights for their
designs and of their trademarks and exercise approval rights with respect to
important aspects of the promotion, display, manufacture and merchandising of
their designs and Tiffany is required by contract to devote a portion of its
advertising budget to the promotion of their respective products; each is paid a
royalty by Tiffany for jewelry and other items designed by them and sold under
their respective names. Written agreements exist between Ms. Peretti and Tiffany
and between Ms. Picasso and Tiffany but may be terminated by either party
following six months notice to the other party. Tiffany is the sole retail
source for merchandise designed by Ms. Peretti worldwide; however, she has
reserved by contract the right to appoint other distributors in markets outside
the United States, Canada, Japan, Singapore, Australia, Italy, the United
Kingdom, Switzerland and Germany.
The designs of Ms. Peretti accounted for 12%, 13% and 14% of the Company's
net sales in Fiscal 1994, 1995 and 1996, respectively. Merchandise designed by
Ms. Picasso accounted for 5%, 4% and 4% of the Company's net sales in Fiscal
1994, 1995 and 1996, respectively. Registrant's operating results could be
adversely affected were it to cease to be a licensee of one or more of these
designers or should its degree of exclusivity in respect of their designs be
diminished.
Merchandise Purchasing, Manufacturing and Raw Materials
Merchandise offered for sale by the Company is supplied from Tiffany's
workshops in New York City and Pelham, New York; Parsippany, New Jersey; Salem,
West Virginia; Paris, France; and Milan, Italy and through purchases and
consignments from others. The following table shows Tiffany's sources of
merchandise, based on cost, for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended January 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Produced by Tiffany 25% 20% 21%
Purchased from others 75 80 79
---- ---- ----
Total 100% 100% 100%
</TABLE>
Included in the foregoing table is merchandise manufactured for Tiffany by
Howard H. Sweet & Son, Inc., an affiliate of the Registrant located in
Attleboro, Massachusetts ("Sweet"). At the
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 12 -
<PAGE> 13
close of Fiscal Year 1996, the manufacturing assets and business of Sweet were
sold to a third party. However, such third party has contracted, subject to
certain conditions, to continue to provide the merchandise needed by Tiffany for
a period of five years. Approximately 37% of the merchandise purchased from
others in Fiscal 1996 was manufactured outside the United States.
Gems and precious metals used in making Tiffany jewelry may be purchased
from a variety of sources. For the most part, purchases of such materials are
from suppliers with which Tiffany enjoys long-standing relationships. Tiffany
believes that there are numerous alternative sources for gems and precious
metals and that the loss of any single supplier would not have a material
adverse effect on its operations.
Diamond jewelry accounted for approximately 22%, 22% and 21% of Tiffany's
net sales for Fiscal 1994, 1995 and 1996, respectively. Tiffany does not
purchase uncut diamonds. The supply and price of diamonds in the principal
world markets are significantly influenced by a single entity, the Central
Selling Organization (the "CSO"), a marketing arm of De Beers Centenary AG, a
Swiss corporation. The CSO has traditionally controlled the marketing of
approximately 70-80% of the world's supply of uncut diamonds and sells uncut
diamonds to worldwide diamond cutters from its London office approximately 10
times a year in quantities and at prices determined in its sole discretion.
Tiffany does not purchase diamonds directly from the CSO. The availability and
price of diamonds to the CSO and Tiffany's suppliers may be, to some extent,
dependent on the political situation in diamond-producing countries, such as
South Africa (which currently accounts for approximately 10% of the world
diamond output), Australia, Brazil, Botswana, the former Soviet Union and Zaire,
and on the continuance of the prevailing supply and marketing arrangements for
uncut diamonds. Sustained interruption in the supply of uncut diamonds from the
producing countries or a substantial change in the marketing arrangements
described above could adversely affect Tiffany and the retail jewelry industry
as a whole.
Finished jewelry is purchased from more than 150 manufacturers, most of
which have long-standing relationships with Tiffany. Tiffany believes that there
are alternative sources for most jewelry items; however, due to the
craftsmanship involved in certain designs, Tiffany would have difficulty in
finding readily available alternatives in the short term.
TIFFANY & CO. brand clocks and components for watches are manufactured and
assembled by third parties. Approximately 68% of net watch sales during
Fiscal 1996 were attributable to a single manufacturer and Tiffany contracts
with a single manufacturer to produce its silver flatware patterns from
Tiffany's proprietary dies by use of Tiffany's traditional manufacturing
techniques. Likewise, engraved stationery is purchased from a single
manufacturer. Loss of any of these manufacturers could result in the
unavailability of watches, silver flatware or engraved stationery, as the case
may be, during the period necessary for Tiffany to arrange for new production.
- - PAGE 13 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 14
Competition
Registrant is faced with substantial competition in all areas in which it
is active, in most cases from companies that provide competition for only a
portion of its diverse lines of merchandise. Competitors and the intensity of
competition vary across product lines, geographic locations and channels of
distribution. In the United States, TIFFANY & CO. retail stores must compete
with jewelers and other retailers whose international reputations for style,
integrity and expertise are also well established. Tiffany must also compete
with jewelers and other retailers who compete primarily on the basis of price.
However, while price promotion is common in the jewelry industry, Tiffany does
not compete through price promotion but rather on the basis of value -- the
quality of its products and designs -- and the service provided by its store
personnel.
The international marketplace for TIFFANY & CO. products is characterized
by highly competitive conditions. Although Registrant believes that the name
TIFFANY & CO. is known and respected internationally, and although Tiffany did
operate retail stores in London and Paris prior to World War II, Tiffany did not
have a retail presence in Europe in the post-war era until 1986. Accordingly,
consumer awareness of Tiffany and its products is not as strong in Europe as in
the United States or in Japan, where Tiffany has distributed its products for
many years. Registrant expects that its overseas stores have and will continue
to experience intense competition from established retailers in international
cities where TIFFANY & CO. stores are and may eventually be located.
In direct marketing, the TIFFANY & CO. reputation and diverse product line
are believed to be favorable competitive factors; nonetheless, highly
competitive conditions prevail. A growing number of direct sellers compete for
access to the same mailing lists of known purchasers of luxury goods, and
mailing and production costs are increasing. In marketing service awards and
business gifts to corporations and other organizations, Tiffany faces numerous
competitors who sell a wide variety of products. Although Tiffany offers
products retailing at a wide range of price points, in marketing to businesses,
Tiffany often must compete with competitors who offer a greater variety of
merchandise within the price range the customer demands. Tiffany chooses to
offer a more limited selection within this price range in order to adhere to its
established quality standards.
Employees
As of January 31, 1997, the Registrant's subsidiary corporations employed
an aggregate of approximately 3,892 full-time and part-time persons. Of those
employees, 3,300 were employed in the United States. Of Tiffany's total
employees, approximately 1,450 persons are salaried employees, 314 are engaged
in manufacturing and 1,681 are retail store personnel. None of the Company's
employees is represented by a union. Registrant believes that relations with its
employees are good.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 14 -
<PAGE> 15
ITEM 2. PROPERTIES
All of Tiffany's principal operating facilities are leased although
Registrant does own a small glass manufacturing facility in Salem, West
Virginia.
New York Store
Tiffany leases the land and building at 727 Fifth Avenue in New York City
for use as its main retail store and executive offices. The building was
constructed in 1940. Approximately 32,450 gross square feet of this 124,000
square foot building are devoted to retail selling purposes, with the balance
devoted to executive and administrative offices, jewelry production and storage.
The building at 727 Fifth Avenue was designed to be a retail store for Tiffany
and Tiffany believes it is well configured and located for this function.
The initial lease term for the New York store building expired on October
31, 1994 and has been renewed for an additional five year term expiring on
October 31, 1999. It may, subject to the terms of the lease, be renewed for four
more successive terms of five years each. Basic rent for the building is $7.1
million per annum. That rate will remain effective until the expiration of the
current five-year renewal term. If and when Tiffany exercises additional renewal
terms, the basic rent will be increased by the greater of (i) a proportional
increase in accordance with a consumer price index or (ii) the fair rental value
of the property as determined by an appraisal proceeding. Although Tiffany is
not privy to specific lease rates for comparable store leases in New York's
Fifth Avenue shopping district near 57th Street, it has been reported that lease
rates within the district are generally rising due to demand by other retailers.
Accordingly, rent for the building may increase in 1999 by an amount in excess
of the proportional increase in such consumer price index. Tiffany must also pay
all costs of operating the building, including real property taxes, in addition
to the basic rent.
Customer Service Center
The distribution facility used by Tiffany throughout 1996 and prior
thereto is located in Parsippany, New Jersey. It is 19 years old and consists of
approximately 135,000 square feet of space devoted to warehousing, receipt and
distribution of merchandise, order processing, silversmithing and offices.
Tiffany also leases 51,000 square feet of warehouse space in Pine Brook, New
Jersey, a town adjacent to Parsippany. These facilities have become inadequate
for Tiffany's needs and will be replaced during the spring of 1997.
In 1995, Tiffany entered into a lease of undeveloped property in
Parsippany, New Jersey, in order to construct and occupy a new distribution
facility designed to improve efficiency and provide capacity for future growth.
By January 31, 1997 construction on that property of a "Customer Service Center"
("CSC") was substantially completed. The CSC is a combined warehouse,
distribution, light manufacturing, computing and office center. It comprises
approximately 269,000 square feet, of which approximately 96,000 square feet is
devoted to
- - PAGE 15 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 16
office and computer operations use, with the balance devoted to warehousing,
shipping, receiving, light manufacturing, merchandise processing and other
distribution functions. The CSC is scheduled to become fully operable during the
first half of 1997; all of Tiffany's New Jersey operations, other than retail
stores, will be consolidated therein.
The basic lease term for the CSC will expire on January 31, 2000. Subject
to the conditions stated in the lease, Tiffany may thereafter extend the term of
the lease for nine separate one year periods. The rental rate will be
approximately $13.33 per square foot throughout the 12-year maximum term of the
lease and Tiffany must also pay all expenses of operating and maintaining the
CSC, including property taxes. Subject to certain conditions stated in the lease
governing the end of the lease term and Tiffany's obligation to pay specified
costs and expenses, Tiffany has the right to purchase the CSC in each of years
1997 through 2009 for a scheduled purchase price that ranges from $37.5 to $27.8
million. Alternatively, if the CSC is sold to a third party for less than such
scheduled purchase price, Tiffany would become liable for an end-of-term rental
adjustment up to the amount of such deficiency (subject to a conditional maximum
deficiency), and would, if the CSC is neither purchased by Tiffany nor sold to a
third party, become liable for an end-of-term rental adjustment that would range
from $37.5 to $24.6 million in years 1997 through 2009 depending on Tiffany's
compliance with certain lease conditions. Registrant has guaranteed Tiffany's
obligations under the CSC lease and provided certain financial covenants to the
landlord's lenders in support of such guaranty consistent with financial
covenants provided to Registrant's bank lenders.
Registrant believes that the CSC has been properly designed to handle
worldwide distribution functions and that it will be suitable for that purpose
when it becomes fully operational in 1997.
Branch and Subsidiary Retail Store Leases
Set forth below is the expiration date for each of Tiffany's existing
branch and subsidiary retail store leases (and, where applicable, optional
renewal terms): Phipps Plaza Shopping Center, Atlanta, GA, July 31, 2000 (two
five-year terms); Two Rodeo Drive, Beverly Hills, CA, October 7, 2005 (two
five-year terms); Copley Place, Boston, MA, July 31, 2009 (two five-year terms);
715 North Michigan Avenue, Chicago, IL, September 30, 1997 (one 10-year term);
South Coast Plaza, Costa Mesa, CA, January 31, 2004 (one five-year term); The
Galleria, Dallas, TX, October 31, 2007; Union Square, San Francisco, CA, October
29, 2006 (one 10-year term); Galleria Post Oak Shopping Center, Houston, TX,
September 30, 2001 (one five-year term); The Mall at Short Hills, Millburn, NJ,
August 30, 2005 (one five-year term); 259 Worth Avenue, Palm Beach, FL, May 31,
2007 (two five-year terms); King of Prussia Plaza, Upper Merion Township, PA,
November 30, 2005 (one five-year term); The Bellevue, Philadelphia, PA, November
16, 2005 (one five-year term); The Paladion, San Diego, CA, January 31, 1998;
Fairfax Square, Vienna, VA, March 31, 2000 (two five-year terms); The Somerset
Collection, Troy, MI, September 30, 2007; The Westchester, White Plains, NY,
April 30, 2005 (one five-year term); Ala Moana Center, Honolulu, HI, January 31,
2000; Bal Harbour Shops, Bal Harbour, FL, May 31, 2003; Whalers Village, Maui,
HI, July 31, 1999; Oakbrook Center, Oak Brook, IL, April 30, 2009 (two
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 16 -
<PAGE> 17
five-year terms); 5500 Wisconsin Avenue, Chevy Chase, MD, January 31, 2006;
Riverside Square Mall, Bergen County, NJ, September 30, 2006; Ginza, Tokyo,
Japan, October 24, 2002 (one three-year term); Grand Hyatt Hotel, Seoul, South
Korea, April 10, 1998 (one two-year term); Chifley Tower, Sydney, Australia,
January 31, 1999 (two five-year terms); 20 Goethestrasse, Frankfurt, Germany,
January 31, 2001 (one 10-year term); 25 Old Bond Street, London, England, March
24, 2016; Residenzstrasse 11, Munich, Germany, June 30, 1998 (one four-year
term); The Landmark, Hong Kong, October 31, 1997; The Peninsula, Kowloon, Hong
Kong, February 28, 1999; Raffles Hotel, Singapore, September 15, 1997 (one
three-year term); Regent Hotel, Taipei, Taiwan, October 6, 2000 (one five-year
term); 85 Bloor Street, Toronto, Canada, October 15, 2006 (one seven-year term);
Bahnhofstrasse 14, Zurich, Switzerland, September 30, 2000; and Ngee Ann City,
Singapore, September 15, 1999 (one one-year term)
In addition to the leases described above, Tiffany has entered into the
following new leases: a 10-year lease for a 5,875 square foot store at the
Stanford Shopping Center in Palo Alto, California (construction of that store
commenced February 1997 and is anticipated to be completed in June 1997); a
15-year lease for a 15,295 square foot store to be constructed at 730 North
Michigan Avenue, Chicago, Illinois (this new store will replace the existing
store in Chicago located at 715 North Michigan Avenue following completion of
construction and is expected to open in October 1997); a 10-year lease for a
6,500 square foot store at the Cherry Creek Mall, Denver, Colorado (expected to
open in the fall of 1998); and a 10-year lease for a 6,500 square foot store at
The Belagio, Las Vegas, Nevada (expected to open in the fall of 1998).
Registrant also operates two FARAONE stores in Italy, one in Milan and one
in Florence. The Milan store is located on Via de Montenapoleone. The present
lease expires on March 31, 1999, but may, subject to certain conditions imposed
by Italian law, including the right of the landlord to occupy the premises for
its own use, be renewed for an additional term of six years. The Florence store
is located on Via Tornabuoni. The present lease expires on June 30, 1997 and is
renewable for an additional term of six years, subject to the same conditions
imposed by law upon the Milan lease.
- - PAGE 17 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 18
ITEM 3. LEGAL AND ENVIRONMENTAL PROCEEDINGS
Registrant and Tiffany are from time to time involved in routine
litigation incidental to the conduct of Tiffany's business, including
proceedings to protect its trademark rights, litigation instituted by persons
alleged to have been injured upon premises within Registrant's control and
litigation with present and former employees. Although litigation with present
and former employees is routine and incidental to the conduct of Tiffany's
business and any business employing significant numbers of U.S.-based employees,
such litigation can result in large monetary awards when a civil jury is allowed
to determine compensatory and/or punitive damages for actions claiming
discrimination on the basis of age, gender, race, religion, disability or other
legally protected characteristic or for termination of employment that is
wrongful or in violation of implied contracts. However, Registrant believes that
no litigation currently pending to which it or Tiffany is a party or to which
its properties are subject will have a material adverse effect on its results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 31, 1997.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 18 -
<PAGE> 19
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Registrant are:
<TABLE>
<CAPTION>
NAME AGE POSITION YEAR JOINED TIFFANY
- ---- --- -------- -------------------
<S> <C> <C> <C>
William R. Chaney 64 Chairman of the Board of Directors and 1980
Chief Executive Officer
Michael J. Kowalski 45 President and Chief Operating Officer 1983
Jeanne B. Daniel 41 Executive Vice President 1986
Thomas J. O'Neill 44 Executive Vice President 1984
James E. Quinn 45 Executive Vice President 1986
Patrick B. Dorsey 46 Senior Vice President - General Counsel 1985
and Secretary
James N. Fernandez 41 Senior Vice President - Finance 1983
and Chief Financial Officer
Fernanda K. Gilligan 50 Senior Vice President - Public Relations 1984
Diana Lyne 43 Senior Vice President - Marketing 1984
John S. Petterson 38 Senior Vice President - Corporate Sales 1988
Dale S. Strohl 60 Senior Vice President - Operations 1984
Larry M. Segall 42 Vice President, Treasurer and Controller 1985
</TABLE>
William R. Chaney. Mr. Chaney, Chairman and Chief Executive Officer of Tiffany
since August 1984, joined Tiffany in January 1980 as a member of its Board.
Prior to 1984 he served as an executive officer of Avon Products Inc. Mr. Chaney
also serves on the board of directors of the Bank of New York and the Atlantic
Mutual Companies.
Michael J. Kowalski. Mr. Kowalski was appointed President on January 18, 1996
and Chief Operating Officer on January 16, 1997; he has served on Registrant's
Board of Directors since January 1995. He previously served as Executive Vice
President from March 19, 1992, with
- - PAGE 19 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 20
overall responsibility in the following areas: merchandising, marketing,
advertising, public relations and product design. He has held a variety of
merchandising management positions since joining Tiffany in 1983 as Director of
Financial Planning.
Jeanne B. Daniel. Ms. Daniel has served in a variety of merchandising management
positions since joining the Company in 1986 as a merchandising management
associate. She was appointed Senior Vice President with responsibility for
merchandising in October 1992 and Executive Vice President on January 16, 1997.
Thomas J. O'Neill. Dr. O'Neill joined Tiffany in October 1984 as a management
associate. He assumed responsibility for sales and operations in the
Asia-Pacific region in March 1992. His responsibilities expanded to include
sales and operations in the Middle East in 1994, and all international sales and
operations in January, 1996. On January 16, 1997, he was appointed Executive
Vice President.
James E. Quinn. Mr. Quinn joined the Company in July 1986 as Vice President of
branch sales for the Company's corporate sales operations. He was promoted to
his current position as Executive Vice President responsible for all United
States retail and corporate sales on March 19, 1992 and assumed responsibility
for retail and corporate sales for the Americas in 1994. In January 1995 he
became a member of Registrant's Board of Directors. In January, 1996 his
responsibilities were expanded to include distribution, human resources and loss
prevention operations. Mr. Quinn is a member of the Board of Directors of the
BNY Hamilton Funds, Inc.
Patrick B. Dorsey. Mr. Dorsey joined the Company in July 1985 as General Counsel
and Secretary.
James N. Fernandez. Mr. Fernandez joined Tiffany in October 1983 and has held
various positions in financial planning and management since that time. He was
appointed to his current position in April 1989.
Fernanda K. Gilligan. Ms. Gilligan joined Tiffany in October 1984 as Director of
Retail Marketing. She assumed her current responsibilities in January 1990.
Diana Lyne. Ms. Lyne joined Tiffany in July 1984 as Director of Advertising. She
assumed her current responsibilities in January 1990.
John S. Petterson. Mr. Petterson joined Tiffany in 1988 as a management
associate. He assumed his current responsibilities in May, 1995.
Dale S. Strohl. Mr. Strohl assumed his current responsibilities in September
1984.
Larry M. Segall. Mr. Segall joined Tiffany in 1985 as Controller. He was
appointed Treasurer-Controller on January 21, 1993.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 20 -
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Registrant's Common Stock is traded on the New York Stock Exchange. In
consolidated trading, after adjustment for the two-for-one stock split that was
effected in Fiscal 1996, the high and low selling prices per share for shares of
such Common Stock for Fiscal 1995 were:
<TABLE>
<CAPTION>
Fiscal 1995 High Low
- ----------- ---- ---
<S> <C> <C>
First Fiscal Quarter $17.25 $14.50
Second Fiscal Quarter $19.44 $15.69
Third Fiscal Quarter $23.00 $19.13
Fourth Fiscal Quarter $27.88 $21.94
</TABLE>
In consolidated trading, after adjustment for the two-for-one stock split that
was effected in Fiscal 1996, the high and low selling prices per share for
shares of such Common Stock for Fiscal 1996 were:
<TABLE>
<CAPTION>
Fiscal 1996 High Low
- ----------- ---- ---
<S> <C> <C>
First Fiscal Quarter $33.13 $25.25
Second Fiscal Quarter $39.13 $30.25
Third Fiscal Quarter $42.25 $33.00
Fourth Fiscal Quarter $39.00 $33.50
</TABLE>
On March 25, 1997, the high and low selling prices quoted on such exchange
were $41.625 and $41.125 respectively. On March 25, 1997 there were 2,396 record
holders of Registrant's Common Stock.
It is Registrant's policy to pay a quarterly dividend of $0.05 per share
of Common Stock, subject to declaration of such dividend by Registrant's Board
of Directors. A two-for-one split of such Common Stock was effected by means of
a stock distribution (stock dividend) paid July 23, 1996. In Fiscal 1995, prior
to such stock split, dividends of $0.07 per share were paid on April 11, 1995,
July 11, 1995, October 10, 1995 and January 10, 1996. In Fiscal 1996, prior to
such stock split, a dividend of $0.07 per share was paid on April 10, 1996. A
dividend of $0.10 per share was paid on July 23, 1996, but only in respect of
shares outstanding prior to such stock distribution. Dividends of $0.05 per
share were paid on October 10, 1996 and January 10, 1997.
In calculating the aggregate market value of the voting stock held by
non-affiliates of the Registrant shown on the cover page of this Report on Form
10-K, 4,995,384 shares of Registrant's Common Stock beneficially owned by
Mitsukoshi Limited and by the executive officers and directors of the Registrant
(exclusive of shares which may be acquired on exercise of employee stock
options) were excluded, on the assumption that certain of those persons could
- - PAGE 21 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 22
be considered "affiliates" under the provisions of Rule 405 promulgated under
the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from Registrant's Annual Report to Stockholders for
the fiscal year ended January 31, 1997, pages 12-13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated by reference from Registrant's Annual Report to Stockholders for
the fiscal year ended January 31, 1997, pages 14-17.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from Registrant's Annual Report to Stockholders for
the fiscal year ended January 31, 1997, pages 18-33.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from Registrant's Proxy Statement dated April 8, 1997,
pages 2-7.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from Registrant's Proxy Statement dated April 8, 1997,
pages 8-19.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from Registrant's Proxy Statement dated April 8, 1997,
pages 6-7.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Registrant's Proxy Statement dated April 8, 1997,
pages 15-16. See also Part I, Item 1. Distribution and Marketing,
International Retail, above, for a discussion of Registrant's business
relationship with Mitsukoshi Limited, a holder of in excess of 10% of
Registrant's issued and outstanding Common Stock.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 22 -
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed As Part of This Report:
1. Financial Statements:
Data incorporated by reference from
the 1996 Annual Report to Stockholders
of Tiffany & Co. and Subsidiaries:
Report of Independent Accountants
(following this Form 10-K)
Consolidated balance sheets
as of January 31, 1997 and 1996
Consolidated statements of operations
for the years ended January 31, 1997, 1996 and 1995
Consolidated statements of stockholders' equity
for the years ended January 31, 1997, 1996 and 1995
Consolidated statements of cash flows
for the years ended January 31, 1997, 1996 and 1995
Notes to consolidated financial statements
2. Financial Statement Schedules:
The following financial statement schedule should be read in
conjunction with the consolidated financial statements incorporated by reference
herein:
II. Valuation and qualifying accounts and reserves.
All other schedules have been omitted since they are either not applicable or
not required, or because the information required is included in the
consolidated financial statements and notes thereto.
- - PAGE 23 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 24
3. Exhibits:
The following exhibits have been filed with the Securities and Exchange
Commission but are not attached to copies of this Form 10-K other than complete
copies filed with said Commission and the New York Stock Exchange:
Exhibit Description
3.1 Restated Certificate of Incorporation of Registrant. Incorporated by
reference from Exhibit 3.1 to Registrant's Report on Form 8-K dated
May 16, 1996.
3.2 By-Laws of Registrant (as last amended March 20, 1997)
4.1 Form of Rights Agreement Dated as of November 17, 1988 by and between
Registrant and Manufacturers Hanover Trust Company, as Rights Agent.
Incorporated by reference from Exhibit 4.1 to Registrant's Report on
Form 8-K dated November 18, 1988.
4.2 Amendment to Rights Agreement dated as of September 21, 1989 by and
between Registrant and Manufacturers Hanover Trust Company, as Rights
Agent. Incorporated by reference from Exhibit 4.2 to Registrant's
Report on Form 8-K dated September 28, 1989.
10.5 Designer Agreement between Tiffany and Paloma Picasso dated April 4,
1985. Incorporated by reference from Exhibit 10.5 filed with
Registrant's Registration Statement on Form S-1, Registration No.
33-12818 (the "Registration Statement").
10.16 Lease dated October 15, 1984 between Avon Export Corporation and
Tiffany for 727 Fifth Avenue, New York, N.Y. Incorporated by reference
from Exhibit 10.16 to the Registration Statement.
10.53 Distribution and Manufacturing Services Agreement between Chanel, Inc.
and Tiffany and Company dated as of January 1, 1993. Incorporated by
reference from Exhibit 10.53 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1993 and dated April 12,
1993.
10.56 Purchase Agreement dated as of July 18, 1988, by and between Tiffany
and Chanel, Inc. Incorporated by reference from Exhibit 28.2 to the
Form S-8.
10.101 Form of Note Purchase Agreement, including the form of 7.52% Senior
Notes due 2003 issued thereunder at par by Registrant on January 31,
1993 for an aggregate principal amount of $51,500,000. Incorporated by
reference from Exhibit 10.101 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1993 and dated April 12,
1993.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 24 -
<PAGE> 25
Exhibit Description
10.111 Agreement made June 12, 1993 by and between Tiffany-Japan (Delaware)
Inc., Tiffany and Mitsukoshi Limited. Incorporated by reference from
Exhibit 10.111 filed with Registrant's Report on Form 8-K dated June
12, 1993.
10.116 Credit Agreement dated as of June 26, 1995 by and among Registrant,
Tiffany, Tiffany & Co. International, The Bank of New York, as Issuing
Bank and as Swing Line Lender, The Bank of New York, as Arranging Agent
and The Bank of New York as Administrative Agent. Incorporated by
reference from Exhibit 10.116 filed with Registrant's Report on Form
10-Q for the fiscal quarter ended July 31, 1995 and dated September 13,
1995.
10.119 Amended and Restated Lease Agreement dated as of December 1, 1995,
effective as of August 1, 1995, by and between First Fidelity Bank,
National Association, not in its individual capacity, but solely as the
trustee under that certain Trust Agreement 1995-1 dated as of July 1,
1995, as amended, as Owner-Lessor and Tiffany, as Lessee; Amended and
Restated Construction Agency Agreement dated as of December 1, 1995,
effective as of December 11, 1995, by and between Tiffany, as Agent,
and First Fidelity Bank, National Association, a national banking
association, not in its individual capacity but solely as trustee
pursuant to a Trust Agreement 1995-1 dated as of July 1, 1995, as
amended, as Owner; Agreement and Consent to Assignment dated as of
December 1, 1995 among Registrant, Tiffany and Fleet National Bank of
Connecticut, as Collateral Trustee; and Definition Appendix to the
foregoing documents listed in this Exhibit 10.119. Incorporated by
reference from Exhibit 10.119 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1996 and dated April 8,
1996.
10.120 Watch Supplier Agreement as of October 30, 1995 by and among Tiffany
and Tiffany & Co. Watch Center S.A. and TWF SA. Incorporated by
reference from Exhibit 10.120 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1996 and dated April 8,
1996.
10.121 Agreement as of February 23, 1996 among Mitsukoshi Limited,
Tiffany-Japan Inc. and Tiffany. Incorporated by reference from Exhibit
10.121 filed with Registrant's Report on Form 10-K for the fiscal year
ended January 31, 1996 and dated April 8, 1996.
10.122 Agreement dated as of April 3, 1996 among American Family Life
Assurance Company of Columbus, Japan Branch, Tiffany & Co. Japan, Inc.,
Japan Branch, and Registrant, as Guarantor, for yen 5,000,000,000 Loan
Due 2011. Incorporated by reference from Exhibit 10.122 filed with
Registrant's Report on Form 10-Q for the fiscal quarter ended April 30,
1996 and dated June 13, 1996.
- - PAGE 25 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 26
Exhibit Description
10.123 Agreement made effective as of February 1, 1997 by and between Tiffany
and Elsa Peretti.
10.124 Agreement in Respect of Tiffany & Co. Shares including registration
rights dated September 21, 1989, between Registrant and Mitsukoshi
Limited. Incorporated by reference from Exhibit 28.1 to Registrant's
Report on Form 8-K dated September 21, 1989.
11.1 Statement re Computation of Per Share Earnings.
13.1 Annual Report to Stockholders for Fiscal Year Ended January 31, 1997
(pages 12 through 34 of such Annual Report have been filed in
electronic format).
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants.
27 Financial Data Schedule (Exhibit 27 is submitted as an exhibit only in
the electronic format of this Annual Report on Form 10-K submitted to
the Securities and Exchange Commission).
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 26 -
<PAGE> 27
Executive Compensation Plans and Arrangements
Exhibit Description
10.2 Registrant's 1985 Stock Option Plan and forms of incentive stock option
agreement and stock option agreement, as last amended on January 18,
1990. Incorporated by reference from Exhibit 10.3 to Registrant's
Report on Form 10-K for the fiscal year ended January 31, 1990 and
dated April 13, 1990.
10.3 Registrant's 1986 Stock Option Plan and form of stock option agreement,
as last amended on November 21, 1996.
10.25 Deferred Compensation Agreement between William R. Chaney and Tiffany
and Company dated December 31, 1989. Incorporated by reference from
Exhibit 10.25 to Registrant's Report on Form 10-K for the fiscal year
ended January 31, 1990 and dated April 13, 1990.
10.49 Form of Indemnity Agreement, approved by the Board of Directors on
March 19, 1987. Incorporated by reference from Exhibit 10.49 to the
Registration Statement.
10.60 Registrant's 1988 Director Stock Option Plan and form of Stock Option
agreement, as last amended on November 21, 1996.
10.105 Group Long Term Disability Insurance Policy issued by The Mutual
Benefit Life Insurance Company. Policy Number: G53,152. Incorporated
by reference from Exhibit 10.105 filed with Registrant's Report on
Form 10-K for the fiscal year ended January 31, 1993 and dated April
12, 1993.
10.106 Tiffany and Company Executive Deferral Plan. Incorporated by reference
from Exhibit 10.106 filed with Registrant's Report on Form 10-K for the
fiscal year ended January 31, 1993 and dated April 12, 1993.
10.108 Tiffany & Co. Retirement Plan for Non-Employee Directors. Incorporated
by reference from Exhibit 10.108 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1993 and dated April 12,
1993.
10.109 Summary of informal incentive cash bonus plan for managerial employees.
Incorporated by reference from Exhibit 10.109 filed with Registrant's
Report on Form 10-K for the fiscal year ended January 31, 1993 and
dated April 12, 1993.
10.113 Tiffany and Company Pension Plan, as last amended effective January 1,
1997.
- - PAGE 27 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 28
Exhibit Description
10.114 1994 Tiffany and Company Supplemental Retirement Income Plan.
Incorporated by reference from Exhibit 10.114 filed with Registrant's
Report on Form 10-K for the fiscal year ended January 31, 1994 and
dated April 7, 1994.
10.115 1994 Form of Split Dollar Life Insurance Agreement entered into by
Tiffany and Company and certain Executive Officers including form of
Assignment of Life Insurance Policy as Collateral and Rider No. 1 to
1994 Form of Split Dollar Life Insurance Agreement entered into by
Tiffany and Company and certain Executive Officers. Incorporated by
reference from Exhibit 10.115 filed with Registrant's Report on Form
10-K for the fiscal year ended January 31, 1995 and dated April 7,1995.
REGISTRANT WILL FURNISH COPIES OF ANY OF THE FOREGOING EXHIBITS TO ANY
REGISTERED HOLDER OF THE REGISTRANT'S COMMON STOCK UPON PAYMENT OF A FEE OF $.15
PER PAGE FURNISHED, WHICH FEE REPRESENTS REGISTRANT'S EXPENSES IN FURNISHING
SUCH EXHIBIT.
(b) Reports on Form 8-K.
On March 7, 1997 Registrant filed a Report on Form 8-K reporting
earnings for the fiscal quarter and year ended January 31, 1997. The text of
Registrant's announcement was included in the Report.
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.
TIFFANY & CO.
(Registrant)
Date: April 8, 1997 By: /s/ Michael J. Kowalski
--------------------------------------
Michael J. Kowalski
President and Chief Operating Officer
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 28 -
<PAGE> 29
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
By: /s/ William R. Chaney
---------------------------------------
William R. Chaney
Chairman of the Board
(principal executive officer) (director)
<TABLE>
<S> <C>
By: /s/ James N. Fernandez By: /s/ Charles K. Marquis
------------------------------------ ------------------------------------
James N. Fernandez Charles K. Marquis
Senior Vice President-Finance Director
(principal financial officer)
By: /s/ Larry M. Segall By: /s/ James E. Quinn
------------------------------------ ------------------------------------
Larry M. Segall James E. Quinn
Vice President Executive Vice President
(principal accounting officer) (director)
By: /s/ Jane A. Dudley By: /s/ Yoshiaki Sakakura
------------------------------------ ------------------------------------
Jane A. Dudley Yoshiaki Sakakura
Director Director
By: /s/ Samuel L. Hayes, III By: /s/ William A. Shutzer
------------------------------------ ------------------------------------
Samuel L. Hayes, III William A. Shutzer
Director Director
By: /s/ Michael J. Kowalski By: /s/ Geraldine Stutz
------------------------------------ ------------------------------------
Michael J. Kowalski Geraldine Stutz
President Director
(director)
</TABLE>
April 8, 1997
- - PAGE 29 - TIFFANY & CO. REPORT ON FORM 10-K FY 1996
<PAGE> 30
[Coopers & Lybrand Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of Tiffany & Co.
Our report on the consolidated financial statements of Tiffany & Co. and
Subsidiaries has been incorporated by reference in this Form 10-K from Page
34 of the 1996 Annual Report to Stockholders of Tiffany & Co. and Subsidiaries.
In connection with our audits of such consolidated financial statements, we
have also audited the related financial statement schedule listed in Item
14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
New York, New York
March 5, 1997
<PAGE> 31
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------------------
Additions
----------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 1997:
Reserves deducted from
assets:
Accounts receivable
allowances principally
doubtful accounts $ 5,698,217 $3,128,653 $ -- $1,962,485 (a) $ 6,864,385
Allowance for inventory
liquidation and
obsolescence 10,947,815 5,219,817 -- 2,376,688 (b) 13,790,944
Allowance for inventory
shrinkage 1,674,536 2,799,295 -- 2,730,662 (c) 1,743,169
LIFO reserve 11,870,000 3,000,000 -- -- 14,870,000
</TABLE>
- ----------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
<PAGE> 32
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------
Additions
---------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 1996:
Reserves deducted from
assets:
Accounts receivable
allowances principally
doubtful accounts $5,721,155 $3,034,423 $ -- $3,057,361 (a) $ 5,698,217
Allowance for inventory
liquidation and
obsolescence 8,602,482 3,043,617 -- 698,284 (b) 10,947,815
Allowance for inventory
shrinkage 2,468,133 2,728,866 -- 3,522,463 (c) 1,674,536
LIFO Reserve 9,770,000 2,100,000 -- -- 11,870,000
</TABLE>
- -------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
<PAGE> 33
TIFFANY & CO. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
Balance at Charged to
beginning costs and Charged to Balance at end
Description of period expenses other accounts Deductions of period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
January 31, 1995:
Reserves deducted from
assets:
Accounts receivable
allowances principally
doubtful accounts $4,170,217 $3,640,485 $ -- $2,089,547 (a) $5,721,155
Allowance for inventory
liquidation and
obsolescence 7,061,876 1,787,945 -- 247,339 (b) 8,602,482
Allowance for inventory
shrinkage 2,035,358 2,195,829 -- 1,763,054 (c) 2,468,133
LIFO Reserve 8,470,000 1,300,000 -- -- 9,770,000
</TABLE>
- -------------------
(a) Uncollectible accounts written off.
(b) Liquidation of inventory previously written down to market.
(c) Physical inventory losses.
<PAGE> 34
EXHIBIT INDEX
SEE PAGES 24 THROUGH 28 FOR A COMPLETE LIST OF EXHIBITS FILED, INCLUDING
EXHIBITS INCORPORATED BY REFERENCE FROM PREVIOUSLY FILED DOCUMENTS.
EXHIBIT DESCRIPTION
3.2 By-Laws of Registrant (as last amended March 20, 1997)
10.3 Registrant's 1986 Stock Option Plan and form of stock option agreement,
as last amended on November 21, 1996.
10.60 Registrant's 1988 Director Stock Option Plan and form of Stock Option
agreement, as last amended on November 21, 1996.
10.113 Tiffany and Company Pension Plan, as last amended effective January 1,
1997.
10.123 Agreement made effective as of February 1, 1997 by and between Tiffany
and Elsa Peretti.
11.1 Statement re Computation of Per Share Earnings.
13.1 Annual Report to Stockholders for Fiscal Year Ended January 31, 1997
(pages 12 through 34 of such Annual Report have been filed in
electronic format).
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants.
NOTE: ALL OTHER EXHIBITS HAVE BEEN INCORPORATED BY REFERENCE FROM
EXHIBITS TO DOCUMENTS PREVIOUSLY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. REFER TO THE LIST OF EXHIBITS ON PAGES 24
THROUGH 28 FOR REGISTRATION, FILE AND EXHIBIT NUMBERS.
TIFFANY & CO. REPORT ON FORM 10-K FY 1996 - PAGE 34 -
<PAGE> 1
Exhibit 3.2
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1996
RESTATED BY-LAWS
AS LAST AMENDED MARCH 20, 1997
-of-
TIFFANY & CO., a Delaware Corporation
(herein called the "Corporation")
-oo0oo-
ARTICLE I
Stockholders
SECTION 1.01. Annual Meeting. The Board of Directors by resolution shall
designate the time, place and date (which shall be, in the case of the first
annual meeting, not more than 13 months after the organization of the
Corporation and, in the case of all other annual meetings not more than 13
months after the date of the last annual meeting) of the annual meeting of the
stockholders for the election of directors and the transaction of such other
business as may come before it.
SECTION 1.02. Notice of Meetings of Stockholders. Whenever stockholders are
required or permitted to take any action at a meeting, written notice of the
meeting shall be given (unless that notice shall be waived or unless the meeting
is to be dispensed with in accordance with the provisions of Article SIXTH of
the Certificate of Incorporation of the Corporation) which shall state the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. The written notice of any
meeting shall be given, personally or by mail, not less than ten nor more than
sixty days before the date of the meeting to each stockholder entitled to vote
at such meeting. If mailed, such notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation.
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
<PAGE> 2
Exhibit 3.2
SECTION 1.03. Quorum. At all meetings of the stockholders, the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or by proxy, shall constitute a quorum for the transaction of
any business.
When a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any stockholders.
The stockholders present may adjourn the meeting despite the absence of a quorum
and at any such adjourned meeting at which the requisite amount of voting stock
shall be represented, the Corporation may transact any business which might have
been transacted at the original meeting had a quorum been there present.
SECTION 1.04. Method of Voting. The vote upon any question before the meeting
need not be by ballot. All elections and all other questions shall be decided by
a plurality of the votes cast, at a meeting at which a quorum is present, except
as expressly provided otherwise by the General Corporation Law of the State of
Delaware or the Certificate of Incorporation.
SECTION 1.05. Voting Rights of Stockholders and Proxies. Each stockholder of
record entitled to vote in accordance with the laws of the State of Delaware,
the Certificate of Incorporation or these By-Laws, shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
stock entitled to vote standing in his name on the books of the Corporation, but
no proxy shall be voted on after three years from its date, unless the proxy
provides for a longer period.
SECTION 1.06. Ownership of its Own Stock. Shares of its own capital stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes. Nothing in this section shall be
construed as limiting the right of any corporation to vote stock, including but
not limited to its own stock, held by it in a fiduciary capacity.
SECTION 1.07. Voting by Fiduciaries and Pledgors. Persons holding stock in a
fiduciary capacity shall be entitled to vote the shares so held. Persons whose
stock is pledged shall be entitled to vote, unless in the transfer by the
pledgor on the books of the Corporation he has expressly empowered the pledgee
to vote thereon, in which case only the pledgee, or his proxy, may represent
such stock and vote thereon.
Page 2
<PAGE> 3
If shares or other securities having voting power stand of record in the names
of two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the Secretary of the Corporation is given written notice to the contrary
and is furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect:
(1) If only one votes, his act binds all;
(2) If more than one votes, the act of the majority so voting binds all;
(3) If more than one votes, but the vote is evenly split on any particular
matter, each faction may vote the securities in question proportionally,
or any person voting the shares, or a beneficiary, if any, may apply to
the Court of Chancery or such other court as may have jurisdiction to
appoint an additional person to act with the persons so voting the shares,
which shall then be voted as determined by a majority of such persons and
the person appointed by the Court. If the instrument so filed shows that
any such tenancy is held in unequal interests, a majority or even-split
for the purpose of this subsection shall be a majority or even-split in
interest.
SECTION 1.08. Fixing Date for Determination of Stockholders of Record. In order
to determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. If no record date is fixed by the Board of Directors, the record
date shall be determined in accordance with the provisions of the General
Corporation Law of the State of Delaware.
SECTION 1.09. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during
Page 3
<PAGE> 4
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held (which place
shall be specified in the notice of the meeting) or, if not so specified, at the
place where said meeting is to be held, and the list shall be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who may be present. Upon the willful neglect or
refusal of the directors to produce such a list at any meeting for the election
of directors, they shall be ineligible for election to any office at such
meeting.
SECTION 1.10. Stockholder's Right of Inspection. Stockholders of record, in
person or by attorney or other agent, shall have the right, upon written demand
under oath stating the purpose thereof, during the usual hours for business to
inspect for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in this State or at its principal place of business.
The stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list required by Section 1.01 or the
books of the Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
SECTION 1.11. Conduct of Meetings. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board of Directors, if any, the Vice
Chairman of the Board of Directors, if any, the Chief Executive Officer, if any,
the President, a Vice President, or, if none of the foregoing is in office and
present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the Corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present, the chairman of the meeting shall appoint a secretary of
the meeting. In the conduct of a meeting of the stockholders, all of the powers
and authority vested in a presiding officer by law or practice shall be vested
in the chairman of the meeting.
Page 4
<PAGE> 5
SECTION 1.12. Advance Notice of Stockholder Proposals. At any meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (i) by or at the direction of the Board of Directors or (ii)
by any stockholder of the Corporation who complies with the notice procedures
set forth in this Section 1.12. For business to be properly brought before any
meeting of the stockholders by a stockholder, the stockholder must have given
notice thereof in writing to the Secretary of the Corporation at the principal
executive offices of the Corporation, which written notice must be received by
the Secretary of the Corporation not less than 60 days in advance of such
meeting or, if later, the fifteenth day following the first public disclosure of
the date of such meeting (by mailing of notice of the meeting or otherwise). A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (1) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (2) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (3) the class,
series and number of shares of the Corporation that are beneficially owned by
the stockholder, and (4) any material interest of the stockholder in such
business. In addition, the stockholder making such proposal shall promptly
provide any other information reasonably requested by the Corporation.
Notwithstanding anything in these By-laws to the contrary, no business shall be
conducted at any meeting of the stockholders except in accordance with the
procedures set forth in this Section 1.12. The Chairman of any such meeting
shall direct that any business not properly brought before the meeting shall not
be considered.
ARTICLE II
Directors
SECTION 2.01. Management of Business. The business of the Corporation shall be
managed by its Board of Directors.
The Board of Directors, in addition to the powers and authority expressly
conferred upon it herein, by statute, by the Certificate of Incorporation of the
Corporation or otherwise, is hereby empowered to exercise all such powers as may
be exercised by the Corporation, except as expressly provided otherwise by the
statutes of the State of Delaware, by the Certificate of Incorporation of the
Corporation or by these By-Laws.
Without prejudice to the generality of the foregoing, the Board of Directors, by
resolution or resolutions, may create and issue, whether or not in connection
with the issue and sale of any shares of stock or other securities of the
Corporation, rights or options entitling the holders thereof to purchase from
the Corporation any shares of its capital stock of any class or classes or any
other
Page 5
<PAGE> 6
securities of the Corporation, such rights or options to be evidenced by or in
such instrument or instruments as shall be approved by the Board of Directors.
The terms upon which, including the time or times, which may be limited or
unlimited in duration, at or within which, and the price or prices at which, any
such rights or options may be issued and any such shares or other securities may
be purchased from the Corporation upon the exercise of any such right or option
shall be such as shall be fixed and stated in the resolution or resolutions
adopted by the Board of Directors providing for the creation and issue of such
rights or options, and, in every case, set forth or incorporated by reference in
the instrument or instruments evidencing such rights or options. In the absence
of actual fraud in the transaction, the judgment of the directors as to the
consideration for the issuance of such rights or options and the sufficiency
thereof shall be conclusive. In case the shares of stock of the Corporation to
be issued upon the exercise of such rights or options shall be shares having a
par value, the price or prices so to be received therefor shall not be less than
the par value thereof. In case the shares of stock to be issued shall be shares
of stock without par value, the consideration therefor shall be determined in
the manner provided in Section 153 of the General Corporation Law of the State
of Delaware.
SECTION 2.02. Qualifications and Number of Directors. Directors need not be
stockholders. The number of directors which shall constitute the whole Board
shall be eight (8), but such number as determined by the Board of Directors may
be increased or decreased and subsequently again from time to time increased or
decreased by an amendment to these By-Laws, provided that no decrease to such
number by action of the Board of Directors shall in itself effect the removal of
any sitting director. In order to qualify for election or appointment directors
shall be younger than 72 years when elected or appointed and a director may be
removed by action of the Board of Directors if such director shall have failed
to submit his or her resignation on or before the first meeting of the Board of
Directors occurring following the 72nd birthday of such director, provided that
the Board of Directors may in its discretion, by specific resolution taken
without the participation of the director in question, waive the provisions of
this sentence with respect to an individual director whose continued service is
deemed uniquely important to the Corporation.
SECTION 2.03. Election and Term. The directors shall be elected at the annual
meeting of the stockholders, and each director shall be elected to hold office
until his successor shall be elected and qualified, or until his earlier
resignation or removal.
Page 6
<PAGE> 7
SECTION 2.04. Resignations. Any director of the Corporation may resign at any
time by giving written notice to the Corporation. Such resignation shall take
effect at the time specified therein, if any, or if no time is specified
therein, then upon receipt of such notice by the Corporation; and, unless
otherwise provided therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 2.05. Vacancies and Newly Created Directorships. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until their successors shall be elected and qualified, or
until their earlier resignation or removal. When one or more directors shall
resign from the Board, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so chosen shall hold
office as herein provided in the filling of other vacancies.
SECTION 2.06. Quorum of Directors. At all meetings of the Board of Directors, a
majority of the entire Board, but not less than two directors, shall constitute
a quorum for the transaction of business, except that when a board of one
director is authorized, then one director shall constitute a quorum. The act of
a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors except as provided in Sections 2.05
and 2.12 hereof.
A majority of the directors present, whether or not a quorum is present, may
adjourn any meeting of the directors to another time and place. Notice of any
adjournment need not be given if such time and place are announced at the
meeting.
SECTION 2.07. Annual Meeting. The newly elected Board of Directors shall meet
immediately following the adjournment of the annual meeting of stockholders in
each year at the same place, within or without the State of Delaware, and no
notice of such meeting shall be necessary.
SECTION 2.08. Regular Meetings. Regular meetings of the Board of Directors may
be held at such time and place, within or without the State of Delaware, as
shall from time to time be fixed by the Board and no notice thereof shall be
necessary.
Page 7
<PAGE> 8
SECTION 2.09. Special Meetings. Special meetings may be called at any time by
the Chief Executive Officer, the President, any Vice-President, the Treasurer or
the Secretary or by resolution of the Board of Directors. Special meetings shall
be held at such place, within or without the State of Delaware, as shall be
fixed by the person or persons calling the meeting and stated in the notice or
waiver of notice of the meeting.
Special meetings of the Board of Directors shall be held upon notice to the
directors or waiver thereof. Unless waived, notice of each special meeting of
the directors, stating the time and place of the meeting, shall be given to each
director by delivered letter, by telegram or by personal communication either
over the telephone or otherwise, in each such case not later than the second day
prior to the meeting, or by mailed letter deposited in the United States mail
with postage thereon prepaid not later than the seventh day prior to the
meeting. Notices of special meetings of the Board of Directors and waivers
thereof need not state the purpose or purposes of the meeting.
SECTION 2.10. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in a writing or writings and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
SECTION 2.11. Compensation. Directors shall receive such fixed sums and expenses
of attendance for attendance at each meeting of the Board or of any committee
and/or such salary as may be determined from time to time by the Board of
Directors; provided that nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 2.12. Executive Committee. The Board of Directors may, by resolution or
resolutions, passed by a majority of the whole Board, designate an Executive
Committee (and may discontinue the same at any time) to consist of one or more
of the directors of the Corporation. The members shall be appointed by the Board
and shall hold office during the pleasure of the Board. The Board may designate
one or more directors as alternate members of the Committee, who may replace an
absent or disqualified member at any meeting of the Committee. The Executive
Committee shall have and may exercise all the powers of the Board of Directors
(when the Board is not in session) in the management of the business and affairs
of the Corporation (and may authorize the seal of the Corporation to be affixed
to all papers which may require it), except that the Executive Committee shall
have no power (a) to elect directors; (b) to alter, amend or repeal these
By-Laws or any resolution or resolutions of the directors designating an
Executive Committee; (c) to declare any dividend or make any other
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distribution to the stockholders of the Corporation; or (d) to appoint any
member of the Executive Committee. Regular meetings of the Executive Committee
may be held at such time and place, within or without the State of Delaware, as
shall from time to time be fixed by the Executive Committee and no notice
thereof shall be necessary. Special meetings may be called at any time by any
officer of the Corporation or any member of the Executive Committee. Special
meetings shall be held at such place, within or without the State of Delaware,
as shall be fixed by the person calling the meeting and stated in the notice or
waiver of the meeting. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business and the act of a
majority present at which there is a quorum shall be the act of the Executive
Committee. Notice of each special meeting of the Executive Committee shall be
given (or waived) in the same manner as notice of a directors' meeting.
SECTION 2.13. Other Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and subject to any
restrictions or limitations on the delegation of power and authority imposed by
applicable Delaware law, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Any such committee shall keep written minutes of
its meetings and report such minutes to the Board at the next regular meeting of
the Board.
ARTICLE III
Officers
SECTION 3.01. Number. The officers of the Corporation shall be chosen by the
Board of Directors. The officers shall be a Chief Executive Officer, a
President, a Secretary and a Treasurer, and such number of Vice-Presidents,
Assistant Secretaries and Assistant Treasurers, and such other officers, if any,
as the Board may from time to time determine. The Board may choose such other
agents as it shall deem necessary. Any number of offices may be held by the same
person.
SECTION 3.02. Terms of Office. Each officer shall hold his office until his
successor is chosen and qualified or until his earlier resignation or removal.
Any officer may resign at any time by written notice to the Corporation.
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SECTION 3.03. Removal. Any officer may be removed from office at any time by the
Board of Directors with or without cause.
SECTION 3.04. Authority. The Secretary shall record all of the proceedings of
the meetings of the stockholders and directors in a book to be kept for that
purpose, and shall have the authority, perform the duties and exercise the
powers in the management of the Corporation usually incident to the office held
by him, and/or such other authority, duties and powers as may be assigned to him
from time to time by the Board of Directors or the Chief Executive Officer. The
other officers, and agents, if any, shall have the authority, perform the duties
and exercise the powers in management of the Corporation usually incident to the
offices held by them, respectively, and/or such other authority, duties and
powers as may be assigned to them from time to time by the Board of Directors or
(except in the case of the Chief Executive Officer) by the Chief Executive
Officer.
SECTION 3.05. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chief Executive Officer, the President or any
Vice-President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
ARTICLE IV
Capital Stock
Section 4.01. Stock Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by, or in the name of the Corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the Chief
Executive Officer, or the President or a Vice-President, and by the Treasurer or
an Assistant Treasurer, or the Secretary or an assistant Secretary, of the
Corporation, certifying the number of shares owned by him in the Corporation.
Where such certificate is signed (1) by a transfer agent other than the
Corporation or its employee, or (2) by a registrar other than the Corporation or
its employee, the signatures of the officers of the Corporation may be
facsimiles. In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the
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Corporation with the same effect as if he were such officer at the date of
issue.
SECTION 4.02. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by the laws of the State of Delaware.
SECTION 4.03. Registered Holders. Prior to due presentment for registration of
transfer of any security of the Corporation in registered form, the Corporation
shall treat the registered owner as the person exclusively entitled to vote, to
receive notifications and to otherwise exercise all the rights and powers of an
owner, and shall not be bound to recognize any equitable or other claim to, or
interest in, any security, whether or not the Corporation shall have notice
thereof, except as otherwise provided by the laws of the State of Delaware.
SECTION 4.04. New Certificates. The Corporation shall issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, if the owner: (1) so requests before the
Corporation as notice that the shares of stock represented by that certificate
have been acquired by a bona fide purchaser; (2) files with the Corporation a
bond sufficient (in the judgment of the directors) to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
theft of that certificate or the issuance of a new certificate; and (3)
satisfies any other requirements imposed by the directors that are reasonable
under the circumstances. A new certificate may be issued without requiring any
bond when, in the judgment of the directors, it is proper so to do.
ARTICLE V
Miscellaneous
SECTION 5.01. Offices. The registered office of the Corporation in the State of
Delaware shall be at Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. The Corporation may also have offices at other places within
and/or without the State of Delaware.
SECTION 5.02. Seal. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its incorporation and the words "Corporate Seal
Delaware."
SECTION 5.03. Checks. All checks or demands for money shall be signed by such
person or persons as the Board of Directors may from time to time determine.
SECTION 5.04. Fiscal Year. The fiscal year shall begin the first day of February
in each year and shall end on the thirty-first day
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of January of the following year.
SECTION 5.05. Waivers of Notice: Dispensing with Notice. Whenever any notice
whatever is required to be given under the provisions of the General Corporation
Law of the State of Delaware, of the Certificate of Incorporation of the
Corporation, or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business to be
transacted at, nor the purose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
Attendance of a person at a meeting of stockholders shall constitute
a waiver of notice of such meeting, except when the stockholder attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Whenever any notice whatever is required to be given under the
provisions of the General Corporation Law of the State of Delaware, of the
Certificate of Incorporation of the Corporation, or of these By-Laws, to any
person with whom communication is made unlawful by any law of the United States
of America, or by any rule, regulation, proclamation or executive order issued
under any such law, then the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person; and any
action or meeting which shall be taken or held without notice to any such person
or without giving or without applying for a license or permit to give any such
notice to any such person with whom communication is made unlawful as aforesaid,
shall have the same force and effect as if such notice had been given as
provided under the provisions of the General Corporation Law of the State of
Delaware, or under the provisions of the Certificate of Incorporation of the
Corporation or of these By-Laws. In the event that the action taken by the
Corporation is such as to require the filing of a certificate under any of the
other sections of this title, the certificate shall state, if such is the fact
and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
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SECTION 5.06. Loans to and Guarantees of Obligations of Employees and Officers.
The Corporation may lend money to or guaranty any obligation of, or otherwise
assist any officer or other employee of the Corporation or of a subsidiary,
including any officer or employee who is a director of the corporation or a
subsidiary, whenever, in the judgment of the Board of Directors, such loan,
guaranty or assistance may reasonably be expected to benefit the Corporation.
The loan, guaranty or other assistance may be with or without interest, and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including without limitation, a pledge of shares of stock of the Corporation.
Nothing in this Section contained shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the Corporation at common law or under any
other statute.
SECTION 5.07. Amendment of By-Laws. These By-Laws may be altered, amended or
repealed at any meeting of the Board of Directors.
SECTION 5.08. Section Headings and Statutory References. The headings of the
Articles and Sections of these By-Laws, and the references in brackets to
relevant sections of the General Corporation Law of the State of Delaware, have
been inserted for convenience of reference only and shall not be deemed to be a
part of these By-Laws.
ARTICLE VI
SECTION 6.01. Indemnification of Directors and Officers. The Corporation shall,
to the fullest extent permitted by law, indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including without limitation an action by or in the right of the
Corporation) by reason of the fact that he is or was a director or officer 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 or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or 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 person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
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The right of indemnity provided herein shall not be exclusive and the
Corporation may provide indemnification to any person, by agreement or
otherwise, on such terms and conditions as the Board of Directors may approve.
Any agreement for indemnification of any director, officer, employee or other
person may provide indemnification rights which are broader or otherwise
different from those set forth herein.
No repeal or modification of this Article or of relevant provisions of the
Delaware General Corporation Law or any other applicable laws shall affect or
diminish in any way the rights of any person to indemnification under the
provisions hereof with respect to any action, suit, proceeding or investigation
arising out of, or relating to, any actions, transactions or facts occuring
prior to the final adoption of such repeal or modification.
SECTION 6.02. Insurance. The Corporation may purchase and maintain insurance 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 director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
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Exhibit 10.3
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1996
TIFFANY & CO.
1986 STOCK OPTION PLAN
(As Restated May 16, 1996 and Amended November 21, 1996)
1. Purpose of the Plan. Under this Stock Option Plan (the "Plan") of Tiffany &
Co., a Delaware corporation (the "Company"), options may be granted to eligible
employees to purchase shares of the Company's common stock, $.01 par value per
share ("Common Stock"). The Plan is designed to enable the Company to attract,
retain and motivate such persons by providing for or increasing their
proprietary interest in the Company.
2. Stock Subject to Plan. The maximum number of shares that may be subject to
options granted hereunder shall be six million four hundred eighteen thousand
(6,418,000) shares of Common Stock, subject to adjustments under Section 7
below. Shares of Common Stock subject to the unexercised portions of any options
granted under this Plan which expire, terminate or are cancelled may again be
subject to options under the Plan.
3. Eligible Persons. The persons eligible to be considered for the grant of
options hereunder are key employees of the Company or its parent or
subsidiaries.
4. Payment. Payment for Common Stock purchased upon any exercise of an option
granted hereunder shall be made in full in cash concurrently with such exercise,
except that, if the Committee, as defined in Section 10 herein, shall have
authorized such payment and if the Company is not then prohibited from
purchasing or acquiring shares of stock, payment may be made in whole or in part
with shares of stock of the Company delivered in lieu of cash concurrently with
such exercise, the shares so delivered to be valued on the basis of their fair
market value on the date of exercise. If the Company is required to withhold an
amount on account of any federal or state income tax imposed as a result of any
exercise of an option, the optionee shall pay such amount to the Company by
check or in cash concurrently with the exercise of the option.
5. Exercise Price. The exercise price for each option granted hereunder shall
not be less than 100% of the fair market value of the Common Stock at the date
of the grant of such option.
6. Nontransferability. Except as hereinafter provided in this Section 6, any
option granted under this Plan shall by its terms be nontransferable by the
optionee otherwise than by will, the laws of descent and distribution or
pursuant to a "domestic relations order", as defined in the Internal Revenue
Code or Title I of the Employee Retirement Income Security Act or the rules
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thereunder, and shall be exercisable, during the optionee's lifetime, only by
the optionee. The Committee (as defined below) may, in its discretion, authorize
all or a portion of the options to be granted to an optionee to be on terms
which permit transfer by such optionee to (i) the spouse, children or
grandchildren of the optionee (each an "Immediate Family Member"), (ii) a trust
or trusts for the exclusive benefit of any or all Immediate Family Members, or
(iii) a partnership in which any or all Immediate Family Members are the only
partners, provided that (x) there may be no consideration paid or otherwise
given for any such transfer, (y) the stock option agreement pursuant to which
such options are granted must be approved by the Committee, and must expressly
provide for transferability in manner consistent with this Section 6, and (z)
subsequent transfer of transferred options shall be prohibited otherwise than by
will, the laws of descent and distribution or pursuant to a domestic relations
order. Following transfer, any such transferred options shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
transfer, provided that for purposes of Section 11 hereof the term "optionee"
shall be deemed to refer to the transferee. Any period or state of continued
employment imposed as a condition to option exercise by the Committee in any
stock option agreement shall continue to be applied with respect to the original
optionee following transfer and each transferred option shall be exercisable by
the transferee only to the extent, and for the periods specified, in such stock
option agreement.
7. Adjustments. If the outstanding shares of stock of the class then subject to
this Plan are increased or decreased, or are changed into or exchanged for a
different number or kind of shares or securities, as a result of one or more
reorganizations, recapitalizations, stock splits, reverse stock splits, stock
dividends and the like, appropriate adjustments shall be made in the number
and/or type of shares or securities for which options may thereafter be granted
under this Plan and for which options then outstanding under this Plan may
thereafter be exercised. Any such adjustments in outstanding options shall be
made without changing the aggregate exercise price applicable to the unexercised
portions of such options.
8. Maximum Option Term. No option granted under this Plan may be exercised in
whole or in part more than eleven years after the date of grant.
9. Plan Duration. Options may not be granted under this Plan after January 31,
2001.
10. Administration. The Plan shall be administered by a Committee (the
"Committee") of the Board of Directors of the Company (the "Board") which shall
consist of not less than two Directors of the Company each of whom shall be an
"outside director" for purposes of Section 162(m) of the Internal Revenue Code
of 1986, as amended, and regulations promulgated thereunder. The Board may from
time to time add to or remove members from the Committee, and shall have the
sole authority to fill vacancies on the Committee. Subject to the express terms
and conditions of the Plan and the terms of any option outstanding under the
Plan, the Committee shall have full power to construe the Plan and the terms of
any option granted under the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan or such options and to make all other
determinations necessary or advisable for the administration of the Plan,
including, without limitation, the power to determine which persons meet the
requirements of Section 3
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hereof for selection as participants in the Plan, and to which of the eligible
persons, if any, options shall be granted under the Plan and, subject to the
provisions of this Plan, to establish the terms and conditions required or
permitted to be included in option agreements. Each member of the Committee
shall not, at the time he exercises discretion in administering the Plan, be
eligible or at any time within one year prior thereto have been eligible for
selection as a person to whom stock options may be granted pursuant to the Plan
or any other plan of the issuer or any of its affiliates entitling the
participants therein to acquire stock, stock options or stock appreciation
rights of the issuer or any of its Affiliates, provided, however, that members
of the Committee shall be entitled to elect participation in the Company's 1988
Director Option Plan.
11. Amendment and Termination. The Board may at any time alter, amend, suspend
or terminate this Plan. However, unless taken with the approval of the
stockholders of the Company, no such action of the Board may:
(A) materially increase the benefits accruing to participants in the Plan;
(B) materially increase the number of securities which may be issued under the
Plan; or
(C) materially modify the requirements as to eligibility for participation in
the Plan.
In addition, no such action shall deprive any optionee, without his consent, of
any option granted to the optionee pursuant to the Plan or of any of his rights
under such option.
12. Exercise in Installments. Subject to Section 13 below options granted under
the Plan shall become exercisable in four equal installments as follows: on or
after the first anniversary of the grant date twenty-five (25%) percent; and
twenty-five (25%) percent on or after the second, third and fourth anniversary
of the grant date, respectively.
13. Change of Control. On the occurrence of a Change in Control of the Company,
any time periods relating to the exercise of any stock option granted under the
Plan shall be accelerated so that such options (including any unmatured
installments thereof) may be immediately exercised in full. A "Change in Control
of the Company" shall be deemed to have occurred if: (A) any person or group of
persons acting in concert acquires thirty-five percent (35%) in voting power or
amount of the equity securities of the Company (including the acquisition of any
right, option, warrant or other right to obtain such voting power or amount,
whether or not presently exercisable) unless such acquisition is authorized or
approved of by the Board of Directors of the Company; (B) individuals who
constitute the Board of Directors of the Company on January 21, 1988 (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board of Directors, provided that any individual becoming a director
subsequent to the date January 21, 1988 whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
individual is named as a nominee for director) shall be, for the purposes of
this subsection (B), considered as though such individual were a member of the
Incumbent Board; or (C) any other circumstance
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with respect to a change in control of the Company occurs which the Committee
deems to be a Change in Control of the Company. As used herein, the word
"person" shall mean an individual or an entity.
14. Termination of Employment for the Convenience of the Company. The Committee,
in the case of an employee's termination of employment for the convenience of
the Company, shall have the authority, exercisable in the discretion of the
Committee on a case by case basis, to (i) extend the date by which option
installments must be exercised following an employee's termination of employment
(the "Reference Date"), but in no event to a date later than the earlier of the
third anniversary of the date of such employee's termination of employment (the
"Third Anniversary Date") or the Expiration Date, (ii) extend the Exercise Date,
but in no event to a date later than the earlier of the Third Anniversary Date
or the Expiration Date, and/or (iii) accelerate the vesting of option
installments which have not become exercisable as of the Reference Date, but in
no event to a date earlier than six months following the date of grant of the
option; provided, however, that, in each such case, the Committee shall have the
authority to extend the Reference Date and/or the Exercise Date to a date no
later than the Expiration Date.
15. Maximum Option Grants to an Eligible Person. The maximum number of shares of
Common Stock subject to option grants made in any fiscal year of the Company to
any one eligible person hereunder shall be fifty thousand (50,000) shares.
--------
TIFFANY & CO.
Stock Option Terms
Under the 1986 Stock Option Plan
(As Amended to Reflect Changes in the Plan Adopted November 26, 1996)
The following terms and conditions govern the grant of stock options made
between Tiffany & Co., a Delaware corporation (the "Company") and the Optionee
identified in the attached Notice of Grant of Stock Options (the "Notice") as of
the date cited thereon (the "Grant Date").
The Committee administering the Company's Stock Option Plan (the "Plan") has
granted to the Optionee on the Grant Date an option (the "Option") to purchase
shares of the common stock of the Company $.01 par value ("Company Stock") on
the terms and conditions set forth herein.
In consideration of the grant of Option, and of the mutual covenants set forth
herein and other good and valuable consideration, the parties whose signatures
appear on the Notice have agreed as follows:
1. Shares Granted; Option Price. The Optionee may purchase all or any part of
the aggregate of the Total Shares Granted ("Granted Shares") of Common Stock, at
the Price Per Share (the "Option Price") stated in the attached Notice (which
shall not be less than the fair
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market value on the date of grant) on the terms and conditions set forth herein.
Both the Option Price and the Granted Shares are stated on the Notice.
2. Option Term; Times of Exercise. The Option term shall end on the expiration
date stated on the Notice (the "Expiration Date") which in no case shall be
greater than eleven (11) years from the date of grant of this option; at the
conclusion of such option term this Option shall not be exercisable in whole or
in part.
(a) Subject to the foregoing option term, to Paragraph 13 below and as further
limited by Paragraph 3 below, this Option shall become exercisable in four equal
installments as follows: on or after the first anniversary of the Grant Date
twenty-five (25%) percent of the aggregate number of shares for which the Option
has been granted may be purchased at the Option Price; three additional
installments of twenty-five (25%) percent of the aggregate number of shares for
which the Option has been granted may be purchased at the Option Price on or
after the second, third and fourth anniversary of the Grant Date respectively.
(b) Prior to the dates set forth above in Paragraph 2(a), this Option shall not
be exercisable, except as Permitted by Paragraphs 8 and 13 below.
(c) No fractional shares of the Common Stock shall be issued on exercise of this
Option, in whole or in part. In the event that the aggregate number of shares
for which this Option has been granted is not integrally divisible by 4,
fractional shares resulting from said calculation may only be purchased as whole
shares when later installments become exercisable, if at all.
3. Right to Purchase as Affected by Termination of Employment or Death.
(a) If Optionee ceases to be employed by the Company or its parent or subsidiary
for any reasons other than Optionee's retirement, death or disability (within
the meaning of Section 105(d)(4) of the Internal Revenue Code), this Option,
subject to earlier termination pursuant to Paragraph 8 hereof, shall expire
three months thereafter, and during such period after Optionee ceases to be an
employee, this Option shall be exercisable only as to those shares, if any, with
respect to which the Optionee could have exercised Option as of the date of such
cessation of employment.
(b) If Optionee shall retire pursuant to the Company's retirement practice, or
shall die or become disabled while in the employment of the Company or its
parent or subsidiary, the Optionee or, in the case of death, the person or
persons to whom the Optionee's rights under the Option shall have passed by will
or the applicable laws of descent and distribution, shall have the right to
exercise the Option during the twelve months following the date of such
retirement, disability or death as to those shares, if any, with respect to
which the Optionee could have exercised this Option as of the date of such
retirement, disability or death, subject to earlier termination pursuant to
Paragraph 8 hereof.
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4. Exercise: Payment for and Delivery Stock. The Option may be exercised only by
the Optionee or his transferees by will or the laws of descent and distribution.
This Option may be exercised by giving written notice of exercise to the Company
specifying the number of shares to be purchased and the total purchase price,
accompanied by a cashier's, certified bank check or other check drawn on the
account of an established financial institution, to the order of the Company or,
if authorized by the Committee, by delivery of shares of stock of the Company in
payment of such price. Any such shares shall be valued at the fair market value
of such shares on the date of exercise.
5. Legality. No shares of Common Stock may be issued or transferred unless and
until all legal retirements applicable to such issuance or transfer have, in the
opinion of the Company, been complied with. The Optionee shall, if requested by
the Company, give assurances satisfactory to the Company with respect to such
matters as the Company may deem desirable to assure compliance with all
applicable legal requirements including, without limitation, such assurances as
the Company may deem advisable to ensure the availability of an exemption from
registration under the Securities Act of 1933, as amended, for the Common Stock
purchased on exercise of this Option.
6. Adjustments in Stock. Subject to the provisions of the Plan, if the
outstanding shares of the Company of the class subject to the Option are
increased or decreased, or are changed into or exchanged for a different number
of kind of shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends and the
like, appropriate adjustments, to be conclusively determined by the Committee,
shall be made in the number and/or type of shares or securities subject to this
Option and the Option price, so that the total purchase price of the shares then
subject to this Option shall remain unchanged.
7. Non-Transferability of Option; Transferable Options. Unless the Notice
specifies that this is a transferable option, this Option is not transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
"domestic relations order", as defined in the Internal Revenue Code or Title I
of the Employee Retirement Income Security Act or the rules thereunder, and
shall not be otherwise transferred, assigned, pledged, hypothecated or otherwise
disposed of in any way, whether by operation of law or otherwise, nor shall it
be subject to execution, attachment or similar process. If the Notice specifies
that this is a transferable option, this option may be transferred by the
Optionee to (i) the spouse, children or grandchildren of the Optionee (each an
"Immediate Family Member"), (ii) a trust or trusts for the exclusive benefit of
any or all Immediate Family Members, or (iii) a partnership in which any or all
Immediate Family Members are the only partners, provided that (x) there may be
no consideration paid or otherwise given for any such transfer, and (y)
subsequent transfer of transferred options is prohibited otherwise than by will,
the laws of descent and distribution or pursuant to a domestic relations order.
Following transfer, this option shall continue to be subject to the same terms
and conditions as were applicable immediately prior to transfer, provided that
for purposes of Section 11 hereof the term "Optionee" shall be deemed to refer
to the transferee. Any period or state of continued employment imposed as a
condition to option exercise herein shall continue to be applied with respect to
the original Optionee following transfer and this option shall be
6
<PAGE> 7
exercisable by the transferee only to the extent, and for the periods specified,
herein. Upon any attempt to transfer this Option otherwise than as permitted
herein or to assign, pledge, hypothecate or otherwise dispose of this Option
otherwise than as permitted herein, or upon the levy of any execution,
attachment or similar process upon this Option, this Option shall immediately
terminate and become null and void.
8. Terminating Transactions. Upon the dissolution or liquidation of the Company,
or upon a reorganization, merger consolidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company goes out of existence or becomes a
subsidiary of another corporation, or upon the acquisition of substantially all
of the property or more than eighty percent (80%) of the then outstanding stock
of the Company by another corporation ("Terminating Transactions" herein), this
Option shall terminate unless provision be made in writing in connection with
such transaction for the assumption of the Option or the substitution for the
Option of a new option covering the stock of a successor employer corporation,
or a parent or subsidiary thereof or of the Company, with appropriate
adjustments as to the number and kind of shares and prices, in which event this
Option shall continue in the manner and under the terms so provided. If this
Option shall terminate pursuant to the foregoing sentence, the person then
entitled to exercise any unexercised portions of the Option shall have the
right, at such time immediately prior to the consummation of the Terminating
Transaction as the Company shall designate, to exercise this Option to the full
extent no theretofore exercised, including any unmatured installments.
9. Notices. Any notice to be given to the company shall be personally delivered
to or addressed to the Secretary of the Company, at its principal office, and
any notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto, or at such other address as the Optionee may
hereafter designate in writing to the Company. Any notice to the Company is
deemed given when received by the Company. Any notice to the Optionee is deemed
given when enclosed in a properly sealed envelope addressed as aforesaid,
registered or certified, and deposited, postage and registration or
certification fee pre-paid, in a post office or branch post office regularly
maintained by the United States.
10. Withholding. The Company may make such provisions as it may deem appropriate
for the withholding of any taxes which the Company determines its required to
withhold in order to be entitled to a deduction for federal income taxes in
connection with this Agreement and the transactions contemplated thereby.
11. Stock Option Plan. This Option is subject to all of the terms and conditions
of the Company's 1986 Stock Option Plan as previously amended and as the same
shall be amended from time to time in accordance with terms thereof, but no such
amendment shall adversely affect the Optionee's rights under this Option.
12. Employment. Nothing in the Plan or in this Agreement shall confer upon the
Optionee any right to continue in the employment of the Company or a subsidiary.
7
<PAGE> 8
13. Change in Control. Notwithstanding Paragraph 2 above, on the occurrence of a
Change in Control of the Company, any time periods relating to the exercise of
any stock option which have not expired shall be accelerated so that such
options (including any unmatured installments thereof) may be immediately
exercised in full. A "Change in Control of the Company" shall be deemed to have
occurred if: (A) any person or group of persons acting in concert acquired
thirty-five percent (35%) in voting power or amount of the equity securities of
the Company (including the acquisition of any right, option warrant or other
right to obtain such voting power or amount, whether or not presently
exercisable) unless such acquisition is authorized or approved of by the Board
of Directors of the Company, (B) individuals who constituted the Board of
Directors of the Company on January 21, 1988 (the "Incumbent Board") cease for
any reason to constitute at least a majority of such Board of Directors,
provided that any individual becoming a director subsequent to January 21, 1988
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy statement
of the Company in which such individual is named as a nominee for director)
shall be, for the purposes of this paragraph 13, considered as though such
individual were a member of the Incumbent Board; or (C) any other circumstance
with respect to a change in control of the Company occurs which the Committee of
the Board of Directors deems to be a Change in Control of the Company. As used
herein, the word "person" shall mean an individual or an entity.
14. Laws Applicable to Construction. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York.
8
<PAGE> 1
Exhibit 10.60
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1996
TIFFANY & CO.
1988 DIRECTOR OPTION PLAN
AS RESTATED 5/16/96 AND AMENDED 11/21/1996
PART 1. PLAN ADMINISTRATION AND ELIGIBILITY
I. Purpose
The purpose of this 1988 Director Option Plan (the "Plan") of Tiffany &
Co. (the "Company") is to encourage ownership in the Company by outside
directors of the Company whose continued services are considered essential to
the Company's continued progress and thus to provide such directors with a
further incentive to continue as directors of the Company.
II. Administration
An administrator (the "Administrator"), who shall be the Secretary of the
Company and not eligible to participate in the Plan, shall administer the Plan.
Grants of stock options under the Plan and the amount and nature of the awards
to be granted shall be automatic as described in Section VI. However, all
questions of interpretation of the Plan or of any options issued under it shall
be determined by the Administrator and such determination shall be final and
binding upon all persons having an interest in the Plan.
III. Participation in the Plan
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
Employees of the Company or any subsidiary of the Company shall not be eligible
to participate in the Plan.
IV. Stock Subject to the Plan
The maximum number of shares which may be optioned under the Plan shall be
Three Hundred Thousand (300,000) shares of the Company's $.01 par value Common
Stock. This limitation on the number of shares which may be optioned under the
Plan shall be subject to adjustment as provided in Section XI of the Plan.
If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 1
<PAGE> 2
Upon the exercise of an option under the Plan, the Company may issue
shares of the Company's authorized but unissued Common Stock or the Company may
repurchase shares of its Common Stock in the open market or otherwise.
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 2
<PAGE> 3
PART 2. DESCRIPTION OF OPTIONS
V. Non-Statutory Stock Options
All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422A of the Internal Revenue
Code of 1986, as amended to date (the "Code").
VI. Terms, Conditions and Form of Options
Each Option granted under this Plan shall be evidenced by a written
agreement in such form as the Administrator shall from time to time approve,
which agreements and the grant of options under the Plan shall comply with and
be subject to the following terms and conditions:
A. Option Grant Dates. Options shall be granted automatically on the date
of the tenth business day in January (a "Grant Date") of any year (except that
for the year in which the Plan is adopted the Grant Date shall be the date of
the Plan's adoption) to any eligible director who, on or prior to June 30th of
the year prior to the year in which said Grant Date occurs, files with the
Administrator an irrevocable election to receive a stock option in lieu of all
or fifty percent (50%) of retainer fees to be earned in the calendar year in
which said Grant Date occurs (a "Plan Year").
B. Option Formula. The number of option shares granted to any eligible
director shall be equal to the nearest number of whole shares determined in
accordance with the following formula:
Deferred Retainer Number
________________________ = of
(Fair Market Value x .5) Shares
"Deferred Retainer" shall mean the amount which the optionee would be entitled
to receive for serving as a director in the relevant Plan Year but for the
election referred to in Section VIA above. The term "Deferred Retainer" shall
not include fees associated with service on any committee of the Board of
Directors nor with any other services to be provided to the Company and shall
not include fees paid directors on a per-meeting-attended basis. "Fair Market
Value" shall mean the mean of the highest and lowest quoted selling prices for
the Company's Common Stock on the relevant Grant Date as reported on The New
York Stock Exchange Composite Tape.
C. Options Non-Transferable Except as Provided. Except as provided in this
Section VI.C, each option granted under the Plan by its terms shall not be
transferable by the optionee otherwise than by will, by the laws of descent and
distribution or pursuant to a "domestic relations order", as defined in the
Internal Revenue Code or Title I of the Employee Retirement Income Security Act
or the rules thereunder and shall be exercised during the lifetime of the
optionee only by him. Notwithstanding the forgoing, all or any portion of any
option granted
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 3
<PAGE> 4
under this Plan may be transferred by the optionee to (i) the spouse, children
or grandchildren of the optionee (each an "Immediate Family Member"), (ii) a
trust or trusts for the exclusive benefit of any or all Immediate Family
Members, or (iii) a partnership in which any or all Immediate Family Members are
the only partners, provided that (x) there may be no consideration paid or
otherwise given for any such transfer and (y) subsequent transfer of transferred
options shall be prohibited otherwise than by will, the laws of descent and
distribution or pursuant to a domestic relations order. Following transfer, any
such transferred options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer. The provisions of
Section VI.G below shall continue to be applied with respect to the original
optionee following transfer and each transferred option shall be exercisable by
the transferee only to the extent specified in Section VI.G. No option or
interest therein may be transferred, assigned, pledged or hypothecated by the
optionee during his lifetime, whether by operation of law or otherwise, or be
made subject to execution, attachment or similar process.
D. Period of Option. No option may be exercised before the first
anniversary of the date upon which it was granted; provided, however, that any
option granted pursuant to the Plan shall become exercisable in full upon the
retirement of the director because of age or total and permanent disability,
upon the death of the optionee or upon the resignation or removal of the
optionee as a director of the Company following a Change in Control. A "Change
in Control" shall mean the acquisition of voting power in respect of thirty-five
percent (35%) of the shares of voting stock in the company by any person (or any
corporation, partnership, trust, estate or group of persons or entities, which
group was formed pursuant to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of voting stock of the
Company). No option shall be exercisable after the expiration of fifteen (15)
years from the date upon which such option is granted. Each option shall be
subject to cancellation before its date of expiration as hereinafter provided in
Section XIV.
E. Exercise of Options. Options may be exercised only by written notice to
the Company at its head office accompanied by payment in cash, certified or bank
cashier's check of the full consideration for the shares as to which such
options are exercised. Unless otherwise prohibited, such consideration may be
paid by delivery of shares of the Company's Common Stock; any such shares shall
be valued at the fair market value of such shares on the date of exercise.
Options may be exercised in full or in part for whole shares (no fractional
shares will be issued) and any exercisable portion of an option grant not
exercised may be later exercised subject to the expiration date stated above.
F. Exercise by Representative Following Death of Director. A director, by
written notice to the Company, may designate one or more persons (and from time
to time change such designation) including his legal representative, who, by
reason of his death, shall acquire the right to exercise all or a portion of the
option. If the person or persons so designated wish to exercise any portion of
the option, they must do so within the term of the option as provided in
Subsection VID above. Any exercise by a representative shall be subject to the
provisions of this Plan.
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 4
<PAGE> 5
G. Proration. In the event an optionee ceases for any reason to be a
director of the Company prior to such time as an option granted under this Plan
becomes exercisable, such option shall terminate in respect to the nearest whole
number of optioned shares as is the product of the total number of shares
subject to such option multiplied by a fraction, the numerator of which is the
number of months remaining in the Plan Year following the month in which said
optionee ceases to be a director and the denominator of which is twelve (12).
VII. Option Price
The Option price per share for the shares covered by each option shall be
one-half (1/2) of the Fair Market Value on the Grant Date for each respective
option.
PART 3. GENERAL PROVISIONS
VIII. Prohibition on Assignment
The rights and benefits under this Plan may not be assigned except as
provided in Section VI.
IX. Time for Granting Options
All options for shares subject to this Plan shall be granted, if at all,
not later than ten (10) years after the adoption of this Plan by the Company's
stockholders.
X. Limitation of Rights
A. No Right to Continue as a Director. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan shall constitute or
be evidence of any agreement or understanding, express or implied, that the
Company will retain a director for any period of time, or at any particular rate
of compensation.
B. No Stockholders' Rights for Option. An optionee shall have no rights as
a stockholder with respect to the shares covered by his options until the date
of the issuance to him of a stock certificate therefor, and no adjustment will
be made for dividends or other rights for which the record date is prior to the
date such certificate is issued.
XI. Changes in Present Stock
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other change in the corporate
structure or capitalization affecting the Company's present Common Stock,
appropriate adjustment shall be made in the number (including the aggregate
numbers specified in Section IV) and kind of shares which are or may become
subject
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 5
<PAGE> 6
to options granted or to be granted hereunder.
XII. Effective Date of the Plan
The Plan shall take effect on the date of adoption by the directors of the
Company subject to and conditioned upon subsequent approval by the stockholders
of the Company. Options may be granted under the Plan at any time after such
adoption and prior to the termination of the Plan; provided, however, that if
the stockholders of the Company fail to approve the Plan by December 31, 1988,
all options granted under the Plan and elections made pursuant to Section VIA of
the Plan shall be void ab initio and without further force or effect; and
provided further, that the Plan, all options granted under the Plan and all
elections made pursuant to Section VIA of the Plan shall be void ab initio and
without further force or effect if the staff of the Securities and Exchange
Commission fails to confirm, on or before January 20, 1989 the following views:
A. That the Plan meets the requirements of Rule 16b-3 as promulgated by
the Securities and Exchange Commission; and
B. That participation of non-employee directors in the Plan will not
disqualify such directors from being characterized as "disinterested persons"
under Rule 16b-3(b) and (d)(3) for the purpose of serving as administrators of
the Company's 1985 Stock Option Plan and 1986 Stock Option Plan, or of any
subsequently adopted employee stock plan in which the non-employee director is
not eligible to participate.
XIII. Amendment of the Plan
The Board of Directors may suspend or discontinue the Plan or amend it in
any respect whatsoever; provided, however, that without approval of the
stockholders no revision or amendment shall change the number of shares subject
to the Plan (except as provided in Section XI), change the designation of the
class of directors eligible to receive options, or materially increase the
benefits accruing to participants under the Plan.
XIV. Notice
Any written notice to the Company required by any of the provisions of
this Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received.
XV. Governing Law
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by Law of the State of New York and construed accordingly.
-----
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 6
<PAGE> 7
--------------------------------------
TIFFANY & CO.
Stock Option Agreement
Under the 1988 Director Option Plan
Grant No. _____
--------------------------------------
THIS AGREEMENT is made as of January ___, _____ (the "Grant Date"),
between TIFFANY & CO., a Delaware corporation (the "Company"), and __________,
(the "Optionee").
RECITALS
Optionee, being a director of the Company and not an employee of the
Company or any subsidiary of the Company and eligible to participate in the
Tiffany & Co. 1988 Director Option Plan (the "Plan") has elected to receive this
stock option to purchase shares of the common stock of the Company $.01 par
value ("Common Stock") in lieu of all or fifty percent of certain fees to be
earned for serving as a Director of the Company in calendar year 1997 (the "Plan
Year").
AGREEMENT
In consideration of the foregoing and of the mutual covenants set forth
herein and other good and valuable consideration, the parties hereto agree as
follows:
1. SHARES GRANTED; OPTION PRICE. The Optionee may purchase all or any part
of an aggregate of _____ shares of Common Stock, at the price of $______ per
share (the "Option Price") on the terms and conditions set forth herein.
2. OPTION TERM; TIMES OF EXERCISE. The option term shall end on _________,
which in no case shall be greater than fifteen (15) years from the date of grant
of this option; at the conclusion of such option term this option shall not be
exercisable in whole or in part.
(a) Subject to the foregoing option term, to Paragraph 14 below and as
further limited by Paragraph 3 below, this option shall become exercisable
on or after the first anniversary of the Grant Date.
(b) Prior to the first anniversary of the Grant Date this option shall not
be exercisable, except as permitted by Paragraph 4 below.
- Page 1 of 4 -
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 7
<PAGE> 8
(c) No fractional shares of the Common Stock shall be issued on exercise
of this option, in whole or in part.
3. CESSATION OF DIRECTORSHIP. In the event Optionee ceases for any reason
to be a director of the Company prior to such time as the option hereby granted
becomes exercisable, such option shall terminate in respect to the nearest whole
number of optioned shares as is the product of the total number of shares
subject to such option multiplied by a fraction, the numerator of which is the
number of months remaining in the Plan Year following the month in which said
optionee ceases to be a director and the denominator of which is twelve (12).
4. EARLY EXERCISE. Notwithstanding Paragraph 2 (a) above, this option
shall become exercisable in full upon the retirement of Optionee as a director
of the Company because of age or total and permanent disability, upon the death
of Optionee or upon the resignation or removal of Optionee as a director of the
Company following a Change in Control. A "Change in Control" shall mean the
acquisition of voting power in respect of thirty-five percent (35%) of the
shares of voting stock in the Company by any person (or any corporation,
partnership, trust, estate or group of persons or entities, which group was
formed pursuant to any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of voting stock of the Company).
5. EXERCISE; PAYMENT FOR AND DELIVERY OF STOCK. This option may be
exercised only by the Optionee or Optionee's transferees by will or the laws of
descent and distribution. This option may be exercised by giving written notice
of exercise to the Company specifying the number of shares to be purchased and
the total Option Price, accompanied by payment in full by cash, a cashier's or
certified bank check to the order of the Company or, unless otherwise
prohibited, by delivery of shares of Common Stock in payment of such price. Any
such shares shall be valued at the fair market value of such shares on the date
of exercise.
6. LEGALITY. No shares of Common Stock may be issued or transferred unless
and until all legal requirements applicable to such issuance or transfer have,
in the opinion of the Company, been complied with. The Optionee shall, if
requested by the Company, give assurances satisfactory to the Company with
respect to such matters as the Company may deem desirable to assure compliance
with all applicable legal requirements, including, without limitation, such
assurances as the Company may deem advisable to ensure the availability of an
exemption from registration under the Securities Act of 1933, as amended, for
the Common Stock purchased on exercise of this option.
- Page 2 of 4 -
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 8
<PAGE> 9
7. ADJUSTMENTS IN STOCK. Subject to the provisions of the Plan, if the
outstanding shares of the Common Stock are increased or decreased, or are
changed into or exchanged for a different number or kind of shares or securities
as a result of one or more reorganizations, recapitalizations, stock splits,
stock dividends or other change in corporate structure or capitalization
affecting the Common Stock, appropriate adjustment shall be made in the number
and/or type of shares or securities subject to this option and the Option Price,
so that the total purchase price of the shares then subject to this option shall
remain unchanged.
8. NONTRANSFERABILITY OF OPTION. This option is not transferable by the
Optionee except as provided in this Paragraph 8. This option is transferable by
will, by the laws of descent and distribution and pursuant to a "domestic
relations order", as defined in the Internal Revenue Code or Title I of the
Employee Retirement Income Security Act or the rules thereunder and shall be
exercised during the lifetime of the Optionee only by Optionee. Notwithstanding
the foregoing, all or any portion of this option may be transferred by the
Optionee to (i) the spouse, children or grandchildren of the Optionee (each an
"Immediate Family Member"), (ii) a trust or trusts for the exclusive benefit of
any or all Immediate Family Members, or (iii) a partnership in which any or all
Immediate Family Members are the only partners, provided that there is no
consideration paid or otherwise given for any such transfer. Subsequent to
transfer pursuant to the foregoing sentence, transfer of this option is
prohibited except by will, the laws of descent and distribution or pursuant to a
domestic relations order. Following such a transfer, this option shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer. The provisions of Paragraph 3 above shall continue to be
applied with respect to the Optionee following such a transfer and this option,
if so transferred, shall be exercisable by the transferee only to the extent
specified in Paragraph 3. Except as provided above, neither this option nor any
interest herein may be transferred, assigned, pledged or hypothecated by the
Optionee during his lifetime, whether by operation of law or otherwise, or be
made subject to execution, attachment or similar process. Upon any attempt to
transfer this option otherwise than as provided above or to assign, pledge,
hypothecate or otherwise dispose of this option, or upon the levy of any
execution, attachment or similar process upon this option, this option shall
immediately terminate and become null and void. Optionee, by written notice to
Company, may designate one or more persons (and from time to time change such
designation) including his legal representative, who, by reason of his death,
shall acquire the right to exercise all or a portion of this option. If the
person or persons so designated wish to exercise any portion of the option, they
must do within the term of the option as provided in Paragraph 2 above. Any
exercise by a representative shall be subject to the provisions of the Plan.
- Page 3 of 4 -
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 9
<PAGE> 10
9. NOTICES. Any notice to be given to the Company shall be personally
delivered to or addressed to the Secretary of the Company, at its principal
office, and any notice to be given to the Optionee shall be addressed to him at
the address given beneath his signature hereto, or at such other address as the
Optionee may hereafter designate in writing to the Company. Any notice to the
Company is deemed given when received by the Company. Any notice to the Optionee
is deemed given when enclosed in a properly sealed envelope addressed as
aforesaid, registered or certified, and deposited, postage and registration or
certification fee prepaid, in a post office or branch post office regularly
maintained by the United States.
10. WITHHOLDING. The Company may make such provisions as it may deem
appropriate for the withholding of any taxes which the Company determines it is
required to withhold in order to be entitled to a deduction for federal income
taxes in connection with this Agreement and the transactions contemplated
hereby.
11. STOCK OPTION PLAN. This option is subject to all of the terms and
conditions of the Plan as previously amended and as the same shall be amended
from time to time in accordance with the terms thereof, but no such amendment
shall adversely affect the Optionee's rights under this option.
11. NO RIGHT TO CONTINUE AS DIRECTOR. Nothing in the Plan or in this
Agreement shall confer upon the Optionee any right to continue as a director of
the Company or a subsidiary.
13. NO STOCKHOLDERS' RIGHTS FOR OPTION. An optionee shall not have rights
as a stockholder with respect to the shares covered by this Option until the
date of the issuance to him of a stock certificate therefor, and no adjustment
will be made for dividends or other rights for which the record date is prior to
the date such certificate is issued.
14. LAWS APPLICABLE TO CONSTRUCTION. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York.
TIFFANY & CO. OPTIONEE
By: ________________________ By: __________________________
- Page 4 of 4 -
-----------------
1988 Plan Restated 5/16/96 and Amended 11/21/96 Page 10
<PAGE> 1
Exhibit 10.113
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1996
TIFFANY AND COMPANY
PENSION PLAN
As last amended 2/20/97
<PAGE> 2
TIFFANY AND COMPANY
PENSION PLAN
========================================
SECTION 1 - DEFINITIONS
========================================
The following words and phrases as used herein shall have the following
meanings unless a different meaning is plainly required by the context:
(1) "Plan" Tiffany and Company Pension Plan, as described
herein or as from time to time hereafter amended
or restated.
(2) "Company" Tiffany and Company or Tiffco Jewelry and Chain
Crafts, Inc., provided, however, that, in the case
of a person who is an Employee of Tiffany and
Company on his Employment Commencement Date, the
term "Company" as used herein with respect to such
person shall refer to Tiffany and Company, and, in
the case of a person who is an Employee of Tiffco
Jewelry and Chain Crafts, Inc. on his Employment
Commencement Date, the term "Company" as used
herein with respect to such person shall refer to
Tiffco Jewelry and Chain Crafts, Inc.
(3) "Board of
Directors" Board of Directors of Tiffany and Company.
(4) "Pre-ERISA
Plan" Tiffany and Company Pension Plan and Trust as in
effect through January 31, 1976, incorporating an
informal pension plan maintained by the Company
prior to February 1, 1968.
(5) "Affiliate" Any member of the controlled group of companies of
which the Company is a member within the meaning
of Section 414(b), (c) and (m) of the Code.
(6) "Committee" The Pension Committee as described in Section 7.
<PAGE> 3
(7) "Plan Year" Each twelve (12) month period commencing February
1 and ending on or before January 31, 1981, the
eleven (11) month period ending December 31, 1981
and each calendar year thereafter.
(8) "Employee" Any person employed by the Company who receives
regular stated compensation from the Company, but
excluding employees (a) whose principal place of
work is outside the United States and (b) who are
paid their Compensation from a foreign bank or
bank branch or who are eligible to receive
retirement, severance or similar benefits under
foreign law or as a result of foreign custom.
Notwithstanding any other provision of the Plan,
in the case of an Employee who shall transfer from
a foreign location to a U.S. location or vice
versa, the Committee may, by regulation or
otherwise and to the extent it considers
advisable, treat service and/or compensation
during the period of such transfer, including
compensation from and service with an Affiliate,
as service and/or compensation with the Company
for the purposes of vesting and/or for determining
the amount of pension or other benefits which may
be payable under the Plan.
Based on his stated work schedule an Employee
shall be classified as a Regular Employee or a
Part-time Employee. A change in status between
Part-time Employee and Regular Employee shall be
deemed effective for purposes of Subsections (3)
and (4) of Section 4 as of the first of the month
coincident with or next following the date of such
change or, in the case of an Employee who
terminates employment and is reemployed in a
different status prior to incurring a Break in
Service, as of the intervening first day of a Plan
Year or, if none, as of the first of the month
coincident with or next following the date of
termination.
If a change in status between Part-time Employee
and Regular Employee is deemed effective on other
than the first day of
2
<PAGE> 4
a Plan Year and clause (ii) (A) of Subsection 4(3)
is applicable to the Employee, he shall not incur
a Break in Service with respect to the Plan Year
in which the change is deemed effective, and shall
for purposes of determining Compensation, Average
Final Compensation and Creditable Service be
considered to have been a Regular Employee for the
entirety of such Plan Year; if such a change in
status is deemed effective on other than the first
day of a Plan Year and clause (ii) (B) of
Subsection 4(3) or Subsection 4(4) is applicable
to the Employee, he shall for purposes of
determining Compensation, Average Final
Compensation and Creditable Service be considered
to have been a Part-time Employee for the entirety
of the Plan Year in which the change is deemed
effective.
(9) "Participant" Any person included as a Participant as provided
in Section 2, except an Employee covered by a
collective bargaining agreement which expressly
excludes members of the collective bargaining unit
from the Plan.
(10) "Compensation" (i) In the case of an Employee who is not paid on
a piecework basis, the actual base salary paid to
him for services rendered to the Company
(exclusive of amounts attributable to the exercise
of employee stock options), including straight
time for all hours worked, commissions, bonuses,
premiums and incentives; and (ii) in the case of
an Employee who is paid on a piecework basis, the
actual remuneration paid to him; and (iii) in the
case of any Employee shown in the attached
Appendix I, the reference to Company for purposes
of this Subsection 1(10) only shall also refer to
Affiliates of the Company prior to October 15,
1984.
(11)"Average Final
Compensation" With respect to an Employee his average annual
Compensation during those five years of his last
ten years of Creditable Service in which his
compensation was
3
<PAGE> 5
highest. In the case of a Part-time Employee,
"Average Final Compensation" shall mean the
average, over those five of his last ten Plan
Years in which he accrued Creditable Service and
such sum was highest, of the sum of (i) the
Compensation he would have earned in a Plan Year
if he had worked full-time at his job for the
average rate of pay actually paid to him during
such Plan Year, and (ii) the total of any items of
remuneration actually paid to him during such Plan
Year which would constitute "Compensation" in the
case of a Regular Employee only.
If an Employee was considered a Part-time Employee
during all or any part of his last ten Plan Years
in which he accrued Creditable Service, and was
also considered a Regular Employee during any part
of his last ten years of Creditable Service, his
"Average Final Compensation" shall be computed by
averaging his high five years as determined by
applying the appropriate rule of the preceding
paragraph to the appropriate periods; provided,
however, that no item of remuneration may enter
into the determination of Average Final
Compensation more than once. If an Employee has
less than five years of Creditable Service or less
than five Plan Years in which he accrued
Creditable Service, as the case may be, has
"Average Final Compensation" shall be computed
over all such years.
Except in respect of subdivision (b) of Subsection
5(1), "Average Final Compensation" shall reflect
those five years of his last ten years of
creditable service prior to July 31, 1985 or
December 31, 1984, as required by Section 5, in
which his compensation was highest. Compensation
earned subsequent to July 31, 1985 or December 31,
1984, as required by Section 5, shall not be
reflected in this calculation.
4
<PAGE> 6
[Subsection 1(11), above, is effective for Plan Years beginning before January
1, 1995. For Subsection 1(11) effective for Plan Years beginning after December
31, 1994, see below.]
(11)"Average Final
Compensation" With respect to an Employee his average annual
Compensation during those five years of his last
ten years of Creditable Service in which his
compensation was highest. If an Employee has less
than five years of Creditable Service or less than
five Plan Years in which he accrued Creditable
Service, as the case may be, his "Average Final
Compensation" shall be computed over all such
years.
Except in respect of subdivision (b) of Subsection
5(1), "Average Final Compensation" shall reflect
those five years of his last ten years of
creditable service prior to July 31, 1985 or
December 31, 1984, as required by Section 5, in
which his compensation was highest. Compensation
earned subsequent to July 31, 1985 or December 31,
1984, as required by Section 5, shall not be
reflected in this calculation.
[The following rule of construction was adopted by the Committee on
February 16, 1994.]
With respect to the change in the definition of Average Final Compensation
under Subsection 1(11) of the Plan effective for Plan Years beginning
after December 31, 1994, such change shall not apply to any Compensation
earned prior to the effective date of such change. Accordingly, if
Compensation for any Plan Year beginning prior to January 1, 1995 is taken
into account in calculating Average Final Compensation or for any other
purpose under the Plan, Compensation for such Plan Year shall be
determined in accordance with the previous definition of Average Final
Compensation. In addition, the Accrued Benefit determined in accordance
with the new definition of Average Final Compensation shall not be less
than the Accrued Benefit determined as of December 31, 1994 under the
previous definition.
(12) "Creditable
Service" The period including fractions of a year rounded
up to the next whole month of an Employee's
service which is counted as a period of service
for vesting purposes
5
<PAGE> 7
under Section 4; provided, however, that in the
case of an Employee who accrued Creditable Service
hereunder both as a Part-time Employee and also as
a Regular Employee, any Plan Year during which he
completes at least 1,000 hours of service but less
than the standard number of hours of service in
the regularly scheduled work weeks for the
location at which he is employed shall be counted
as the corresponding fraction of a year of
Creditable Service; and provided, further, that in
the event of a change in status to which clause
(ii)(B) of Subsection 4(3) applies, there shall be
taken into account for purposes of the preceding
clause, with respect to the Plan Year in which the
change in status is effective, forty-five hours of
service for each week or partial week of service
performed subsequent to the change in status and
before the end of such Plan Year.
If an Employee becomes re-employed after February
1, 1976, and again becomes a Participant pursuant
to Section 2, subject to Subsection 4(5), his
service shall be credited as of his Reemployment
Commencement Date.
For an Employee shown in the attached Appendix I,
any period during which the Employee was an
employee of an Affiliate of the Company prior to
October 15, 1984.
(13) "Actuarial
Equivalent" A benefit of equivalent value, when computed on
the basis of the factors shown in Appendix II.
(14) "Social
Security
Benefit" The amount of the Participant's anticipated
unreduced primary insurance benefit under Title II
of the Federal Social Security Act. The benefit
shall be computed on the basis of such Act in
effect at the earlier of July 31, 1985, or the
time he last ceases to be a Participant, and shall
consist of that annual amount to which he would
upon
6
<PAGE> 8
proper application be entitled at the date of
retirement or termination, or at age 65 if later,
on the basis of his Compensation as determined
under the Plan irrespective of earnings he may be
receiving in excess of any limit on earnings for
full entitlement to such benefit.
When used in connection with the computation of
any retirement allowance other than a retirement
allowance payable to a Participant who terminates
employment at or after age 65, it shall mean the
said Social Security Benefit computed on the
assumption that the Participant will continue to
receive Compensation until age 65 for purposes of
Social Security in the same amount as in effect on
the date of his retirement or termination. With
respect to periods for which the Participant's
actual compensation for Social Security purposes
is not available, the Social Security Benefit
shall be calculated on the assumption that the
Participant had compensation for Social Security
purposes after 1951, or age 22 if later and prior
to his last date of hire or rehire which increased
6 percent each year to his Compensation on such
date of hire or rehire.
Each Participant shall have the right to have his
Social Security Benefit computed on the basis of
the Participant's actual salary history as of the
earlier of July 31, 1985, or the time he last
ceases to be a Participant, instead of estimated
compensation. Each Employee shall be provided with
written notice of the Employee's right to supply
actual salary history and of the financial
consequences of failing to supply such history.
The notice must be given each time the summary
plan description is provided to the Employee and
must also be given upon separation from service.
The notice must state that the Employee can obtain
the actual salary history from the Social Security
Administration. If the Participant supplies
documentation of his
7
<PAGE> 9
or her actual salary history, the Participant's
benefit will be adjusted to the offset based on
actual salary history for years previously
estimated before separation from service (assuming
no post-separation or post-retirement
compensation). Such documentation must be supplied
within a reasonable period following the later of
the date of separation from service (by retirement
or otherwise) or the time when the Participant is
notified of the benefit to which he is entitled.
(15) "Hour of
Service" (1) Any hour for which a Regular Employee or a
Part-time Employee is directly or indirectly paid
or entitled to payment by the Company for the
performance of duties, which such hours shall be
credited, in the case of a Part- time Employee,
for the computation period or periods in which the
duties are performed;
(2) Any hour for which a Part-time Employee is
directly or indirectly paid or entitled to payment
by the Company for reasons (such as vacation,
sickness or disability) other than for the
performance of duties, which such hours shall be
credited to the Part-time Employee in accordance
with Department of Labor Regulations section
2530.200b-2; and
(3) Any hour for which back pay, irrespective of
mitigation of damages, has been either awarded or
agreed to by the Company in the case of a
Part-time Employee, which such hours shall be
credited to the Part-time Employee for the
computation period or periods to which the award
or agreement pertains. Any Employee who is paid on
a piecework basis shall be credited with ten Hours
of Service for each day on which he would be
entitled to credit for one Hour of Service under
the foregoing definition.
8
<PAGE> 10
(16) "Employment
Commencement
Date" In the case of a Regular Employee, the date on
which he first performs an Hour of Service. In the
case of a Part-time Employee, "Employment
Commencement Date" shall mean the first day for
which he is entitled to be credited with an Hour
of Service under subdivision (1) of Subsection
1(15) above.
(17) "Discontinuance
of Active
Employment Date" In the case of a Regular Employee, the earlier of
(i) his retirement or other termination of
employment with the Company, or (ii) the first
anniversary of the first day of any continuing
period of absence from service with the Company,
with or without pay, which is neither (A) a leave
of absence described in Subsection (1), (2) or (3)
of Section 3, nor (B) the result of his retirement
or termination.
(18) "Break in
Service" (1) In the case of a Part-time Employee, a Plan
Year in which he fails to complete an Hour of
Service, other than a Plan Year during any part of
which he is on a leave of absence described in
Section 3. In the case of a Regular Employee, a
Break in Service shall occur when he fails to
perform an Hour of Service within a one-year
period beginning on any Discontinuance of Active
Employment Date.
(2) In addition, and notwithstanding the rules
described under subdivision (1) of Subsection
1(18) above, any individual who is absent from the
service of the Company on account of pregnancy,
birth of a child of such individual, or for
purposes of caring for such a child during the
period immediately following childbirth or
placement for adoption shall be credited, for
purposes of this Section, with the Hours of
Service for which he would normally have received
credit had he not been absent from the service of
the Company for one of the reasons described
above, up to a maximum
9
<PAGE> 11
of five hundred and one (501) Hours of Service,
which hours shall be credited in accordance with
Section 202(b)(5) of ERISA, as amended by the
Retirement Equity Act of 1984, and related
regulations.
(19) "Reemployment
Commencement
Date" In the case of a Regular Employee, the date on
which he first performs an Hour of Service
following a Break in Service. In the case of a
Part-time Employee, "Reemployment Commencement
Date" shall mean the first day for which he is
entitled to be credited with an Hour of Service
under subdivision (1) of Subsection 1(15)
following (i) a Break in Service which follows
either (A) a Plan Year or other eligibility
computation period described in Section 2 in which
he is credited with at least an Hour of Service,
or (B) a Plan Year during any part of which he is
on a leave of absence described in Section 3, or
(ii) a Plan Year in which he is credited with no
Hours of Service which follows a Reemployment
Commencement Date established under clause (i).
(20) The masculine pronoun wherever used shall include
the feminine.
(21) "Code" Internal Revenue Code of 1954, as amended.
[Subsection 1(21), above, is effective for Plan Years beginning before January
1, 1989. For Subsection 1(21) effective for Plan Years beginning after December
31, 1988, see below.]
(21) "Code" Internal Revenue Code of 1986, as amended.
(22) "Taxable Wage
Base" The maximum amount of Compensation with respect to
any year which may be considered wages for such
year under the Federal Social Security Act then in
effect.
[Subsection 1(22), above, is effective for Plan Years beginning before January
1, 1989. For Subsection 1(22) effective for Plan Years beginning after December
31, 1988, see below.]
10
<PAGE> 12
(22) "Taxable Wage
Base" The contribution and benefit base under section
230 of the Federal Social Security Act as in
effect in the year in question.
[The following Subsection 1(23) is effective for Plan Years beginning after
December 31, 1988.]
(23) "Covered
Compensation" The average (without indexing) of the Taxable Wage
Bases in effect for each calendar year during the
35-year period ending with the year in which the
Participant attains (or will attain) social
security retirement age, calculated as provided in
Proposed Regulationss.1.401(1)-1(b)(9) under the
Code.
(24) "Accrued Benefit" The amount on a given date of the benefits
provided under Subsection 5(1) of the Plan using
Average Final Compensation, Covered Compensation
and Creditable Service determined as of such date.
The Accrued Benefit may be expressed in a form
which is the actuarial equivalent.
11
<PAGE> 13
SECTION 2 - PARTICIPATION
========================================
(1) Any person who is a Participant as of December 31, 1981 shall remain a
Participant in the Plan on January 1, 1982. After December 31, 1981, a Regular
Employee shall become a Participant on the first anniversary of his Employment
Commencement Date, provided that he is an Employee on such first anniversary. A
Part-time Employee shall become a Participant after December 31, 1981 on January
1 or July 1 coincident with or next following the first anniversary of his
Employment Commencement Date, provided (i) that he is an Employee on such
January 1 or July 1, and (ii) that he completes 1,000 Hours of Service during
the one-year period commencing on his Employment Commencement Date. If a person
would have become a Participant but for the fact that he was not an Employee on
the applicable entry date, he shall nevertheless become a Participant
immediately upon his again becoming an Employee, provided he again becomes an
Employee prior to incurring a Break in Service.
(2) If a Part-time Employee does not complete 1,000 Hours of Service during the
one-year period commencing on his Employment Commencement Date, he shall become
a Participant immediately following the close of the first Plan Year commencing
after his Employment Commencement Date in which he does complete 1,000 Hours of
Service, other than a Plan Year in which he has a Reemployment Commencement
Date, in which case he shall become a Participant immediately following the
close of (i) the one-year period commencing on such Reemployment Commencement
Date or (ii) the first Plan Year commencing after such Reemployment Commencement
Date, in which he completes 1,000 Hours of Service.
(3) A Regular Employee who has become a Participant shall cease to be a
Participant on his Discontinuance of Active Employment Date, and a Part-time
Employee who has become a Participant shall cease to be a Participant on the
date he ceases to be an Employee or, if earlier, on the date on which he incurs
a Break in Service. Such a former Participant, unless he ceased to be a
Participant as a result of incurring a Break in Service, shall immediately again
become a Participant if, prior to incurring a Break in Service, he either (i)
performs an Hour of Service as a Regular Employee, or (ii) is entitled to be
credited with an Hour of Service under subdivision (1) of Subsection 1(15) as a
Part-time Employee.
(4) If an Employee who is vested ceases to be a Participant and has a subsequent
Reemployment Commencement Date on which he is a Regular Employee, he shall again
become a Participant as of his Reemployment Commencement Date if (i) he is an
Employee on the first anniversary of such date or, (ii) he is not an Employee on
such first anniversary but again becomes an Employee prior to incurring a Break
in Service which is subsequent to his
12
<PAGE> 14
Reemployment Commencement Date. If an Employee who is vested ceases to be a
Participant and has a subsequent Reemployment Commencement Date on which he is a
Part-time Employee, he shall again become a Participant as of his Reemployment
Commencement Date if he completes 1,000 Hours of Service during the one-year
period commencing on his Reemployment Commencement Date or, if he does not, as
of the first day of the first Plan Year commencing after his Reemployment
Commencement Date in which he completes 1,000 Hours of Service, other than a
Plan Year in which he has another Reemployment Commencement Date.
(5) If any Employee who is not vested ceases to be a Participant and has a
subsequent Reemployment Commencement Date, he shall again become a Participant
in accordance with the appropriate rule of Subsection (4) for vested Employees,
provided that the number of consecutive one-year Breaks in Service did not equal
or exceed the greater of 5 or the aggregate number of years of service before
such Break in Service. If his prior service does not satisfy the applicable
condition of the preceding sentence, his Reemployment Commencement Date will be
deemed his Employment Commencement Date for purposes of this Section, and rules
of Subsections (1) and (2) hereof will apply.
(6) For purposes of this Section 2, in determining whether an Employee shall
become a Participant, service with any Affiliate of the Company shall be taken
into account, in accordance with the foregoing rules, as if such service had
been rendered to the Company and such service shall include service as a leased
employee within the meaning of Code Section 414(n) of the Company or an
Affiliate.
(7) For purposes of this Section 2, William R. Chaney will not be considered a
Participant at any time under the provisions of this Plan.
13
<PAGE> 15
SECTION 3 - LEAVES OF ABSENCE
========================================
(1) The Company may authorize an unpaid or paid leave of absence under its
standard personnel practices as applied in a uniform and non-discriminatory
manner to all Employees similarly situated, provided that the Employee must
return to service with the Company within the period of time specified in the
authorization. [The following provision is effective only for Plan Years
beginning before January 1, 1990] Except in the case of a leave for military
service, a leave of absence shall not be less than one month nor shall it exceed
four consecutive months.
(2) Any Employee who shall be granted a leave of absence for service in the
armed forces of the United States or in emergency government service, or
pursuant to a leave granted by the Company, shall be deemed to be an Employee
during such leave and his Compensation in the last full calendar year of his
employment immediately preceding the beginning of such leave shall be deemed to
be his annual Compensation for the purposes of the Plan during such leave,
provided that such Employee returns to the employ of the Company within the
period provided by law for the protection of his reemployment rights following
his discharge or release from active duty in such armed forces.
(3) The Committee may, under rules uniformly applicable to all Employees
similarly situated, include as service and compensation, respectively, for any
Participant retiring hereunder, any period or periods of service and the
compensation earned during such period or periods, not otherwise creditable or
recognized hereunder, rendered or earned in the employment of any Affiliate;
provided that the retirement allowance payable on account of such additional
period of service shall be reduced by any employer-provided retirement benefit
which is payable on account of the same period of service under any retirement
plan of such Affiliate.
(4) Anything herein contained to the contrary notwithstanding, the Committee
may, under rules uniformly applicable to all Employees similarly situated,
include as service such other periods of excused absence from employment as it
deems appropriate and consistent with Plan objectives.
[The following rule was adopted by the Committee on March 11, 1991 and is
effective as of April 1, 1990.]
Except as otherwise specifically provided in this Section 3, where the
Company authorizes a paid leave of absence which does not require the
Employee to return to service with the Company, such Employee shall be
deemed to be an Employee during such leave for all purposes under the
Plan.
14
<PAGE> 16
SECTION 4 - VESTING
========================================
(1) A person shall be vested if the period of his service equals or exceeds ten
years computed in accordance with the rules set forth in this section or when he
attains normal retirement age as specified in subdivision (a) of Subsection 5(2)
hereof.
[Subsection 4(1), above, is effective for Plan Years beginning before January 1,
1989. For Plan Years beginning after December 31, 1988, the following Subsection
4(1) is effective.]
(1) A person shall be vested if the period of his service equals or exceeds five
years computed in accordance with the rules set forth in this section or when he
attains normal retirement age as specified in subdivision (a) of Subsection 5(2)
hereof. [For Plan Years beginning after December 31, 1996, the following
sentence is effective.] A person shall also be vested if he was (i) an employee
of Howard H. Sweet & Son, Inc. (formerly Tiffco Jewelry and Chain Crafts, Inc.)
on January 27, 1997, and (ii) a Participant in the Plan as of such date.
(2) There shall be counted as periods of service for vesting purposes the sum of
the following periods:
(a) any period prior to February 1, 1976 during which a person was an
Employee, unless such period would have been disregarded in computing service
under the rules of the Plan regarding Breaks in Service then applicable, but
including any period which was disregarded solely because of the Participant's
age;
(b) with respect to a Part-time Employee, each Plan Year beginning on or
after February 1, 1976 during which such Employee completes 1,000 Hours of
Service;
(c) with respect to a Regular Employee, each period of his employment with
the Employer, beginning on both (i) the later of February 1, 1976 or his
Employment Commencement Date and (ii) any Reemployment Commencement Date after
February 1, 1976, and ending on his Discontinuance of Active Employment Date
next following;
(d) with respect to a Regular Employee, the period between any
Discontinuance of Active Employment Date and the date on which he next performs
an Hour of Service if such date is within one year of such Discontinuance of
Active Employment Date; provided, however, that if a Regular Employee's
employment is terminated during any absence from service which would not
otherwise result in a Discontinuance of Active Employment Date until the first
anniversary of the first day thereof, vesting service shall include the period
from his discontinuance of Active Employment Date to the
15
<PAGE> 17
date on which he next performs such an Hour of Service only if he next performs
such an Hour of Service within one year of the first day of such absence.
(e) with respect to an Employee shown in the attached Appendix I, the
period during which the Employee was an employee of an Affiliate of the Company
prior to October 15, 1984.
Notwithstanding the foregoing, in no event shall the number of years of
service credited to an Employee under the Plan as in effect on January 1, 1982
be less than the number of such years credited to him under the Plan as in
effect on December 31, 1981.
(3) For purposes of Subsection (2) above, if a person's status is changed from
Part-time Employee to Regular Employee, he shall receive credit, as of the date
such change in status is effective, for a period of service consisting of (i)
service credited to him under Subsection (2)(a) and (b) for Plan Years prior to
the Plan Year in which the change in status is effective, and (ii) the greater
of (A) the period beginning on the first day of the Plan Year in which the
change in status is effective (or, if later, the first day he was an Employee
during such Plan Year) and ending on the date such change in status is
effective, or (B) the service which would be taken into account for such period
under Subsection (2)(b) on the basis of Hours of Service completed to the date
of change. If clause (ii)(A) of the preceding sentence applies, the Employee
shall receive credit for service subsequent to the change in status commencing
on the first day thereafter on which he is an Employee; if clause (ii)(B) of
such sentence applies, he shall only receive credit for service subsequent to
the change in status commencing on the day after the last day of the Plan Year
in which the change in status is effective.
(4) For purposes of Subsection (2) above, if a person's status is changed from
Regular Employee to Part-time Employee, he shall receive credit, as of the date
such change in status is effective, for (i) a number of years of service equal
to the number of 1-year periods of service credited to him under Subsections
(2)(a), (c) and (d) as of the date the change in status is effective, and (ii)
forty-five Hours of Service for each week or partial week of any fractional part
of a year credited to him under such Subsections (2)(a), (c) and (d) as of the
date the change in status is effective, such hours to be credited to him for
purposes of Subsection 2(b) in the Plan Year in which the change is effective.
(5) Notwithstanding anything to the contrary above, if a former Participant
again becomes a Participant after incurring a Break in Service, service credited
for vesting purposes prior to the date his participation ceased shall be
disregarded if (A) his service for vesting purposes on such date is less than
ten years and (B) if the number of his consecutive one-year Breaks in Service
equals or exceeds the greater of 5 or the aggregate number of years of
16
<PAGE> 18
service before such Breaks in Service. However, for purposes of this Subsection
(5), there shall be no forfeiture of vesting service prior to the date
participation ceased if he remains a Participant at all times during those four
consecutive Plan Years next following the Plan year in which he again becomes a
Participant.
[Subsection 4(5), above, is effective for Plan Years beginning before January 1,
1989. For Subsection 4(5) effective for Plan Years beginning after December 31,
1988, see below.]
(5) Notwithstanding anything to the contrary above, if a former Participant
again becomes a Participant after incurring a Break in Service, service credited
for vesting purposes prior to the date his participation ceased shall be
disregarded if (A) his service for vesting purposes on such date is less than
five years and (B) if the number of his consecutive one-year Breaks in Service
equals or exceeds 5. However, for purposes of this Subsection (5), there shall
be no forfeiture of vesting service prior to the date participation ceased if he
remains a Participant at all times during those four consecutive Plan Years next
following the Plan year in which he again becomes a Participant.
[The following resolution was adopted by the Committee on March 11, 1991 and is
effective as of such date.]
RESOLVED, that, in the opinion of the Pension Committee, the purpose and
intent of Section 4(5) of the Pension Plan is to recognize credit for
prior service both for vesting purposes and for the purposes of
calculating Creditable Service under Section 1(12) of the Plan, consistent
with past practice and construction.
(6) Solely for the purposes of calculating vesting service under this Section 4
and not for the purpose of calculating Creditable Service under Subsection 1(12)
hereof (except to the extent provided in Section 3 hereof), service with any
Affiliate of the Company shall be taken into account as if the term "Company" in
the foregoing rules included such Affiliate and service as a leased employee
within the meaning of Section 414(n) on the Company or an Affiliate shall also
be taken into account, provided that no period of service shall be taken into
account hereunder more than once.
17
<PAGE> 19
SECTION 5 - BENEFITS
========================================
(1) (a) Subject to Subsection 5(3), any person who, subsequent to December 31,
1984, ceases to be a Participant after he is vested and whose Month of
Retirement occurs prior to December 1, 1988, shall be entitled to an annual
retirement allowance, payable in monthly installments commencing at the end of
the calendar month immediately following his Month of Retirement and continuing
to and including the earlier of the December 1988 monthly payment or the last
monthly payment in the month of his death, equal to the annual retirement
allowance computed in subdivision (c) of this Subsection, plus, for each year or
fraction of a year of Creditable Service beginning January 1, 1985, the sum of
1-1/2 percent of Compensation not in excess of the Taxable Wage Base and 2
percent of Compensation in excess of the Taxable Wage Base. For this subdivision
(a) of Subsection 5(1) only, Compensation earned after January 1, 1985, for any
Participant who works less than a full Plan Year, will equal the Compensation he
would have earned if he had worked the full Plan Year. In addition, a
Participant's "Month of Retirement" for the purposes of this Subsection 5(1)
only is the month in which he attains the normal retirement age specified in
subdivision (a) of Subsection 5(2) or, if later, in which he ceases to be a
Participant.
(b) Subject to Subsection 5(3), any person who, subsequent to December 31,
1984, ceases to be a Participant after he is vested shall be entitled to an
annual retirement allowance, payable in monthly installments commencing at the
end of the later of January 1989 or the calendar month immediately following his
Month of Retirement, and continuing to and including the last monthly payment in
the month of his death, equal to 1 percent of the Participant's Average Final
Compensation not in excess of Covered Compensation multiplied by the number of
his years, including fractions thereof, of Creditable Service, plus 1-1/2
percent of his Average Final Compensation in excess of Covered Compensation
multiplied by the number of his years, including fractions thereof, of
Creditable Service. For this subdivision (b) of Subsection 5(1) only,
Compensation earned after January 1, 1985, for any Participant or former
Participant who works less than a full Plan Year, will equal the Compensation he
would have earned if he had worked the full Plan Year.
(c) The annual retirement allowance accrued as of December 31, 1984, shall
be equal to the excess of (i) 1-3/4 percent of the Participant's Average Final
Compensation (determined as of December 31, 1984) multiplied by the number of
his years of Creditable Service (determined as of December 31, 1984) up to ten
plus 1-1/2 percent of the Participant's Average Final Compensation (determined
as of December 31, 1984) multiplied by his remaining years of Creditable Service
(determined as of December 31, 1984) over (ii)
18
<PAGE> 20
1-1/4 percent of the Participant's Social Security Benefit (determined as if the
Participant had terminated as of December 31, 1984) multiplied by the number of
his years of Creditable Service (determined as of December 31, 1984) completed
by him subsequent to the end of the calendar month in which he attained age 25
(for purposes of this clause (ii) of this Subsection 5(1)(b), prorating
Creditable Service accrued for the Plan Year in which he attained age 25 if he
was then considered a Part-time Employee), up to a maximum of 50 years.
(d) In no event shall the annual retirement allowance computed in
subdivisions (a), (b) and (c) of this Subsection (5)(1) be less than the annual
retirement allowance computed as the excess of (i) 1-3/4 percent of the
Participant's Average Final Compensation (determined as of July 31, 1985)
multiplied by the number of his years of Creditable Service (determined as of
July 31, 1985) up to ten plus 1-1/2 percent of the Participant's Average Final
Compensation (determined as of July 31, 1985), multiplied by his remaining years
of Creditable Service (determined as of July 31, 1985) over (ii) 1-1/4 percent
of the Participant's Social Security Benefit (determined as if the Participant
had terminated as of July 31, 1985) multiplied by the number of his years of
Creditable Service (determined as of July 31, 1985) completed by him subsequent
to the end of the calendar month in which he attained age 25 (for purposes of
this clause (ii) of this Subsection 5(1)(c), prorating Creditable Service
accrued for the Plan Year in which he attained age 25 if he was then considered
a Part-time Employee), up to a maximum of 50 years.
(e) In no event shall the annual retirement allowance computed in
subdivisions (a), (b) and (c), and subject to a minimum benefit as computed in
subdivision (d) of this Subsection (5)(1) be less than $100 multiplied by the
number of his years of Creditable Service. In addition, no Participant's Accrued
Benefit shall be less than what such Participant had accrued as of the last day
of the last Plan Year beginning before January 1, 1989.
[Subsection 5(1), above, is effective for Plan Years beginning after December
31, 1988. For Subsection 5(1) effective for Plan Years beginning before January
1, 1989, see below.]
(1) (a) Subject to Subsection 5(3), effective January 1, 1985, any person who
ceases to be a Participant after he is vested shall be entitled to an annual
retirement allowance, payable in monthly installments commencing at the end of
the calendar month immediately following the month in which he attains the
normal retirement age specified in subdivision (a) of Subsection 5 (2) or, if
later, in which he ceases to be a Participant, and continuing to the last
monthly payment in the month of his death, equal to the annual retirement
allowance computed in subdivision (b) of this Subsection, plus, for each year or
fraction of a year of Creditable Service beginning January 1, 1985, the sum of
1-1/2 percent of
19
<PAGE> 21
Compensation not in excess of the Taxable Wage Base and 2 percent of
Compensation in excess of the Taxable Wage Base. For this subdivision (a) of
Subsection 5(1) only, Compensation earned after January 1, 1985, for any
Participant who works less than a full Plan Year, will equal the Compensation he
would have earned if he had worked the full Plan Year.
(b) The annual retirement allowance accrued as of December 31, 1984, shall
be equal to excess of (i) 1-3/4 percent of the Participant's Average Final
Compensation (determined as of December 31, 1984) multiplied by the number of
his years of Creditable Service (determined as of December 31, 1984) up to ten
plus 1-1/2 percent of the Participant's Average Final Compensation (determined
as of December 31, 1984) multiplied by his remaining years of Creditable Service
(determined as of December 31, 1984) over (ii) 1-1/4 percent of the
Participant's Social Security Benefit (determined as if the Participant had
terminated as of December 31, 1984) multiplied by the number of his years of
Creditable Service (determined as of December 31, 1984) completed by him
subsequent to the end of the calendar month in which he attained age 25 (for
purposes of this clause (ii) of this Subsection 5(1)(b), prorating Creditable
Service accrued for the Plan Year in which he attained age 25 if he was then
considered a Permanent Part-time Employee), up to a maximum of 50 years.
(c) In no event shall the annual retirement allowance computed in
subdivisions (a) and (b) of this Subsection (5)(1) be less than the annual
retirement allowance computed as the excess of (i) 1-3/4 percent of the
Participant's Average Final Compensation (determined as of July 31, 1985)
multiplied by the number of his years of Creditable Service (determined as of
July 31, 1985) up to ten plus 1-1/2 percent of the Participant's Average Final
Compensation (determined as of July 31, 1985), multiplied by his remaining years
of Creditable Service (determined as of July 31, 1985) over (ii) 1-1/4 percent
of the Participant's Social Security Benefit (determined as if the Participant
had terminated as of July 31, 1985) multiplied by the number of his years of
Creditable Service (determined as of July 31, 1985) completed by him subsequent
to the end of the calendar month in which he attained age 25 (for purposes of
this clause (ii) of this Subsection 5(1)(c), prorating Creditable Service
accrued for the Plan Year in which he attained age 25 if he was then considered
a Permanent Part-time Employee), up to a maximum of 50 years.
(d) In no event shall the annual retirement allowance computed in
subdivisions (a) and (b), and subject to a minimum benefit as computed in
subdivision (c) of this Subsection (5)(1) be less than $100 multiplied by the
number of his years of Creditable Service.
20
<PAGE> 22
(2) (a) Normal Retirement - A Participant who has reached the later of his 65th
birthday or the tenth anniversary of his date of hire (normal retirement age
hereunder) may retire on a retirement allowance computed in accordance with
Subsection 5(1); except that any Participant shall, at his election, be
continued in service after age 65. At normal retirement age, all benefits
payable under the Plan shall be nonforfeitable.
[Subdivision (a) of Subsection 5(2), above, is effective for Plan Years
beginning before January 1, 1988. For subdivision (a) of Subsection 5(2)
effective for Plan Years beginning after December 31, 1987, see below.]
(2) (a) Normal Retirement - A Participant who has reached the later of (i) his
65th birthday or (ii) the 5th anniversary of his date of hire (normal retirement
age hereunder) may retire on a retirement allowance computed in accordance with
Subsection 5(1); except that any Participant shall, at his election, be
continued in service after age 65. At normal retirement age, all benefits
payable under the Plan shall be nonforfeitable.
(b) Early Retirement - Any Participant who has attained age 60 and has
rendered 15 or more years of Creditable Service shall be retired by the
Committee on a retirement allowance on the first day of the calendar month next
following receipt by the Committee of a written application therefor by the
Participant. At the Participant's election, he shall receive a retirement
allowance commencing on his retirement which shall be equal to the retirement
allowance computed in accordance with 5(1) he would otherwise receive upon
attaining age 65, reduced by 1/12th of 5 percent for each month by which the
date of his retirement allowance would otherwise have commenced under Subsection
5(1).
At the time of retirement pursuant to this subsection (b) on a retirement
allowance commencing on his retirement, the Participant may elect to convert the
retirement allowance otherwise payable to him into an Actuarial Equivalent of
such amount so that, with his Social Security Benefit which, for this purpose,
shall be assumed to commence as of either his sixty-second or sixty-fifth
birthday, as the Participant elects, the Participant will receive, so far as
possible, the same amount each year before and after he commences to receive
such Social Security Benefit.
(c) Vested Retirement - Payments to any person who ceases to be a
Participant on or after February 1, 1976, and is entitled to a retirement
allowance pursuant to Subsection 5(1) and to whom subdivisions (a) and (b) of
Subsection 5(2) do not apply shall commence on the last day of the calendar
month next following the later of (i) the occurrence of his 65th birthday or
(ii) receipt by the Committee of a written application therefor; provided that
if the proper amount of such payment cannot for any reason be ascertained by
such date, a payment retroactive to such date shall
21
<PAGE> 23
be made within sixty days of the earliest date on which it can be ascertained.
Such a person may, by written notice to the Committee, elect to have his
retirement allowance commence at any time after he has attained age 60 and
completed 15 years of Creditable Service and after receipt by the Committee of
his application for benefits; provided, however, that payment of such allowance
prior to the attainment of age 65 shall be in a reduced amount and shall be the
Actuarial Equivalent as of the date payments commence of the retirement
allowance computed in accordance with Subsection 5(1) which he would otherwise
receive after attaining age 65. [The following three sentences are effective
only for Plan Years beginning before January 1, 1994.] All former Participants
who do not waive pre-retirement survivor coverage as prescribed under Subsection
5(4)(b) or who elect to have pre-retirement survivor coverage will have their
Accrued Benefits reduced to reflect the death benefit protection prior to the
commencement of benefits. The reduction will be .006 per year for ages 55-64;
.002 per year for ages 45-54; .001 per year for ages 35-44; and .0005 per year
for ages less than 35. There shall be a charge for each year elapsed from the
date participation ceased until the date of retirement.
(3) Optional Benefits in Lieu of Regular Benefits. (a) Prior to commencement of
the payment of a retirement allowance to a Participant, he shall be given a
written explanation of the benefits and the options under subdivision (b) hereof
pursuant to which he may provide a benefit for his spouse in the event of his
death after his retirement. Unless an optional form of benefit is selected
pursuant to an election meeting the same requirements as prescribed in Section
5(3)(c), or with respect to former Participants in Section 5(4)(f), within the
ninety (90) day period ending on the date benefit payments would commence, a
married Participant shall be deemed to have elected to convert his retirement
allowance into an Actuarial Equivalent in the form of an annuity for his life
with a survivor annuity for the life of his spouse equal to one-half of the
amount of the annuity payable during their joint lives.
(b) Any Participant may, by written notice made in accordance with the
same requirements for former Participants as prescribed in Section 5(4)(f) and
filed with the Committee prior to the date of the commencement of his retirement
allowance, elect to convert his retirement allowance into the Actuarial
Equivalent thereof paying a proportionately reduced retirement allowance during
his life, with the provision that after his death an allowance of 50%, 66-2/3%,
75% or 100% of the rate of his reduced allowance, at his designation, shall
continue during the life of, and shall be paid to, the beneficiary designated by
him at the time of electing the option. The election of an optional benefit may
be revoked or changed by the Participant at any time prior to the benefit
commencement date; provided, however, that if the Participant or the beneficiary
designated under the option dies prior to the date
22
<PAGE> 24
the election of the option becomes effective, the option shall thereby be
automatically revoked; and provided, further, that if the designated beneficiary
is other than the Participant's spouse, the present value of the payments to be
made to such Participant shall be more than 50 percent of the present value of
the total payments to be made to the Participant and his beneficiaries. A
Participant's designation of a beneficiary other than the Participant's spouse
shall not be effective unless (i) the Participant and his spouse have waived the
spouse's allowance defined in Subsection 5(4)(d) and the spouse has waived his
or her right to be the Participant's beneficiary, (ii) the Participant has no
spouse, or (iii) the spouse cannot be located.
(c) Effective on or after August 23, 1984, in the event that a married
Participant elects to receive his Plan benefit in a form other than an annuity
for his life with a survivor annuity for the life of his spouse, such election
shall not take effect unless written consent of the spouse to such election,
witnessed by a notary public or a member of the Committee, is on file with the
Committee. Such consent shall be irrevocable as to any specific waiver or
designation of any beneficiary. (The requirement of spousal consent may be
waived by the Committee under certain limited circumstances in accordance with
Section 417(a)(2) of the Internal Revenue code of 1954, as amended, and related
regulations.) A spousal consent filed with the Committee shall be applicable
only with respect to the spouse who has signed such form.
(4) Survivorship Benefits. (a) Upon (i) the death of a Participant who has
become vested in his Accrued Benefit, as provided in Section 4 of the Plan, (ii)
the death of a Participant who has attained normal retirement age as specified
in Subdivision (a) of Subsection 5(2), or (iii) the death of a former
Participant who had attained age 60 and rendered 15 or more years of Creditable
Service prior to the date he ceased to be a Participant (but who was not
receiving at the time of his death any retirement allowance), there shall be
payable to the Participant's or former Participant's spouse, if any, a spouse's
allowance defined in Subsection 5(4)(d) below.
(b) Unless an optional form of benefit is selected within the election
period pursuant to a qualified election, upon the death of a former Participant
who had become vested in his Accrued Benefit, as provided in Section 4 of the
Plan, there shall be payable to the former Participant's spouse, if any, a
spouse's allowance as prescribed in Subsection 5(4)(e) below.
(c) The spouse's allowance shall commence as the first day of the calendar
month following the month in which the Participant or former Participant died or
would have been age 60, whichever is the later, except that the Committee may,
under rules uniformly applicable to all Participants and former Participants
similarly
23
<PAGE> 25
situated, direct payment commencing on the first day of any earlier calendar
month after the Participant's or former Participant's death.
(d) If the Committee does not direct early commencement of payment, the
spouse's allowance shall be the greater of (i) an allowance for the life of the
spouse, payable monthly, which is equal to 20 percent of the Participant's or
former Participant's annual rate of compensation at the time of his death or
earlier termination of employment, or (ii) an allowance equal to the allowance
the spouse would have received if the Participant or former Participant had
retired or terminated his service on the date of his death and elected to
receive, based on his Average Final Compensation, years of Creditable Service
and age at such date, the maximum retirement allowance payable to him under
Subsections 5(1) and 5(2), commencing at the earliest possible date and
continuing after his death in the same monthly amount during the life of his
spouse. If the Committee does direct early commencement of payment, the spouse's
allowance shall be a monthly allowance for the life of the spouse which is the
Actuarial Equivalent of the allowance the spouse would otherwise have received
pursuant to the preceding sentences. Notwithstanding the foregoing, in no event
shall the spouse's allowance be less than the amount the spouse would have
received under the terms of the Plan as in effect on December 31, 1984, had the
Participant died on that date.
(e) If the Committee does not direct early commencement of payment, and
unless an optional form of benefit is selected within the election periods
pursuant to a qualified election, the former Participant's spouse allowance
shall equal the allowance the spouse would have received if the former
Participant had retired or terminated his service on the date of his death and
elected to receive, based on his Average Final Compensation, years of Creditable
Service at the date of termination of service with the Company, a retirement
allowance payable to him under Subsection 5(1) and 5(2), commencing at the
earliest possible date and continuing after his death in a amount equal to 50%
of the amount that would have been payable to the Participant during his life.
Furthermore, the allowance for a former Participant's spouse shall be reduced to
reflect the cost for providing the survivor coverage. The reduction will be .006
per year for ages 55-64; .002 per year for ages 45-54; .001 per year for ages
35-44; and .0005 per year for ages less than 35. There shall be a charge for
each year elapsed from the date participation ceased until the date of death.
[The previous three sentences are effective only for Plan Years beginning before
January 1, 1994.] If the Committee does not direct early commencement of
payment, the spouse's allowance shall be a monthly allowance for the life of the
spouse which is the Actuarial Equivalent of the allowance the spouse would
otherwise receive pursuant to the preceding sentences. Notwithstanding the
foregoing, in no event shall the spouse's allowance be less than
24
<PAGE> 26
the amount the spouse would have received under the terms of the plan as in
effect on December 31, 1984 had the former Participant died on that date.
(f) (i) Definitions. Election Period for Former Participants - The
election period shall begin on the date that participation ceases.
Qualified Election for Former Participants - A waiver of the
preretirement survivor annuity as described in Subsection 5(4)(e). The waiver
must be in writing and must be consented to by the Participant's spouse. The
spouse's consent to a waiver must be witnessed by a plan representative or
notary public. Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of a plan representative that such written
consent may not be obtained because there is no spouse or the spouse cannot be
located, a waiver will be deemed a qualified election. Any consent necessary
under this provision will be valid only with respect to the spouse who signs the
consent, or in the event of a deemed qualified election, the designated spouse.
Additionally, a revocation of a prior waiver may be made by a Participant
without the consent of the spouse at any time before the commencement of
benefits. The number of revocations shall not be limited.
(f) (ii) Notice Requirements. In the case of a qualified preretirement survivor
annuity as described in Subsection 5(4)(e), the plan administrator shall provide
each former Participant a written explanation of: (i) the terms and conditions
of a qualified preretirement survivor annuity; (ii) the former Participant's
right to make and the effect of an election to waive the qualified preretirement
survivor annuity form of benefit; (iii) the rights of a former Participant's
spouse; and (iv) the right to make, and the effect of, a revocation of a
previous election to waive the qualified preretirement survivor annuity. The
Plan administrator shall provide such notice within the period beginning with
the first day of the Plan Year in which the Participant attains age 32 and
ending with the close of the Plan Year preceding the Plan Year in which the
Participant attains age 35. If the Participant enters the Plan after the first
day of the Plan Year in which the Participant attained age 32, the Plan
administrator shall provide such notice no later than the close of the second
Plan Year following the entry of the Participant into the Plan.
(5) Restoration to Participation. Anything herein contained to the contrary
notwithstanding, if a former Participant who has received or is receiving
benefits under this Section 5 again becomes an Employee, (i) any benefits he is
receiving shall cease upon his reemployment if he is reemployed as a Regular
Employee, or upon his satisfying the participation requirements of Section 2 if
he is reemployed as a Part-time Employee, provided that benefits will not be
suspended in any calendar month unless the Employee has
25
<PAGE> 27
completed at least 40 hours of service with the company in service recognized
under Section 203(a)(3)(B) of ERISA or received payment for any such hours of
service performed on each of 8 or more days in such month, (ii) he shall then
again become a Participant, and (iii) the Creditable Service which he had when
he last ceased to be an Employee shall be restored to him. On his subsequent
retirement the benefit payable shall be based on his Compensation and Creditable
Service before and after the period of prior retirement, reduced by an amount
which is the Actuarial Equivalent of the benefits he received prior to his
restoration to participation; provided, however, that such benefit shall not be
less than the benefit he was receiving during his prior retirement. If benefit
payments have been suspended, payments shall resume no later than the first day
of the third calendar month after the calendar month in which the Employee
ceases to be employed in ERISA Section 203(a)(3)(B) service. No payment shall be
withheld by the Plan pursuant to this section unless the Plan notifies the
Employee by personal delivery or first class mail during the first calendar
month or payroll period in which the Plan withholds payments that his benefits
are suspended. Such notifications shall contain a description of the specific
reasons why benefit payments are being suspended, a description of the Plan
provision relating to the suspension of payments, a copy of such provisions, and
a statement to the effect that applicable Department of Labor regulations may be
found in Section 2530.203-3 of the Code of Federal Regulations. In addition, the
notice shall inform the Employee of the Plan's procedures for affording a review
of the suspension of benefits. Requests for such reviews may be considered in
accordance with the claims procedure adopted by the Plan pursuant to Section 503
of ERISA and applicable regulations.
(6) Termination of Benefit Payments. Payment of benefits under this Section 5 to
a former Participant, his spouse or other beneficiary shall cease with the
monthly payment for the month in which such former Participant, spouse or
beneficiary dies.
(7) Disabled Participants. Anything herein contained to the contrary
notwithstanding, any Participant while in receipt of payments under the
Company's Short Term Illness Plan, Extended Illness Plan, Short Term Disability
Plan or Long Term Disability Plan (collectively, the "Program"), shall be
treated as a Participant and shall continue to accrue Creditable Service until
he dies, retires, or becomes ineligible for further payments under such Program,
and his Compensation in the last full year of his employment shall be deemed to
be his annual Compensation for purposes of the Plan during such period. In the
event such a Participant dies, retires or becomes ineligible for further
payments under such Program and is not restored to active service, any
retirement allowance payable on his account under the Plan shall be made on the
basis of his age, Average Final Compensation and Creditable Service at the time
he died, retired or became ineligible.
26
<PAGE> 28
(8) Maximum Trust Benefits. (a) Basic Limitation - Subject to the adjustments
provided under Subsection (8)(b) of this Section, and in accordance with Section
415(b) of the Code, the maximum annual benefit payable to a Participant in a
form described in this Section, commencing on or after the Participant's
sixty-second (62nd) birthday and prior to his sixty-fifth (65th) birthday under
this Plan and any other defined benefit plan maintained by the Company for any
Plan year shall, in no event, exceed the lesser of: (1) $90,000 (as adjusted in
accordance with Code Section 415(b)(2)(B) and regulations issued thereunder), or
(2) one hundred percent (100%) of the Participant's average total Compensation
for the three consecutive Plan Years during which he was a Participant and had
the greatest aggregate total compensation from the Company.
(b) Adjustments in the Limitation - (1) The maximum annual retirement
allowance permitted under Subsection (8)(a) to any Participant who has completed
less than ten (10) Years of Service with the Company shall be the amount
determined under Subsection (8)(a), multiplied by a fraction, the numerator of
which is the number of the Participant's Years of Service (including fractions
of a year) and the denominator of which is ten (10). (2) The maximum annual
retirement allowance permitted under Subsection (8)(a)(1) above shall be
adjusted annually (or when allowable) for increases in the cost of living, in
accordance with regulations issued by the Secretary of the Treasury pursuant to
the provisions of Section 415(d) of the Code, as amended. Each adjustment (when
allowable) shall be limited to the scheduled annual increase determined by the
commissioner of the Internal Revenue Service. Such cost of living adjustment
(when allowable) shall be effective not earlier than January 1 of the year in
which it is made. (3) The maximum annual retirement allowance payable under
Subsection (8)(a)(1) to any Participant who attains an early retirement age as
specified in Section 5(2)(b) that occurs prior to his attainment of age
sixty-two (62) shall be the Actuarial Equivalent of such maximum benefit under
Subsection (8)(a)(1) commencing at age sixty-two (62) but based on the greater
of the rate specified in Section 1(13) or a five percent (5.0%) interest rate,
but not less than $75,000. (4) The maximum annual retirement allowance payable
under Subsection (8)(a)(1) to any Participant whose actual retirement occurs
after he attains the normal retirement age specified in Section 5(2)(a) shall be
the Actuarial Equivalent of such maximum benefit under Subsection (8)(a)(1),
commencing at his Normal Retirement Date but based on the lesser of the rate
specified in Section 1(13) or a five percent (5.0%) interest rate.
(c) Limitation for Multiple Plans - In any case in which an Employee is a
participant in both a tax-qualified defined benefit plan and a tax-qualified
defined contribution plan maintained by the Company, the sum of the defined
benefit plan fraction and the defined contribution plan fraction for any Plan
Year shall not exceed 1.0. In the event such sum would otherwise exceed 1.0, the
27
<PAGE> 29
benefit projected under the defined benefit plan will be reduced as necessary so
that such sum shall equal 1.0.
(1) The defined benefit plan fraction for any Plan Year is a fraction: (a)
the numerator of which is the projected annual benefit of the Participant
under the Plan (determined as of the close of the Plan Year), and (b) the
denominator of which is the lesser of (i) or (ii), as follows: (i) 1.25
multiplied by the defined benefit plan dollar limitation under Subsection
(8)(a)(1) in effect for such year, or (ii) 1.4 multiplied by the amount
specified under Subsection (8)(a)(2) for such year, (determined as of the
close of the Plan Year).
(2) The defined contribution plan fraction for any calendar year is a
fraction: (a) the numerator of which is the sum of the "annual additions",
as defined in Section 415(c) of the Code, to the Participant's account as
of the close of the Plan Year, and (b) the denominator of which is the sum
of the lesser of (i) or (ii) for such year and each prior Year of Service
with the Company: (i) 1.25 multiplied by the defined contribution plan
dollar limitation in effect for such year, or (ii) 1.4 multiplied by
twenty-five percent (25%) of the Participant's Compensation for such year.
(9) Prior Plan Provisions. Anything to the contrary herein notwithstanding, the
Accrued Benefit and service credited for vesting purposes of any person who is a
Participant on December 31, 1984 and January 1, 1985 for any period of service
ending on or before December 31, 1984 shall be no less than the benefit he would
have accrued at December 31, 1984 or the vesting service he would have completed
at December 31, 1984 under the terms of the Plan as in effect on such date,
assuming his credited service and Average Final Compensation were computed on
such date.
(10) Limitation on Timing of Commencement of Benefit Payments. As required under
Sections 401(a)(14) and 401(a)(9) of the Code, the timing of the commencement of
payment of benefits under the Plan shall be subject to the following rules:
(a) General Rule - Unless the Participant otherwise elects, the payment of
benefits under the Plan to a Participant may not be delayed beyond the later of
the sixtieth (60th) day after the close of the Plan Year in which the latest of
the following events occurs:
(1) the Participant's 65th birthday,
(2) the tenth (10th) anniversary of the year in which the Participant
commenced participation in the Plan, or
(3) the Participant's termination of service with the Company.
28
<PAGE> 30
(b) Special Rule - In no event shall distribution of benefits be made or
commence later than the April 1 following the applicable of the following:
(1) for an Employee who owns 5% or more interest in the Company, the
calendar year in which he attains age seventy and one-half (70-1/2),
or
(2) for any other Employee, the later of: (a) the calendar year in which
his retirement date occurs, or (b) the calendar year in which he
attains age seventy and one- half (70-1/2).
[Subdivision (b) of Subsection 5(10), above, is effective for Plan Years
beginning before January 1, 1989. For subdivision (b) of Subsection 5(10)
effective for Plan Years beginning after December 31, 1988, see below.]
(b) Special Rule - In no event shall distribution of benefits be made or
commence later than April 1 of the calendar year following the calendar year in
which the employee attains age 70- 1/2. For the purposes of this Section,
Participants who are age 70-1/2 or older as of January 1, 1989 and who have not
retired shall be deemed to have attained age 70-1/2 on such date.
Notwithstanding the foregoing, a Participant who has attained age 70-1/2 before
January 1, 1988, and who is not a 5-percent owner (as defined in Section 416(i)
of the Code) may elect to defer the commencement of benefit payments until his
retirement.
[The following is effective for Plan Years beginning on or after January 1,
1995.]
In the event a distribution of benefits to a Participant is required to
begin under this Subsection, such Participant's Accrued Benefit shall be
determined as of the December 31 immediately preceding the date such
distribution is required to begin. As of each succeeding December 31 prior to
the Participant's actual retirement and as of his actual retirement, the
Participant's Accrued Benefit shall be recomputed as if each such date were his
actual retirement date. However, the amount of any additional Accrued Benefit
resulting from such recomputation shall be reduced by the Actuarial Equivalent
of the total benefits received by the Participant under the Plan prior to such
recomputation. In no event, however, shall the Participant's Accrued Benefit,
upon any recomputation hereunder, be less than the greater of (i) such
Participant's Accrued Benefit as of December 31, 1994 and (ii) such
Participant's Accrued Benefit as of the immediately preceding recomputation.
(11) Compensation Limit. In addition to other applicable limitations which may
be set forth in the Plan and notwithstanding any other contrary provision of the
Plan, compensation taken into
29
<PAGE> 31
account under the Plan shall not exceed $200,000, adjusted for changes in the
cost of living as provided in section 415(d) of the Code, for the purpose of
calculating a Participant's Accrued Benefit (including the right to any optional
benefit provided under the Plan) for any Plan Year commencing after December 31,
1988. However, the Accrued Benefit determined in accordance with this provision
shall not be less than the Accrued Benefit determined on March 15, 1989.
Notwithstanding the preceding sentence, the Accrued Benefit of any Participant
who is a highly compensated employee, within the meaning of section 414(q) of
the Code, is reduced to the extent a benefit has accrued with respect to
compensation in excess of $200,000 during the 1989 Plan Year before March 15,
1989.
[Subsection 5(11), above, is effective for Plan Years beginning before January
1, 1994. For Subsection 5(11) effective for Plan Years beginning after December
31, 1993, see below.]
(11) Compensation Limit. In addition to other applicable limitations which may
be set forth in the Plan and notwithstanding any other contrary provision of the
Plan, for Plan Years beginning on or after January 1, 1994, the annual
compensation of each employee taken into account under the Plan shall not exceed
the annual compensation limit established by the Omnibus Budget Reconciliation
Act of 1993 ("OBRA '93"). The annual compensation limit is $150,000, as adjusted
by the Commissioner of Internal Revenue for increases in the cost of living in
accordance with Section 401(a)(17) of the Code. The cost-of-living adjustment in
effect for a calendar year applies to any period, not exceeding 12 months, over
which compensation is determined (a "Determination Period") beginning in such
calendar year. If a Determination Period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the Determination Period, and the
denominator of which is 12. For Plan Years beginning on or after January 1,
1994, any reference in this Plan to the limitation under Section 401(a)(17) of
the Code shall mean the OBRA '93 annual compensation limit set forth in the
provision.
If compensation for any prior Determination Period is taken into account
in determining a Participant's benefits accruing in the current Plan Year, the
compensation for that prior Determination Period is subject to the OBRA '93
annual compensation limit in effect for that prior Determination Period. For
this purpose, for Determination Periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
Notwithstanding any other provision in the Plan, each Section 401(a)(17)
Participant's Accrued Benefit under this Plan will be the greater of:
30
<PAGE> 32
(a) such Participant's Accrued Benefit as of the last day of the Plan Year
beginning before January 1, 1994, frozen in accordance with Section
1.401(a)(4)-13 of the Code regulations; or
(b) such Participant's Accrued Benefit determined with respect to the benefit
formula applicable for the Plan Year beginning on or after January 1,
1994, as applied to the Participant's total years of Creditable Service
taken into account under the Plan for purposes of benefit accruals.
For purposes of this Subsection, a Section 401(a)(17) Participant means a
Participant whose current Accrued Benefit as of a date on or after January 1,
1994, is based on Compensation for a year beginning prior to the first day of
the first Plan Year beginning on or after January 1, 1994, that exceeded
$150,000.
[The following Subsection is effective only from the period March 15, 1989 to
October 20, 1989, inclusive. Subsection 5(1), effective January 1, 1989,
represents the amendment referred to in Subsection 5(12), below, which amendment
was adopted on October 20,
1989.]
(12) Temporary Cessation of Benefit Accruals for Participants. Notwithstanding
any other contrary provision of the Plan, in calculating the Accrued Benefit
(including the right to any optional benefit provided under the Plan) of any
Participant, such Participant shall accrue no additional benefit under the Plan
on or after March 15, 1989 to the extent that such additional benefit accrual
exceeds the benefit which would otherwise accrue in accordance with the terms of
the Plan as subsequently amended to comply with those qualification requirements
described in Income Tax Regulations Section 1.401(b)-1(b)(2)(ii). This provision
shall be effective until the last day of the first plan year commencing in 1989
and shall be effective for such period if and only if the subsequent amendment
is made on or before the last day of the first plan year commencing in 1989. In
addition, the benefit accrued by any Participant during the 1989 Plan Year shall
in no event exceed the benefit accrual provided during the 1989 Plan Year with
respect to such Participant under the terms of the Plan as subsequently amended
to comply with the Tax Reform Act of 1986. However, such Participant's Accrued
Benefit shall not be less than what the Participant had accrued as of the last
day of the last Plan Year beginning before January 1, 1989.
[The following Subsection (13) is effective on and after August 8, 1990.]
(13) Required Cash-outs of Certain Accrued Benefits. If a Participant terminates
service and the present value of the vested accrued pension or survivor benefit
provided under Subsection 5(2), 5(3), or 5(4) in respect of such Participant is
equal to or less
31
<PAGE> 33
than $3,500, the person to whom such benefits would otherwise be paid in monthly
installments shall receive a lump-sum distribution of the present value of the
entire vested portion of such Accrued Benefit, except that, in the case of a
qualified joint and survivor annuity or qualified pre-retirement survivor
annuity, as such terms are defined under Code Sections 417(b) and 417(c),
respectively, no such lump-sum distribution shall be made after the annuity
starting date, as defined under Section 417(f)(2) of the Code.
For the purposes of determining the present value of a vested Accrued
Benefit under this Subsection, the interest rate assumption shall be either (i)
the rate which would be used (as of the first day of the Plan Year in which such
distribution occurs) by the Pension Benefit Guaranty Corporation in determining
the present value of a lump sum distribution on plan termination or (ii) the
interest rate used in computing Actuarial Equivalents under the Plan, whichever
produces the greater benefit; and the mortality rate assumption shall be based
on the UP84 Mortality Table, as such may be amended from time to time.
[The second paragraph of Subsection 5(13), above, is effective for Plan Years
beginning before January 1, 1997. For the second paragraph of Subsection 5(13)
effective for Plan Years beginning after December 31, 1996, see below.]
For the purposes of determining the present value of a vested Accrued
Benefit under this Subsection in respect of (i) current and future Participants
who terminate service with the Company on and after January 1, 1997, and (ii)
former Participants who, as of January 1, 1997, have not previously received a
mandatory lump-sum distribution and are not currently receiving an annual
retirement allowance under the Plan, the interest rate assumption shall be the
annual rate of interest on 30-year U.S. Treasury securities in the third month
prior to the date of distribution; and the mortality rate assumption shall be
based on the GAM 1983 Mortality Table (with mortality rates composed of 50% of
the male rates and 50% of the female rates), as such may be amended from time to
time.
Notwithstanding Subsections 1(12) and 4(5) and any other provision herein
to the contrary, if a former Employee who has received a lump-sum distribution
of his entire non-forfeitable benefit under the Plan pursuant to this Subsection
is re-employed by the Company, he shall be treated as a new Employee and prior
service performed by the Employee in respect of such distribution shall be
disregarded for purposes of determining his Accrued Benefit under the Plan.
32
<PAGE> 34
[The following rule was adopted by the Committee on January 28, 1993.]
For the purposes of determining Compensation under the Plan, any amounts
deferred by a Participant under the Company's Executive Deferral Plan
shall be included in such Participant's Compensation in the Plan Year in
which such amounts are deferred.
(14) Rollover of Eligible Distributions. This Section shall apply to
distributions made on or after January 1, 1993. Notwithstanding any provision in
the Plan to the contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and in the manner
prescribed by the Pension Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
For purposes of this Section:
(a) "eligible rollover distribution" shall mean any distribution of all or any
portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include (i) any distribution that
is one of a series of substantially equal payments (not less frequently
than annually) made for the life (or life expectancy) of the distributee
or the joint lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a period of ten years or
more, (ii) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code, and (iii) the portion of any
distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(b) "eligible retirement plan" shall mean an individual retirement account
described in Section 408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or an qualified trust described in Section
401(a) of the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution to
a surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
33
<PAGE> 35
(c) "distributee" shall mean a Participant or former Participant. In addition,
the Participant's or former Participant's surviving spouse and the
Participant's or former Participant's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the interest
of the spouse or former spouse.
(d) "direct rollover" shall mean a payment by the Plan to the eligible
retirement plan specified by the distributee.
34
<PAGE> 36
SECTION 6 - CONTRIBUTIONS
========================================
(1) All contributions under the Plan shall be made by the Company, and no
contributions shall be required of Participants. The contributions shall be
payable at such intervals as may be agreed upon by the Company and the
Committee, but at least annually, and shall consist of such contributions as the
Board of Directors may deem advisable, but at least an amount sufficient to
maintain the Plan on a sound actuarial basis. All contributions shall be
irrevocable, and shall be transferred by the Company to the Trustee or Trustees
to be used in accordance with the Plan, except that any contribution paid to the
Plan as a result of a mistake of fact, without earnings thereon but reduced by
any losses thereon, may be returned to the Company at any time within one (1)
year following its payment to the Plan.
[Subsection 6(1), above, is effective for Plan Years beginning before January 1,
1994. For Subsection 6(1) effective for Plan Years beginning after December 31,
1993, see below.]
(1) All contributions under the Plan shall be made by the Company, and no
contributions shall be required of Participants. The contributions shall be
payable at such intervals as may be agreed upon by the Company and the
Committee, but at least annually, and shall consist of such contributions as the
Board of Directors may deem advisable, but at least an amount sufficient to
maintain the Plan on a sound actuarial basis. All contributions shall be
transferred by the Company to the Trustee or Trustees to be used in accordance
with the Plan, except that such contributions are to revert to the Company,
without earnings thereon but reduced by any losses thereon, under the following
conditions:
(a) In the case of a contribution which is made by the Company by reason of a
mistake in fact, such contribution shall be returned to the Company within
one (1) year following its payment to the Plan; and
(b) If all or a portion of any contribution is determined to be non-deductible
under Section 404 of the Code, such contribution, to the extent that it is
determined to be non-deductible, shall be returned to the Company within
one (1) year following such determination.
(2) Forfeitures arising from termination of service, death, or for any other
reason shall not be applied to increase the benefits which any person would
otherwise receive under the Plan but shall be used to reduce Plan contributions.
35
<PAGE> 37
SECTION 7 - ADMINISTRATION OF THE PLAN
========================================
(1) The general administration of the Plan shall be the responsibility of a
Pension Committee of no less than three members appointed from time to time by
the Board of Directors to serve at the pleasure of the Board of Directors. The
Committee is designated as the named fiduciary within the meaning of Section
402(a) of the Employee Retirement Income Security Act of 1974.
(2) Any person appointed a member of the Committee shall file his written
acceptance with the Secretary of the Committee. Any member of the Committee may
resign by delivering his written resignation to the Board of Directors and the
Secretary of the Committee.
(3) The Board of Directors shall appoint one of the members of the Committee as
Chairman. The Secretary, who need not be one of the members of the Committee,
shall be designated by the Committee.
(4) No member of the Committee shall receive any compensation for his services.
The administrative expenses of the plan shall be paid from the assets of the
Plan through a request to the Trustees by the Administrator.
[Subsection 7(4), above, is effective for Plan Years beginning before January 1,
1988. For Plan Years beginning after December 31, 1987, the following Subsection
7(4) is effective.]
(4) No member of the Committee shall receive any compensation for his services.
The administrative expenses of the plan shall be paid by the Company upon
request by the Administrator.
(5) The Committee shall designate bank depositories and shall delegate authority
in connection therewith. It may delegate any portion of its authority to
designated individuals or committees, and may retain legal counsel, auditors,
actuaries and consultants and obtain clerical, accounting and other services,
all as it deems necessary in carrying out the provisions of the Plan.
(6) The Committee shall hold meetings upon such notice, at such places and at
such times as it may from time to time determine. A majority of the member of
the Committee shall constitute a quorum for the transaction of business. All
actions taken by the Committee shall be by the vote of a majority of the members
of the Committee present at the meeting and shall be recorded in the minutes of
such meeting.
36
<PAGE> 38
(7) The Committee from time to time may establish rules for the administration
of the Plan and the transaction of its business. The interpretation and
construction of any provision of the Plan by a majority of the members of the
Committee at a meeting shall be final and conclusive.
(8) The Committee shall adopt from time to time interest assumptions, service
tables, mortality tables and such other data, procedures and methods as may be
necessary or desirable for use in all actuarial calculations required in
connection with the Plan. As an aid to the Committee, the actuary designated by
the Committee shall make annual actuarial valuations of the assets and
liabilities, actual and contingent, of the Plan, and shall certify to the
Committee the tables which he would recommend for use by the Committee.
(9) The Committee shall establish and cause to be maintained a funding standard
account and such other and additional accounts as it deems necessary for the
proper administration of the Plan. It shall keep in convenient form such data as
may be necessary for actuarial valuations of the assets and liabilities of the
Plan. The Committee shall prepare annually a report showing in reasonable detail
the assets and liabilities of the Plan and giving a brief account of the
operation of the Plan for the past year, and recommending the amount of the
Company's contribution to the Plan for the ensuing year. Such report shall be
submitted to the Board of Directors and shall be filed in the office of the
Secretary of the Committee.
37
<PAGE> 39
SECTION 8 - MANAGEMENT OF ASSETS
========================================
(1) All assets of the Plan shall be held as a special trust for use in
connection with the Plan and providing the benefits and paying the expenses of
the Plan, and no part of the corpus or income shall be used for or diverted to
purposes other than for the exclusive benefit of Participants, retired
Participants and their beneficiaries under the Plan prior to the satisfaction of
all liabilities with respect to such Participants, retired Participants and
their beneficiaries under the Plan. No person shall have any interest in or
right to any part of the earnings of the trust, or any right in, or to, or under
the trust or any part of the assets thereof, except as and to the extent
expressly provided in the Plan and trust agreement.
(2) The Trustee or Trustees shall be appointed from time to time by the
Committee by appropriate instrument with such powers, duties rights and
obligations as the Committee shall approve. The Committee may remove any Trustee
at any time, upon reasonable notice, and upon such removal or upon the
resignation of any Trustee the Committee shall designate a successor Trustee or
Trustees.
(3) The Committee shall determine the manner in which the funds of the Plan
shall be disbursed but subject to the provisions of the trust instrument under
which the assets of the Plan are held.
(4) The Committee shall have the power to appoint one or more investment
managers, within the meaning of Section 3(38) of the Employee Retirement Income
Security Act of 1974, to manage (including the power to acquire and dispose of)
any assets of the Plan which have been transferred to any Trustee or a specified
portion thereof. In the event that the Committee shall appoint such investment
managers, each such investment manager shall be solely responsible for the
management and control of the assets to which he or it is appointed.
38
<PAGE> 40
SECTION 9 - CERTAIN RIGHTS AND OBLIGATIONS
========================================
(1) It is the intention of the Company to continue the Plan and make its
contributions regularly each year, but the Company, by action of its Board of
Directors, may for any reason terminate or partially terminate the Plan. If all
liabilities to or on account of the Participants, retired Participants and their
beneficiaries have been satisfied or provided for in full and there is an amount
remaining due to erroneous actuarial computations during the previous life of
the Plan (within the meaning of the regulations under the Internal Revenue
Code), then and not otherwise the Company shall be entitled to receive such
remaining amount.
(2) The establishment of the Plan shall not be construed as conferring any legal
rights upon any Employee or any person for a continuation of employment nor
shall it interfere with the right of the Company to discharge any Employee and
to treat him without regard to the effect which such treatment might have upon
him as a Participant in the Plan.
(3) Any rulings made or acts taken under the Plan by the Board of Directors or
by the Committee with respect to classification of Employees, contributions, or
benefits shall be uniform in their nature and applicable to all those persons
similarly situated. No ruling shall be made or act taken which shall be
discriminatory under the provisions of the Internal Revenue Code.
(4) The provisions of this Subsection (4) shall apply to any one of the 25
highest paid Employees of the Company on any "Commencement Date" whose
anticipated retirement allowance provided under the Plan at normal retirement
date exceeds $1,500 per annum. "Commencement Date" shall mean the effective date
of any amendment to the Plan which increases the benefits. In the event that
during the first 10 years following a "Commencement Date" the Plan is
terminated, the amount of the retirement allowance provided under the Plan for
any one of the aforesaid Employees shall not be greater than the amount of
allowance that can be provided by the largest of the following amounts: (a)
$20,000, or (b) 20% of the first $50,000 of the Participant's "Annual
Compensation", multiplied by the number of years and fractions thereof since the
"Commencement Date" in which the full current costs have been met. As used in
this paragraph, "Annual Compensation" means average compensation during the five
calendar years (or the Participant's period of employment if less than five
years) immediately preceding the date of termination of the Plan or immediately
preceding the date of commencement of retirement benefits under the Plan, if
earlier. The foregoing conditions shall not restrict the current payment of full
retirement benefits called for by the Plan for any Participant or beneficiary
who has retired while the Plan is in full effect and its full current costs have
been met.
39
<PAGE> 41
In the event that the present value of Plan assets as of the date of termination
of the Plan, calculated utilizing Pension Benefit Guaranty Corporation
assumptions as of the date of termination, equals or exceeds the present value
of the total Accrued Benefits for all Participants (whether or not
nonforfeitable), Subsection (4) shall not be applicable to restrict the Accrued
Benefits payable to the twenty-five (25) highest paid Employees.
This Subsection (4) is included in this Plan to conform to the
requirements of Treasury Regulations Section 1.401-4(c) and shall cease to be
effective at such time as the provisions of Treasury Regulations Section
1.401-4(c) or any substitute therefor are no longer effective or applicable.
(5) If any company is now or hereafter becomes an Affiliate of the Company, the
Board of Directors may include the employees of such Affiliate in the
participation in the Plan upon appropriate action by such company necessary to
adopt the Plan. In such event, or if any persons become Employees of the Company
as the result of merger or consolidation or as the result of acquisition of all
or part of the assets or business of another company, the Board of Directors
shall determine to what extent, if any, credit and benefits shall be granted for
previous service with such Affiliate, but subject to the continued qualification
of the trust for the Plan as tax exempt under the Internal Revenue Code. Any
such Affiliate may terminate its participation in the Plan upon appropriate
action by it, in which event the funds of the Plan held on account of
Participants in the employ of such company not yet retired, after provision in
full for all Participants who have retired from the employ of such company,
shall be determined by the Committee on the basis of actuarial valuation, and
shall be applied as provided in Section 9(1), in the manner there provided if
the Plan should be terminated, or shall be segregated by the Trustee as a
separate trust, pursuant to certification to the Trustee by the Committee
continuing the Plan as a separate Plan for the employees of such company under
which the Board of Directors of such company shall succeed to all the powers and
duties of the Board of Directors, including the appointment of members of the
Committee.
(6) The Plan shall not be merged no consolidated with, nor shall there be a
transfer of any of its assets or liabilities to, any other plan, unless each
Participant, former Participant or beneficiary shall (if the resulting plan were
then terminated) be entitled to receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he would
have been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then been terminated).
40
<PAGE> 42
(7) Upon the Plan's termination or partial termination, the rights of all
affected Employees to benefits accrued to the date of such termination or
discontinuance, to the extent then funded, shall be nonforfeitable.
(8) Where a Participant or beneficiary is receiving benefits under the Plan, or
where a Participant has been separated from service and has nonforfeitable
rights to benefits under the Plan, such benefits will not be decreased because
of an increase in the benefit levels or wage payments under Title II of the
Social Security Act, if such increase takes place after the later of (a) the
last day of the Participant's service with Company or (b) September 2, 1974.
(9) Unless otherwise specifically provided herein, the terms of the Plan in
effect at the date an Employee's service terminates shall determine his rights
and benefits thereafter.
41
<PAGE> 43
SECTION 10 - CLAIM PROCEDURES
========================================
(1) Every claim for benefits under the Plan shall be in writing directed to the
Committee or its designee.
(2) Each claim filed shall be passed upon by the Committee within a reasonable
time from its receipt. If a claim is denied in whole or in part the claimant
shall be given written notice of the denial in language calculated to be
understood by the claimant, which notice shall: (i) specify the reason or
reasons for the denial; (ii) specify the Plan provisions giving rise to the
denial; and (iii) describe any further information or documentation necessary
for the claim to be honored and explain why such documentation or information is
necessary, and explain the Plan's review procedure.
(3) Upon the written request of any claimant whose claim has been denied in
whole or in part, the Committee shall make a full and fair review of the claim
and furnish the claimant with a written decision concerning it.
42
<PAGE> 44
SECTION 11 - NON-ALIENATION OF BENEFITS
========================================
(1) No benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge. Any
attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge the same shall be void; nor shall any such benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled to such benefit, unless the assignment of such benefit or
right is pursuant to a "qualified domestic relations order" as defined at
Section 206(d)(3)(B)(i) of ERISA, as amended by the Retirement Equity Act of
1984, and related regulations.
[The following procedures were adopted by the Committee to determine the
qualified status of domestic relations orders received by the Plan
Administrator.]
Upon the receipt of any judgment, decree, or order (including
approval of a property settlement agreement) which appears to (i) relate
to the provision of child support, alimony payments, or marital property
rights to a spouse, former spouse, child, or other dependent of a
Participant in the Plan, and (ii) be made pursuant to a State domestic
relations law (including a community property law), the Committee shall
take the following steps:
1. The Committee shall stamp the date of receipt on the face of the
order and forward it to the Manager of Benefits or other member of
the Committee for review and a recommendation as to its status as a
"Qualified Domestic Relations Order" under Section 206(d)(3) of
ERISA and Section 414(p) of the Code.
2. Within five (5) days from the date of receipt of the order, the
Committee or its delegate shall send by registered mail to each
person specified in the order as entitled to benefits under the Plan
(at the address included in the domestic relations order, or, if
none is specified, at the last known address) notification of
receipt of such judgment, decree or order, along with a copy of the
procedures used by the Plan to determine whether the same is a
Qualified Domestic Relations Order. The notice shall include a
statement that the recipient is entitled to furnish the Committee
with comments on whether or not the order is a Qualified Domestic
Relations Order and, in the case of an alternate payee, as defined
in Section 414(p) of
43
<PAGE> 45
the Code, that he or she is entitled to designate a representative
for receipt of copies of any notices that are sent to the alternate
payee with respect to a domestic relations order. The Committee or
its delegate may confer with all interested parties and seek their
cooperation and agreement, if necessary, to have the order modified
to comply with the requirements of a Qualified Domestic Relations
Order.
3. Within twenty (20) business days from the date of receipt of order,
the Committee shall determine whether such order is a Qualified
Domestic Relations Order, and shall send notification by certified
mail to the Participant and to each alternate payee of such
determination. In making its determination, the Committee shall give
appropriate weight to the opinion of its advisors as to whether the
order meets the following requirements of ERISA and the Code:
(a) It must be in the form of a judgment, decree, or order which
(i) relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former
spouse, child, or other dependent of a participant, and (ii)
is made pursuant to a State domestic relations law (including
community property law).
(b) It must create or recognize the existence of an alternate
payee's right to, or assign to an alternate payee the right
to, receive all or a portion of the benefits payable with
respect to a participant under a plan.
(c) It must clearly specify
i. the name and last known mailing address (if any) of the
participant and the name and address of each alternate
payee covered by the order;
ii. the amount or percentage of the participant's benefits
to be paid by the plan to each alternate payee, or the
manner in which such amount or percentage is to be
determined;
iii. the number of payments or the period to which the order
applies; and
44
<PAGE> 46
iv. each plan to which the order applies; and
(d) It may not (i) require the plan to provide any type or form of
benefits, or any option, not otherwise provided under the
plan, (ii) require the plan to provide increased benefits
(determined on the basis of actuarial value), or (iii) require
payment of benefits to an alternate payee which are required
to be paid to another alternate payee under a previous
Qualified Domestic Relations Order.
4. The Plan will comply with all other applicable provisions of Section
206(d)(3) of ERISA and Section 414(p) of the Code, including without
limitation those regarding payment of segregated amounts during the
period of determination.
(2) If any person entitled to a benefit under the Plan becomes bankrupt or
attempts to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge any benefit under the Plan except as specifically provided herein, then
such benefit shall, in the discretion of the Committee, cease and determine. In
that event the Committee shall hold or apply the same for the benefit of such
person, his spouse, children, or other dependents, or any of them in such manner
and in such proportion as the Committee may deem proper.
45
<PAGE> 47
SECTION 12 - TOP HEAVY PLAN
========================================
(1) Precedence of Section. Anything in this Plan to the contrary
notwithstanding, the provisions of this Section 12 shall supercede and take
precedence over any other provisions of the Plan for any Plan Year in which the
Plan is determined to be a Top Heavy Plan as determined under Section 12(3).
(2) Definitions. For purposes of determining whether the Plan is a Top Heavy
Plan, as determined under Section 12(3) below, for any Plan Year commencing on
or after January 1, 1984, the following terms, wherever capitalized, shall have
the meanings set forth below:
(a) Accrued Benefit - "Accrued Benefit" means the benefit accrued by a
Participant under Section 5 of the Plan.
(b) Determination Date - "Determination Date" means the date on which the
Plan is tested to determine if it is a Top Heavy Plan, which date shall be the
last day of the Plan Year preceding the Plan Year for which the determination is
being made.
(c) Key Employee - "Key Employee" means an Employee who, at any time
during the current Plan Year or any of the four (4) preceding Plan Years, is or
was:
(1) Officer - An officer of the Company (but not more than the lesser of:
(a) fifty (50) Employees, or (b) the greater of three (3) or ten percent
of the Employees of the Company shall be considered officers for this
purposes) whose annual Compensation is at least $45,000 or such greater
amount as may be recognized for increase in the cost of living in
accordance with Code Section 416(i)(1)(A)(i), or
(2) Employee Owner - One (1) of the ten (10) Employees owning the largest
interests in the Company provided that his annual Compensation is at least
$30,000 or such greater amount as may be recognized for increases in the
cost of living in accordance with Code Section 416(i)(1)(A)(ii) (for
purposes of this Section 12(2)(c)(2), if two (2) Employees have the same
interest in the Company, the Employee with the greater annual Compensation
shall be treated as having a larger interest), or
(3) Five Percent Shareholder - An Employee who is an owner of five percent
(5%) or more of the Company, or
(4) Highly Compensated Shareholder - An Employee who is an owner of one
percent (1%) or more of the Company and who has annual Compensation from
the Company in excess of $150,000.
46
<PAGE> 48
(d) Former Key Employee - "Former Key Employee" means a Participant in the
Plan who, at any time during the four (4) preceding Plan Years, was a Key
Employee but who is not a Key Employee in the current Plan Year or who
terminated his service with the Company in one of the four (4) preceding Plan
Years and was not a Key Employee in the Plan Year in which he terminated.
(e) Non-Key Employee - "Non-Key Employee" means a Participant in the Plan
who, at any time during the current Plan Year, is neither a Key Employee nor a
Former Key Employee.
(f) Top Heavy Plan - "Top Heavy Plan" means a Plan which is determined to
be a Top Heavy Plan for a Plan Year, as described in Section 12(3).
(3) Determination of Top Heavy Plan Status. With respect to each Plan Year
commencing on or after January 1, 1984, a calculation shall be made as of the
applicable Determination Date to determine if the Plan is a Top Heavy Plan for
such Plan Year. A Plan shall be considered to be a Top Heavy Plan for a Plan
Year if the aggregate present value of the Accrued Benefit of Key Employees
(excluding Former Key Employees) under the Plan exceeds sixty percent (60%) of
the aggregate present value of the Accrued Benefit of all Key Employees
(excluding Former Key Employees) and all Non-Key Employees under the Plan,
determined as of the Determination Date. In making such determination, the
Accrued Benefit of all individuals who were not employed by the Company during
the five (5) year period ending on the Determination Date shall be excluded. In
determining if the Plan is a Top Heavy Plan, it shall be aggregated with each
other plan of the Company and/or a related organization in the required
aggregation group as defined at Section 416(g)(2)(A)(i) of the Code and may be
aggregated with any other plans of the Company and/or a related organization in
the permissive aggregation group as defined at Section 416(g)(2)(A)(ii) of the
Code.
[Subsection 12(4), below, is effective only for Plan Years beginning before
January 1, 1989.]
(4) Compensation in Top Heavy Plan Year. With respect to any Plan Year for which
the Plan is determined to be a Top Heavy Plan, Compensation as defined at
Section 1(10) shall be limited to $200,000, or such amount as adjusted under
Section 416(d)(2) of the Code.
(5) Vesting in Top Heavy Plan Year. With respect to any Plan Year for which the
Plan is determined to be a Top Heavy Plan, each Participant's accrued retirement
allowance benefit shall vest in accordance with the following vesting schedule,
in lieu of the vesting provisions described in Section 4:
47
<PAGE> 49
Years of Service Vesting Percentage
---------------- ------------------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
(6) Minimum Benefit Under Top Heavy Plan. Anything in Section 5 to the contrary
notwithstanding, if the Plan is determined to be a Top Heavy Plan for any Plan
Year commencing on or after January 1, 1984, in no event shall the annual
retirement allowance payable to a Participant in the form and manner and at the
time specified in Section 5 be less than: (a) 2.0% of the Participant's average
Compensation for the five (5) consecutive year period in which his Compensation
from the Company was the highest, multiplied by; (b) the number of Plan Years
for which the Plan is determined to be a Top Heavy Plan, but in no event more
than ten (10) such Plan Years.
(7) Maximum Limitation Under Top Heavy Plan. With respect to any Plan Year for
which the Plan is determined to be a Top Heavy Plan, a 1.0 limitation shall be
substituted for the 1.25 limitations at Subsection (8)(c)(1)(b)(i) and
(8)(c)(2)(b)(i) of Section 5.
48
<PAGE> 50
SECTION 13 - AMENDMENTS
========================================
The Board of Directors may, at any time and from time to time, modify or amend
in whole or in part any or all of the provisions of the Plan; provided that no
such modification or amendment shall make it possible for any part of the assets
of the Plan to be used for, or diverted to, purposes other than for the
exclusive benefit of Participants, former Participants and their beneficiaries
under the Plan prior to the satisfaction of all Plan liabilities to them.
49
<PAGE> 51
SECTION 14 - CONSTRUCTION
========================================
The Plan shall be construed, regulated and administered under the laws of the
State of New York and the United States.
50
<PAGE> 52
EXECUTION OF PLAN
========================================
In witness whereof, the Company has caused this restatement of the Tiffany and
Company Pension Plan to be executed by its duly authorized officers this 20th
day of October, 1989.
TIFFANY AND COMPANY
By: ___________________________
Chairman
By: ___________________________
Secretary
51
<PAGE> 53
APPENDIX I
========================================
The following employees have prior service with a former affiliate of the
Company and will be granted full Vesting and Creditable Service.
Thomas Andruskevich
Cecelia Arbore
Lawrence Burns
Daniel DelVechio
Michael Eiring
Rachelle Epstein
Warren Feld
James Fernandez
Joan Freeman
Michael Kowalski
Deborah Kramm
David Robertson
Mary J. Robertson
John Schaedel
Audrey Scotland
Dale Strohl
Charles Zacharias
52
<PAGE> 1
Exhibit 10.123
Tiffany & Co.
Report on Form 10-K
Fiscal Year 1996
AGREEMENT
THIS AGREEMENT is made effective the first day of February, 1997 by and between
TIFFANY AND COMPANY, a New York corporation with its principal office at 727
Fifth Avenue, New York, NY 10022 ("Tiffany") and ELSA PERETTI of 2 Avenue de
Citronniers, Monte Carlo, Monaco ("Peretti") in consideration of the mutual
promises contained below:
ARTICLE I
Defined Terms
For the purposes of this Agreement the following terms shall have the meanings
indicated below:
"Affiliated Company" means a company controlling, under common control
with or controlled by Tiffany, directly or indirectly. A person is
"non-Affiliated" if it is not an Affiliated Company.
"Consolidated Advertising Expenditure" means the consolidated fully
allocated cost of product advertising incurred in the Territory by Tiffany
and its Affiliates, including media cost, production cost, licensed
properties and agency fees. Consolidated Advertising Expenditure will be
calculated on a Fiscal Year basis.
"Consolidated Net Sales" means all proceeds paid or payable to Tiffany or
any of its Affiliated Companies in consequence of the first sale in the
Territory to any non-Affiliated purchaser of any product, whether at
wholesale or retail, net of any returns of products accepted by Tiffany or
its Affiliates, during the Fiscal Quarter in question, exclusive of any
separately itemized charges to the purchaser for taxes, shipping, packing,
duties, insurance, freight, handling, engraving, customization and the
like, all as determined by the consolidated books of accounts of Tiffany &
Co., a Delaware corporation, on a consistent basis. In the event that a
sale of a product is transacted in a currency other than the U.S. dollar,
the proceeds of such sale shall be converted to U.S. dollars at the same
exchange rate used by Tiffany & Co. to account for such sales on its books
of account.
"Copyright Notice" means a notice stamped, engraved, printed or otherwise
attached to a Peretti Product, in form satisfactory to Peretti, indicating
that Peretti claims copyright in the design of the Peretti Product in
question.
<PAGE> 2
"Corporate Sales Representatives" means sales personnel who specialize in
the sale of Tiffany Merchandise for use by businesses (not for purposes of
resale) throughout the United States and such sales personnel connected
with other Tiffany Stores in the Territory.
"Exclusive Products" mean (i) all Peretti Jewelry, (ii) all Peretti
Objects sold by Tiffany prior to the effective date of this Agreement and
(iii) any Peretti Objects later made subject to this Agreement by Peretti
as provided in Section 6.1 below.
"Fiscal Year" means each 12-month period ending on January 31 and "Fiscal
Quarter" means each of the three-month periods ending as of the last day
of April, July, October and January.
"Net Peretti Sales" means all proceeds paid or payable to Tiffany or any
of its Affiliates in consequence of the first sale to any non-Affiliated
purchaser of a Peretti Product, whether at wholesale or retail, net of any
returns of Peretti Products accepted , during the Fiscal Quarter in
question, exclusive of any separately itemized charges to the purchaser
for taxes and other such items ordinarily excluded in calculating net
sales, all as determined by the consolidated books of accounts of Tiffany
& Co., a Delaware corporation, on a consistent basis. In the event that a
sale of a Peretti Product is transacted in a currency other than the U.S.
dollar, the proceeds of such sale shall be converted to U.S. dollars at
the same exchange rate used by Tiffany & Co. to account for such sales on
its books of account.
"Peretti Copyrights" means the copyrights for the Peretti Designs whether
or not the copyrights to such designs have been registered in any
jurisdiction.
"Peretti Designs" means Elsa Peretti's designs for products.
"Peretti Jewelry" means Peretti Products that are rings, pins, bracelets,
brooches, pendants, belts, earrings and comparable items, including
bottles and flasks, which are worn or carried for personal adornment.
"Peretti Objects" means Peretti Products other than Peretti Jewelry, such
as, but not limited to, silver flatware and earthenware.
"Peretti Products" mean products made from the Peretti Designs, including
Peretti Jewelry and Peretti Objects.
"Peretti Trademarks" means one or more of the trademarks ELSA PERETTI,
Elsa Peretti (written in stylized signature script), PERETTI, the bean
design, DIAMONDS BY THE YARD and PEARLS BY THE YARD.
<PAGE> 3
"Rights" mean the rights granted by Peretti to Tiffany under the Peretti
Trademarks and the Peretti Copyrights under Article II of this Agreement.
"Selection" means a selection of Peretti Products that is representative
of the full collection of Peretti Products, but suitable to the space
available and display environment in the Tiffany Store, as agreed upon
from time to time with Peretti; such selection shall include Peretti
Jewelry, and, if tabletop merchandise is offered, Peretti Objects shall
also be offered.
"Territory" means the countries listed on Schedule T attached, as such
schedule may be amended by agreement of Tiffany and Peretti made from time
to time.
"Tiffany Merchandise" means merchandise bearing the Tiffany Trademarks.
"Tiffany Trademarks" means any one or more of the trademarks TIFFANY,
TIFFANY & CO. or T&CO.
"Tiffany Store" means a retail store or in-store boutique devoted to the
authorized sale of Tiffany Merchandise.
ARTICLE II
Peretti To Allow Tiffany to Use Her Trademarks and Designs
2.1 Peretti hereby grants Tiffany the right to apply the Peretti Trademarks to
the Peretti Products and to use the Peretti Trademarks to promote,
advertise, display and sell the Peretti Products throughout the Territory.
2.2 Subject to Section 2.5 below, Peretti hereby grants Tiffany the right to
use the Peretti Designs under the Peretti Copyrights to make, have made,
promote, import, export, advertise, display and sell Peretti Products
throughout the Territory.
2.3 The Rights shall be exclusive to Tiffany for Exclusive Products.
2.4 Rights granted under this Article I may be exercised by Tiffany's
Affiliated Companies and are subject to all the other terms, conditions,
limitations and obligations under this Agreement and are limited to the
Territory.
2.5 All rights in the Peretti Designs, the Peretti Trademarks and the Peretti
Copyrights which are not specifically granted to Tiffany by this Agreement
are reserved to Peretti for her sole use.
ARTICLE III
3
<PAGE> 4
Tiffany to Pay Peretti Royalties
3.1 Tiffany agrees to pay Peretti a basic royalty of Three Hundred Thousand
Dollars ($300,000) per Fiscal Year. This royalty will be payable in four
equal installments within thirty (30) days following the end of each
Fiscal Quarter for so long as this Agreement remains effective and Peretti
remains alive.
3.2 In addition to the basic royalty, Tiffany agrees to pay Peretti a royalty
of Five Percent (5%) of Net Peretti Sales. This royalty shall be payable
within thirty (30) days following the end of each Fiscal Quarter and will
be accompanied by a written report of Net Peretti Sales prepared by
Tiffany in such detail as Peretti may reasonably require.
3.3 All royalties shall be payable in U.S. Dollars and will be subject to such
withholding for taxes as Tiffany is required to make under U.S. Law.
ARTICLE IV
Presentation of Collection and Approved Channels of Trade
4.1 Tiffany will display the full collection of Peretti Products for sale in
its flagship store in New York City and a Selection of Peretti Products in
all other Tiffany Stores within the Territory.
4.2 Peretti Jewelry may be offered to selected non-Affiliated retailers who
purchase TIFFANY brand merchandise through Tiffany's trade division for
resale in the United States and in other countries approved in writing by
Peretti.
4.3 Peretti Products may be offered through catalogs in the United States and
in other countries approved in writing by Peretti.
4.4 Peretti Products may be offered through Corporate Sales Representatives in
the Territory.
4.5 A complete listing of all Peretti Products, with photographs and
descriptions, will be maintained and communicated to Peretti by Tiffany
and Tiffany will send to Peretti a copy of same for use by Peretti and
Tiffany.
4.6 Tiffany will provide Peretti on an annual basis with a list of all stores,
boutiques and trade accounts in which Peretti Products are sold and will
consult with her on the opening of new stores. Such list dated as of
January 31, 1997 will be provided to Peretti at Tiffany's earliest
convenience.
4.7 Tiffany will prepare and provide to Peretti a photographic record of the
Peretti Product display in Tiffany's New York store as of February 1997
for use by Peretti and Tiffany.
ARTICLE V
4
<PAGE> 5
Manufacturing and Quality Control
5.1 The Peretti Trademarks will not be applied to, or used in connection with
the sale of, any products which have not been manufactured in strict
conformance with the Peretti Designs and with standards of quality in
materials and workmanship established by Peretti.
5.2 Only manufacturing techniques approved by Peretti will be used in the
production of Peretti Products.
5.3 Peretti shall have the right at any time during regular business hours to
conduct examinations of Peretti Products manufactured or being
manufactured by or for Tiffany to determine compliance with her designs
and standards. If at any time any Peretti Products fail to conform to such
designs or standards, Peretti shall notify Tiffany. Upon such
notification, Tiffany shall not sell such nonconforming products until
Peretti's standards of quality have been met.
5.4 Tiffany agrees to furnish to Peretti or her representatives samples of
Peretti Products as she or her authorized representatives may request from
time to time in quantities sufficient for inspections and tests to assure
conformance with her standards and designs. Upon completion of such
inspections and tests, Peretti shall return such inspected and tested
samples, if requested by Tiffany. Tiffany shall bear the cost of
transportation of such samples to Peretti or her representative and for
return of such samples to Tiffany, as well as the risk of loss or damage
to such samples.
5.5 On a regular basis Tiffany will discuss with Peretti its plans for the
manufacture of Peretti Products.
5.6 Tiffany will continue to place orders for manufacture of certain Peretti
Products with manufacturers in Spain who have been designated by Peretti
and who have, for many years, provided Peretti Products meeting the
quality standards of Peretti and Tiffany. It is understood that such
manufacturers must continue to meet existing quality, price and delivery
standards.
5.7 Tiffany agrees to compensate Peretti for all quality control services
performed by her or her representatives outside the United States.
5.8 Tiffany will provide to Peretti a sample of each Peretti Object that is
not presently included in the collection of Peretti Products now
maintained by Peretti in San Marti-Vell, Spain and a sample of each item
of Peretti Jewelry rendered in silver, other than items of Peretti Jewelry
that are manufactured in Spain.
ARTICLE VI
5
<PAGE> 6
New Designs
6.1 Peretti shall be under no obligation to produce any new Peretti Designs
for Tiffany. If new designs are created by Peretti and provided by her to
Tiffany for production of Peretti Products, they will then become subject
to this Agreement.
6.2 It is understood that Peretti will perform all design work outside the
United States.
ARTICLE VII
Advertising and Catalogs
7.1 Tiffany will use its best efforts to continue the successful support of
sales of Peretti Products through advertising and promotion in the
Territory.
7.2 As a percentage of Consolidated Advertising Expenditure, amounts expended
by Tiffany and its Affiliated Companies to advertise Peretti Products in
any Fiscal Year will equal or exceed the percentage derived by dividing
Net Peretti Sales by Consolidated Net Sales for the previous Fiscal Year.
7.3 All advertising for Peretti Products will be subject to Peretti's approval
as to both copy and graphic design, and Peretti will have the right to
approve all photography used.
7.4 Tiffany will use photography created by the photographer Hiro or any other
photographer of comparable stature that Peretti may specify in advertising
for Peretti Products. Tiffany will purchase unlimited rights to reproduce
and use for commercial purposes any such photography created after the
date of this agreement. Tiffany will fully transfer such rights to
Peretti. Peretti, in turn, agrees to permit Tiffany to use such
photography without usage fee for the advertising of Peretti Products.
7.5 Tiffany will consult with Peretti or her representative on all aspects of
the advertising and promotion of Peretti Products. Tiffany will make
presentations to Peretti of its advertising and promotional plans,
including media, prior to the start of each Fiscal Year and at other times
as requested by Peretti.
7.6 All references to Peretti Products inserted in catalogs and other media
shall be subject to Peretti's approval as to both copy and graphic design
and Peretti will have the right to approve all photography used.
ARTICLE VIII
Promotional Work
8.1 Peretti retains absolute approval authority with respect to any
promotional appearance suggested by Tiffany and will make herself
available to Tiffany for promotional
6
<PAGE> 7
appearances in support of sales of Peretti Products only at times
convenient to her.
8.2 Tiffany will promptly reimburse to Peretti all reasonable expenses
incurred by Peretti in connection with her promotional appearances for
Tiffany, including round-trip, first-class air transportation (including
to and from Europe) and first-class hotel accommodations for Peretti and
any one person designated by Peretti to accompany her.
ARTICLE IX
Retail Pricing
9.1 Tiffany will establish retail prices for Peretti Products in a manner that
provides fair value to the consumer, and that achieves an average gross
margin consistent with such margin achieved by Tiffany in its New York
store, or less.
9.2 Peretti Products will not be subject to advertised promotional pricing or
inventory liquidation events.
9.3 Tiffany shall consult with Peretti concerning the retail pricing of
Peretti Products and give due consideration to her opinion.
ARTICLE X
Term and Termination
10.1 This Agreement shall continue in effect indefinitely, subject to
termination by either Peretti or Tiffany. Termination shall be effective
six (6) months following written notice of termination given by either
party.
10.2 Following the effective date of termination, Tiffany shall have a period
of one (1) year during which it may use the Rights to sell all Peretti
Products that Tiffany had on-hand or on-order as of the effective date of
termination. At the conclusion of such one (1) year period, Tiffany will
offer to sell to Peretti or her designee, such Peretti Products as remain
on-hand at Tiffany's cost for such Peretti Products. If Peretti or her
designee fails to purchase all such Peretti Products remaining on hand,
Tiffany may continue to sell such Peretti Products using the Rights. All
sales made by Tiffany under this Section 9.2 (except for sales made to
Peretti or her designee) shall be subject to the payment of royalties as
provided for in Section 2.2 above.
10.3 Termination of this Agreement shall not relieve either party from any
obligation incurred under this Agreement prior to termination. Tiffany
shall continue to have the obligation to pay royalties on and make reports
of Net Peretti Sales, including sales made after the effective date of
termination as permitted in Section 9.2 above.
ARTICLE XI
7
<PAGE> 8
Protection of Peretti Trademarks and Copyrights
11.1 Tiffany admits the validity of, and agrees not to challenge, the Peretti
Trademarks and the Peretti Copyrights. This admission shall remain in
effect following the termination of this Agreement for any reason.
11.2 Tiffany agrees that any and all rights that may be acquired by the use of
the Peretti Trademarks shall be for the sole benefit of Peretti. Tiffany
further agrees that, so long as this Agreement remains effective, Tiffany
will undertake, at its own cost and expense and as Peretti's agent,
through attorneys acceptable to Peretti, to complete, renew and keep in
effect the registration of the Peretti Trademarks in such product
categories reasonably necessary to cover the Peretti Products in all
countries within the Territory. Peretti agrees that Tiffany shall be her
agent for that purpose. Peretti further agrees to execute all papers and
provide such other cooperation reasonably requested by Tiffany or such
attorneys to effect further registration of, maintenance and renewal of
the Peretti Trademarks.
11.3 Tiffany agrees to execute all papers and provide such other cooperation
reasonably requested by Peretti or her agents to effect further
registration of, maintenance and renewal of the Peretti Trademarks and
Peretti Copyrights and, where applicable, to record Tiffany as a
registered user of the Peretti Trademarks. This obligation shall remain in
effect following the termination of this Agreement for any reason.
11.4 In the event that Tiffany learns of any infringement or threatened
infringement of the Rights in the Territory, Tiffany shall commence such
proceedings or take such other steps as it believes reasonably necessary
to protect its Rights, either in its own name or in Peretti's name, and
Peretti will join in such action, provided that Tiffany shall bear all
costs of such proceedings and shall be entitled to retain all proceeds.
Tiffany will keep Peretti advised of any such steps taken. If Peretti
wishes Tiffany to take action, including commencement of litigation, in
addition to those steps taken by Tiffany, Peretti will so advise Tiffany.
If Tiffany does not promptly agree to take such action, Peretti may
institute such action, either in her own name or in Tiffany's name, and
Tiffany will join in such action, provided that Peretti shall bear all
costs of such proceedings and shall be entitled to retain all proceeds.
11.5 Peretti Products will be marked with the Peretti Trademarks, the Tiffany
Trademarks and with the Copyright Notice.
11.6 Peretti represents that she owns the Peretti Copyrights and the Peretti
Trademarks and that no other person has any rights in the Peretti
Copyrights or the Peretti Trademarks.
11.7 In addition to its obligations under Sections 11.2 and 11.3 above, Tiffany
may, at its sole election and expense, undertake, as Peretti's agent,
through attorneys acceptable to Peretti, to effect the registration of the
Peretti Trademarks in countries outside the Territory
8
<PAGE> 9
selected by Tiffany. Should Tiffany undertake registration of the Peretti
Trademarks outside the Territory, Peretti agrees to give due consideration
to recommendations given by Tiffany for expansion of the Territory to
include such countries, but the expansion of the Territory, if at all,
shall continue to be within Peretti's sole discretion.
ARTICLE XII
Assignment, Delegation and Binding Nature of Agreement
12.1 Any design services anticipated under this Agreement are to be performed
personally by Peretti or under her direct supervision outside the United
States.
12.2 Subject to the conditions stated below, Peretti may assign this Agreement
and/or the right to receive royalties hereunder and all benefits
hereunder, to any person (including any corporation, trust, partnership,
limited liability company, foundation, estate or other legal entity):
(a) while Peretti is alive, she alone will exercise or withhold
the various approvals necessary under this Agreement (this
condition will not apply if Peretti has assigned this
Agreement to a person who is also the owner of the Peretti
Trademarks and the Peretti Copyrights);
(b) no assignment will alter the provisions of Section 12.1 above;
(c) if Peretti transfers ownership of the Peretti Trademarks and
the Peretti Copyrights to any person, this Agreement shall be
deemed assigned to such person; and
(d) Peretti agrees that, so long as this Agreement remains
effective, she will not split ownership of the Peretti
Trademarks from the Peretti Copyrights.
12.3 Tiffany may not assign this Agreement or the benefits of this Agreement
except as follows: Tiffany may assign the benefits of this Agreement, in
whole or in part, to an Affiliated Company. Reference to Tiffany in this
Agreement includes reference to any such Affiliated Company. Any attempt
to assign this Agreement or the benefits of this Agreement to any other
person shall be void.
12.4 This Agreement shall be binding upon the parties and their respective
successors, heirs, estates, administrators and personal representatives
and, subject to Sections 12.2 and 12.3 above, their assigns.
9
<PAGE> 10
ARTICLE XIII
Settlement of Differences
13.1 The provisions set forth in this Article XIII shall be the exclusive means
of resolving disputes that arise under this Agreement.
13.2 Before resort to the arbitration provisions set forth in Section 13.3
below, the parties shall try to settle any dispute occurring between them
by consultation with one another on a friendly and cooperative basis. To
this end, Tiffany agrees that it shall always make its Chief Executive
Officer available to Peretti for the purposes of discussing any problems
or concerns that arise.
13.3 Any dispute, controversy or claim arising out of, relating to, or in
connection with this Agreement, or the breach, termination or validity
hereof, shall be finally settled by arbitration. The arbitration shall be
conducted in accordance with the Rules of Conciliation and Arbitration of
the International Chamber of Commerce in effect at the time of the
arbitration, except as they may be modified in this Agreement. The seat of
the arbitration shall be Paris, France, and it shall be conducted in the
English language. The arbitrators shall not have the authority to award
punitive or exemplary damages to either party but will have the authority
to award reasonable attorneys' fees and other arbitration-related costs to
the prevailing party. Any award, order or judgment made by such
arbitration shall be in writing and shall be deemed final and binding on
the parties and may be entered and enforced in any court of competent
jurisdiction. The party initiating arbitration (the "Claimant") shall
appoint its arbitrator in its request for arbitration (the "Request"). The
other party (the "Respondent") shall appoint its arbitrator within 30 days
of receipt of the Request and shall notify the Claimant of such
appointment in writing. If the Respondent fails to appoint an arbitrator
within such 30-day period, the arbitrators shall be appointed by the
International Chamber of Commerce acting in accordance with its Rules of
Conciliation and Arbitration, which shall promptly notify the parties of
the appointments. Otherwise, the two arbitrators appointed by the parties
shall appoint a third arbitrator within 30 days after the Respondent has
notified Claimant of the appointment of the Respondent's arbitrator. When
the third arbitrator has accepted the appointment, the two party-appointed
arbitrators shall promptly notify the parties of the appointment. If the
two arbitrators appointed by the parties fail or are unable so to appoint
a third arbitrator or so to notify the parties, then the appointment of
the third arbitrator shall be made by the International Chamber of
Commerce acting in accordance with its Rules of Conciliation and
Arbitration, which shall promptly notify the parties of the appointment.
The third arbitrator shall act as Chair of the panel of arbitrators.
ARTICLE XIV
Miscellaneous
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<PAGE> 11
14.1 Complete Agreement. This Agreement, including all Schedules and Exhibits
hereto, constitutes the entire agreement between the parties hereto with
respect to the Rights. This Agreement may not be amended or modified
orally, but only by a writing signed by Peretti or her authorized
representative and by an officer of Tiffany.
14.2 Notices. All notices required or permitted to be given under this
Agreement (other than notices necessary to give or request approvals in
the ordinary course of business which shall be by ordinary mail or by
facsimile) shall be in writing and, unless specifically provided otherwise
in this Agreement, shall be deemed to have been given if personally
delivered or if mailed by registered or certified mail, return receipt
requested, postage prepaid, to the parties concerned at the addresses set
forth below (or at such other address or addressees as Tiffany or Peretti
may from time to time respectively designate by notice to the other in the
manner provided herein for giving notice); notice so sent will be deemed
effective, in the case of mail, on the tenth business day following the
date of mail deposit, and in the case of hand delivery, when delivered:
If to Tiffany to:
Tiffany and Company
727 Fifth Avenue
New York, NY 10022
Attn: Office of the Chief Executive Officer
If to Peretti to:
Elsa Peretti
c/o
Roberta Terrinoni
00191 Roma, Italy
Via Rocca Porena, 18
With a copy to:
Aldo Sabelli
Studio Legale Sabelli
00185 Roma, Italy
Via Parigi, 11
14.3 Headings. The headings of the Sections and Articles of this Agreement are
for convenience only and do not limit or affect the terms and conditions
of this Agreement.
14.4 Confidentiality. Neither Peretti nor Tiffany shall, at any time during the
Term or thereafter, disclose or use for any purpose, other than as
contemplated by this Agreement, any revealed or otherwise acquired
confidential information or data relating to the
11
<PAGE> 12
business of the other, except to the extent such information is or has
become publicly available through no act or failure of such other party.
14.5 Further Assurances. Each of the parties hereto agrees to execute,
acknowledge and deliver all such further instruments and assurances, and
to take all such further action, consistent with the terms of this
Agreement, as shall be necessary or desirable to carry out this Agreement,
and to consummate and effect the transactions contemplated hereby.
14.6 Governing Law. The parties hereto agree that this Agreement shall be
interpreted, governed and construed pursuant to the laws of the State of
New York applicable to agreements made and to be performed in said state.
14.7 Neither Party the Agent of the Other. Except as provided in Section 11.2
above, nothing contained in this Agreement shall be construed to confer or
vest in either party any right or authority to act for or represent the
other, nor to pledge the credit of the other party or contract any
liability on the other party's behalf, nor shall either party be the
employee of the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first mentioned above.
/s/
-------------------------------------
Miss Elsa Peretti
TIFFANY AND COMPANY
By:/s/
---------------------------------
William R. Chaney, Chairman
and Chief Executive Officer
12
<PAGE> 13
Schedule T to Agreement Between Tiffany and Peretti
Countries Included in the Territory
United States of America, including all territories, protectorates and
possessions
Canada
Japan
Singapore
Australia
Italy
The United Kingdom
Switzerland
Germany
13
<PAGE> 1
Item 6.
Exhibit 11
TIFFANY & CO. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
( in thousands, except per share data )
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
January 31, January 31, January 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings on which primary
earnings per share are based $58,439 $39,215 $29,341
======= ======= =======
Weighted average number of shares on
which primary earnings are based 34,953 32,234 31,796
======= ======= =======
Primary net earnings per common share $ 1.67 $ 1.22 $ 0.93
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE:
Net earnings on which primary earnings
per share are based $58,439 $39,215 $29,341
Add:
Interest and fees on convertible
subordinated debt, net of
applicable income taxes 682 1,811 1,712
------- ------- -------
Net earnings on which fully diluted
earnings per share are based $59,121 $41,026 $31,053
======= ======= =======
Weighted average number of common shares
on which fully diluted earnings are based 33,682 32,760 31,796
Add:
Shares assumed upon conversion
of convertible debt, using the
"if converted" method 2,024 1,786 1,786
------- ------- -------
Weighted average number of shares
used in calculating fully diluted
earnings per share 35,706 34,546 33,582
======= ======= =======
Fully diluted net earnings per common share $ 1.66 $ 1.19 $ 0.93
======= ======= =======
</TABLE>
<PAGE> 1
SELECTED FINANCIAL DATA
The following table sets forth selected financial data, which have been derived
from the Company's audited financial statements, with respect to the Company for
Fiscal 1987-1996. During Fiscal 1993, the Company realigned its operations in
Japan (see Note K to consolidated financial statements). All share and per share
data have been retroactively adjusted to reflect the two-for-one split in Fiscal
1996 and the three-for-two split in Fiscal 1989 of the Company's Common Stock
effected in the form of share distributions ("stock dividends"):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal
(in thousands, except per share amounts, percentages and employees) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS DATA
Net sales $922,108 $803,292 $682,831 $566,501
Gross profit 499,694 427,370 358,202 232,882
Earnings (loss) from operations 109,413 80,013 64,655 (10,029)
Earnings (loss) before accounting change and extraordinary item 58,439 39,215 29,341 (10,242)
Earnings (loss) per share before accounting change and extraordinary item:
Primary 1.67 1.22 0.93 (0.33)
Fully diluted 1.66 1.19 0.93 (0.33)
Weighted average number of common shares (fully diluted) 35,706 34,546 33,582 33,348
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $739,418 $654,257 $556,672 $504,409
Inventories 335,389 311,252 270,075 262,282
Working capital 342,511 284,102 242,779 212,266
Capital expenditures 39,884 26,455 19,227 18,103
Short-term borrowings 76,338 78,967 60,696 59,289
Long-term debt 92,675 101,500 101,500 101,500
Stockholders' equity 378,264 264,378 221,697 189,081
Cash dividends per share 0.185 0.140 0.140 0.140
- ------------------------------------------------------------------------------------------------------------------------------
RATIO ANALYSIS
As a percentage of net sales:
Earnings (loss) from operations 11.9% 10.0% 9.5% (1.8)%
Earnings (loss) before accounting change and extraordinary item 6.3% 4.9% 4.3% (1.8)%
Return on average assets 8.4% 6.5% 5.5% (2.2)%
Return on average stockholders' equity 18.2% 16.1% 14.3% (5.2)%
Net-debt to total capital 12.1% 27.1% 34.7% 45.2 %
Book value per share $ 10.95 $ 8.27 $ 7.06 $ 6.04
Number of employees 3,892 3,656 3,306 3,133
</TABLE>
12 Tiffany & Co. and Subsidiaries
<PAGE> 2
<TABLE>
<CAPTION>
1994 1995 1996
----------------------
(in millions)
<S> <C> <C> <C>
NET SALES................... $682.8 $803.3 $922.1
NET EARNINGS................ 29.3 39.2 58.4
STOCKHOLDERS' EQUITY........ 221.7 264.4 378.3
</TABLE>
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal
(in thousands, except per share amounts, percentages and employees) 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS DATA
Net sales $486,396 $491,906 $455,712 $383,964
Gross profit 237,033 243,009 223,600 191,683
Earnings (loss) from operations 26,741 61,028 67,806 60,977
Earnings (loss) before accounting change and extraordinary item 15,712 31,805 36,661 33,305
Earnings (loss) per share before accounting change and extraordinary item:
Primary 0.50 1.00 1.17 1.07
Fully diluted 0.50 1.00 1.17 1.07
Weighted average number of common shares (fully diluted) 33,358 33,236 31,388 31,302
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $419,355 $394,882 $307,268 $237,061
Inventories 224,151 213,435 173,964 142,545
Working capital 199,334 159,466 131,219 112,735
Capital expenditures 22,754 41,385 24,835 14,040
Short-term borrowings 22,458 43,566 31,046 14,339
Long-term debt 101,500 50,000 18,226 18,226
Stockholders' equity 204,806 200,039 176,183 135,568
Cash dividends per share 0.140 0.140 0.130 0.090
- -------------------------------------------------------------------------------------------------------------------------------
RATIO ANALYSIS
As a percentage of net sales:
Earnings (loss) from operations 5.5% 12.4% 14.9% 15.9%
Earnings (loss) before accounting change and extraordinary item 3.2% 6.5% 8.0% 8.7%
Return on average assets 3.9% 7.3% 13.5% 16.7%
Return on average stockholders' equity 7.8% 13.5% 23.5% 28.4%
Net-debt to total capital 36.4% 30.9% 20.2% 18.1%
Book value per share $ 6.56 $ 6.30 $ 5.62 $ 4.36
Number of employees 2,865 2,735 2,379 2,085
</TABLE>
<TABLE>
<CAPTION>
Fiscal Fiscal
(in thousands, except per share amounts, percentages and employees) 1988 1987
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
EARNINGS DATA
Net sales $290,344 $230,488
Gross profit 144,511 112,140
Earnings (loss) from operations 44,193 33,691
Earnings (loss) before accounting change and extraordinary item 24,901 16,820
Earnings (loss) per share before accounting change and extraordinary item:
Primary 0.81 0.59
Fully diluted 0.81 0.59
Weighted average number of common shares (fully diluted) 30,774 28,620
- -----------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $162,648 $126,669
Inventories 103,771 70,778
Working capital 81,829 66,772
Capital expenditures 9,680 1,895
Short-term borrowings 7,253 -
Long-term debt - -
Stockholders' equity 99,193 71,621
Cash dividends per share 0.050 -
- -----------------------------------------------------------------------------------------------------
RATIO ANALYSIS
As a percentage of net sales:
Earnings (loss) from operations 15.2% 14.6 %
Earnings (loss) before accounting change and extraordinary item 8.6% 7.3 %
Return on average assets 17.2% 14.4 %
Return on average stockholders' equity 29.2% 38.3 %
Net-debt to total capital 5.4% (21.9)%
Book value per share $ 3.23 $ 2.78)
Number of employees 1,741 1,324)
</TABLE>
13
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company operates three channels of distribution: U.S. Retail includes retail
sales in Company-operated stores in the U.S., wholesale sales to independent
retailers in the U.S. and wholesale sales of fragrance products to independent
retailers in the Americas; Direct Marketing includes corporate
(business-to-business) and catalog sales in the U.S.; and International Retail
includes retail sales through Company-operated stores and boutiques, corporate
sales and wholesale sales to independent retailers and distributors in the
Asia-Pacific region, Europe, Canada, the Middle East and Latin America.
The Company achieved continued growth in sales and earnings in Fiscal 1996 and
1995. Net sales in Fiscal 1996 rose 15% after increasing 18% in Fiscal 1995. In
both years, sales rose in all three channels of distribution. Sales growth,
combined with higher operating margins, resulted in a net earnings increase of
49% in Fiscal 1996 following a 34% increase in Fiscal 1995.
NET SALES
Net sales by channel of distribution were as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(in thousands) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
U.S. Retail $424,185 $364,158 $308,290
Direct Marketing 100,582 93,281 92,684
International Retail 397,341 345,853 281,857
-------------------------------
$922,108 $803,292 $682,831
===============================
</TABLE>
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
U.S. Retail 44% 45% 45%
Direct Marketing 11% 12% 14%
International Retail 43% 43% 41%
</TABLE>
U.S. Retail sales increased 16% in Fiscal 1996 following an 18% increase in
Fiscal 1995. The increases were largely due to comparable store sales growth of
11% in Fiscal 1996 and 12% in Fiscal 1995, as well as incremental sales from two
new U.S. stores opened in Fiscal 1996 and three new stores opened in Fiscal
1995. Sales in the New York flagship store increased 9% and 7% in Fiscal 1996
and 1995 but, as a result of the Company's growth outside of New York, declined
as a percentage of the Company's net sales, representing 16%, 17% and 19% in
Fiscal 1996, 1995 and 1994. Management believes that Fiscal 1996 sales growth in
the New York region was favorably affected by the introduction of television
advertising during the holiday season. Comparable U.S. branch store sales
increased 13% and 16% in Fiscal 1996 and 1995. In both years, comparable sales
growth in U.S. stores was generated primarily by an increased number of retail
transactions, but the average transaction amount also increased. In addition,
the greatest proportion of sales were made to "local-resident" customers as
opposed to tourists. Wholesale sales represented 8%, 7% and 8% of U.S. Retail
sales in Fiscal 1996, 1995 and 1994.
U.S. stores opened in recent years are designed in a smaller-size format with an
increased proportion of selling space; these new stores generate
higher-than-historical sales productivity. The Company intends to continue using
this format and may open as many as four new stores in Fiscal 1997. Also, the
existing Chicago store will be relocated to a larger location on North Michigan
Avenue and another U.S. store will be relocated within its existing market. In
some cases, the Company is opening new stores in the suburbs of existing urban
markets. While these new stores may initially adversely affect sales in existing
stores in those markets, they are increasing overall market penetration and
retail sales growth.
Direct Marketing sales increased 8% and 1% in Fiscal 1996 and 1995. Corporate
division sales, which represented 61% of Direct Marketing sales in Fiscal 1996,
increased 4% in Fiscal 1996 following a 5% decline in Fiscal 1995. Corporate
sales results were primarily affected by an increase in the number of orders
processed in Fiscal 1996 after a decline in Fiscal 1995. The corporate division
has established a presence in additional U.S. markets in order to increase
overall market penetration. Catalog sales rose 15% and 12% in Fiscal 1996 and
1995. In
14 Tiffany & Co. and Subsidiaries
<PAGE> 4
both years, sales growth was primarily generated by a higher number of orders.
The Company mailed 20.6 million catalogs in Fiscal 1996, compared with 17.5
million and 15.0 million in Fiscal 1995 and 1994.
International Retail sales increased 15% and 23% in Fiscal 1996 and 1995, due to
sales growth in most markets in which the Company operates. Total retail sales
in Japan, the largest international market, rose 28% and 13% in local currency
in Fiscal 1996 and 1995. In U.S. dollars, Japan sales represented 27% of net
sales in Fiscal 1996 and 28% in Fiscal 1995 and 1994. Increased sales were
generated by comparable store sales growth in local currency of 13% in Fiscal
1996 and 1995, as well as incremental sales from the Company's new flagship
store that opened in Tokyo in May 1996. Although the flagship store adversely
affected sales results in several existing department-store boutiques in Tokyo,
overall sales in Tokyo increased 30% in Fiscal 1996. The Company plans to open
three boutiques in Japan, outside Tokyo, in Fiscal 1997.
The Company's reported sales and earnings reflect either a translation-related
benefit from a strengthening Japanese yen or a detriment from a strengthening
U.S. dollar, while the impact from other foreign currencies has not been
material. When translated into U.S. dollars, yen-denominated sales growth in
Fiscal 1996 was partially offset by the effect of a weakening yen against the
dollar in comparison to 1995 while, conversely, a strengthening yen in Fiscal
1995 had the opposite effect and enhanced sales growth when reported in U.S.
dollars. The Company monitors its retail and wholesale pricing in relation to
changes in foreign currency rates and local economic and competitive conditions.
The Company also maintains a foreign currency hedging program for merchandise
purchase transactions initiated from Japan in order to reduce the potential
negative impact on the Company's financial results of a significant
strengthening of the U.S. dollar against the yen. In the recent past, the
hedging program has achieved its objective by stabilizing product costs despite
exchange rate fluctuations (see Note H to consolidated financial statements).
However, as a result of the continued weakening of the yen versus the U.S.
dollar, effective February 1, 1997, the Company raised its retail prices in
Japan by an average of 8% primarily on non-diamond merchandise.
The Asia-Pacific region outside Japan represented 10%, 9% and 8% of net sales in
Fiscal 1996, 1995 and 1994. Results in that region benefited from comparable
sales growth in Company-operated stores of 15% and 24% in local currencies in
Fiscal 1996 and 1995, as well as incremental sales from the opening of five new
locations in Fiscal 1996 and nine new locations in Fiscal 1995. The Company's
plans include opening several locations in the Asia-Pacific region in Fiscal
1997. Sales growth was also achieved in Europe, which represented 4% of net
sales in Fiscal 1996, 1995 and 1994. This was primarily due to comparable
European retail store sales growth in local currencies of 22% and 18% in Fiscal
1996 and 1995.
GROSS MARGIN
Gross profit as a percentage of net sales was 54.2%, 53.2% and 52.5% in Fiscal
1996, 1995 and 1994. The increases were primarily due to favorable shifts in
sales mix, especially toward the Company's retail businesses that achieve gross
margins above the Company's average. The Company's ongoing gross margin and
pricing strategy is to offset product-cost increases with higher retail selling
prices; the Company's objective is to maintain gross margin at approximately
current levels.
OPERATING EXPENSES
Selling, general and administrative expenses and the provision for uncollectible
accounts increased 12% in Fiscal 1996 and 18% in Fiscal 1995. The increases were
largely due to incremental occupancy, staffing and marketing expenses related to
the Company's worldwide expansion program, as well as to sales-related variable
expenses, particularly in Japan. In addition, Fiscal 1996 included nonrecurring
pretax charges of $4,400,000 resulting from the planned closing and relocation
of a U.S. store within its existing market and the impairment of certain
European assets. The rate of expense growth in Fiscal 1996 was moderated due to
the weakening yen and its effect when translating yen-denominated expenses into
U.S. dollars; a strengthening yen in Fiscal 1995 had the converse effect. As a
percentage of net sales (the expense ratio), operating expenses were 42.3%,
43.2% and 43.0% in Fiscal 1996, 1995 and 1994. Management's ongoing objective is
to further reduce the expense ratio.
15
<PAGE> 5
EARNINGS FROM OPERATIONS
As a result of the above factors, earnings from operations increased 37% and 24%
in Fiscal 1996 and 1995. As a percentage of net sales, earnings from operations
improved to 11.9% in Fiscal 1996, compared with 10.0% and 9.5% in Fiscal 1995
and 1994.
INTEREST EXPENSE
Lower interest expense in Fiscal 1996 was primarily due to the conversion and
redemption in June 1996 of the Company's $50,000,000 principal amount 6-3/8%
Convertible Subordinated Debentures Due 2001 (the "Debentures"). A reduction in
interest expense in Fiscal 1995 was primarily due to lower interest rates on
short-term borrowings in Japan, partially offset by the effect of higher average
short-term borrowings. A significant portion of the Company's short-term
borrowings at January 31, 1997 and 1996 was denominated in yen and used to
support the local working capital requirements of the Company's Japanese
operations. On the basis of current plans, interest rates and foreign currency
exchange rates, management expects a decline in interest expense in Fiscal 1997
primarily due to the annualized savings from the conversion and redemption of
the Debentures.
OTHER INCOME (DEDUCTIONS)
Fiscal 1996 included the recognition of a pretax gain of $4,500,000 that
resulted from the sale of the assets and business of Howard H. Sweet & Son,
Inc., one of the Company's manufacturing affiliates (see Note B to consolidated
financial statements). Fiscal 1995 included the recognition of a pretax gain of
$2,300,000 that resulted from the sale of the Company's watch assembly
operations in Switzerland (see Note B to consolidated financial statements).
INCOME TAXES
The provision for income taxes resulted in an effective tax rate of 43.2% in
Fiscal 1996 and 1995 and 43.1% in Fiscal 1994.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," ("SFAS No. 128") designed to improve the EPS information provided in
financial statements by simplifying the existing computational guidelines,
revising disclosure requirements, and increasing comparability of EPS data on an
international basis. The statement requires dual presentation of basic and
diluted EPS on the face of the income statement and a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The adoption of this standard,
required for the fiscal year ending January 31, 1998, is not expected to have a
material impact on the Company's EPS.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements which have increased due
to significant growth in the Company's business. Management believes that the
Company's financial condition at January 31, 1997 provides sufficient resources
to support current business activities and planned expansion. Working capital
(current assets minus current liabilities) and the corresponding current ratio
(current assets divided by current liabilities) were $342,511,000 and 2.5:1 at
January 31, 1997, compared with $284,102,000 and 2.3:1 at January 31, 1996.
Inventories represented 45% of total assets at January 31, 1997 and 48% at
January 31, 1996. The Company increased inventory levels by $24,137,000, or 8%,
in Fiscal 1996 in order to support sales growth, new stores (including the new
flagship store in Tokyo, Japan) and expanded product offerings. Inventory
turnover was 1.0 times at January 31, 1997 and 1996. The Company's ongoing
objective is to improve inventory performance through: refinement of worldwide
replenishment systems; focus on the specialized disciplines of product
development, assortment planning and inventory management; improved presentation
and management of display inventories in each store; assortment editing by
product category; and a time-phased program of improvements in warehouse
management and supply-chain logistics.
Capital expenditures were $39,884,000 in Fiscal 1996, $26,455,000 in Fiscal 1995
and $19,227,000 in Fiscal 1994. In all three years, expenditures were required
primarily for the opening and/or renovation of retail stores (particularly the
Company's flagship store in Tokyo, Japan in Fiscal 1996), and expansion and/or
renovation of administrative and office
16
<PAGE> 6
facilities (including leasehold improvements at the Company's new customer
service/distribution center in Parsippany, New Jersey in Fiscal 1996). Based on
current plans, the Company expects capital expenditures to be approximately
$50,000,000 in Fiscal 1997 due to an increased number of new store openings and
relocations.
Cash dividends were $6,303,000 in Fiscal 1996 compared with $4,424,000 and
$4,391,000 in Fiscal 1995 and 1994. In May 1996, the Board of Directors declared
a 43% increase in the quarterly dividend rate which became effective with the
July 1996 payment. The Company expects to continue to retain the majority of its
earnings to support its business and future expansion.
The Company achieved a net cash inflow from operating activities of $19,756,000
in Fiscal 1996 compared with inflows of $33,594,000 and $65,574,000 in Fiscal
1995 and 1994. Net-debt (short-term borrowings and long-term debt less cash and
cash equivalents) was $51,852,000 at January 31, 1997 compared with $98,501,000
at January 31, 1996. Net-debt as a percentage of total capital (net-debt plus
stockholders' equity) improved to 12% at January 31, 1997 from 27% at January
31, 1996.
The level of net-debt at January 31, 1997 was also affected by three other
factors. In the first quarter of Fiscal 1996, the Company prepaid its long-term
trade payable of yen 2,750,000,000 which was due on or before February 28, 1998
and which related to certain merchandise repurchased from Mitsukoshi Limited in
Fiscal 1993 as part of the Company's realignment of its Japan business. Also
during the first quarter of Fiscal 1996, the Company entered into a 15-year, yen
5,000,000,000 loan in Japan bearing interest at a rate of 4.50%. The proceeds
were used for working capital and construction costs associated with the
Company's flagship store in Tokyo which opened in May 1996, as well as to reduce
short-term indebtedness in Japan that was incurred to prepay the long-term trade
payable. During the second quarter of Fiscal 1996, the Company redeemed $916,000
of its Debentures and the remaining $49,084,000 were converted, at the option of
the holders, into shares of the Company's Common Stock.
The Company's sources of working capital are internally generated cash flows and
funds available under a five-year, $130,000,000 multicurrency, noncollateralized
revolving credit facility which expires on June 30, 2000. Management anticipates
that internally generated cash flows and funds available under the revolving
credit facility will be sufficient to support the Company's planned worldwide
business expansion, as well as seasonal working capital increases typically
required during the third and fourth quarters of each fiscal year.
SEASONALITY
The Company's business is seasonal in nature, with the fourth quarter typically
representing a proportionally greater percentage of annual sales, earnings from
operations and cash flow. Management expects such seasonality to continue.
RISK FACTORS
This document contains certain "forward-looking statements" concerning the
Company's objectives and expectations with respect to new store openings, retail
prices, gross margin, expenses, inventory performance and capital expenditures.
Also, management makes other forward-looking statements from time to time
concerning objectives and expectations for sales, earnings and cash flow. As a
retailer, the Company's success in achieving its objectives and expectations is
dependent upon economic conditions and consumer attitudes and, in making
forward-looking statements, management assumes that existing conditions and
attitudes will continue to prevail. However, certain assumptions are specific to
the Company and/or the markets in which it operates. The following assumptions,
among others, are "risk factors" which could affect the likelihood that the
Company will achieve the objectives and expectations communicated by management:
(i) that new stores and other sales locations can be leased or otherwise
obtained on suitable terms in desired markets and that construction can be
completed on a timely basis; (ii) that existing product supply arrangements,
including license agreements with third-party designers, will continue; (iii)
that the market for high-quality cut diamonds will provide continuity of supply
and pricing; (iv) that new systems for inventory management, warehousing and
distribution can be successfully integrated with the Company's existing
distribution channels; and (v) that the exchange relationship between the
Japanese yen and the U.S. dollar will not substantially change during Fiscal
1997.
17
<PAGE> 7
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended January 31,
-------------------------------------
(in thousands, except per share amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $922,108 $803,292 $ 682,831
Cost of sales 422,414 375,922 324,629
-------------------------------------
Gross profit 499,694 427,370 358,202
Selling, general and administrative expenses 388,143 345,612 291,722
Provision for uncollectible accounts 2,138 1,745 1,825
-------------------------------------
Earnings from operations 109,413 80,013 64,655
Interest expense and financing costs 9,480 12,338 12,942
Other income (deductions) 2,953 1,360 (147)
-------------------------------------
Earnings before income taxes 102,886 69,035 51,566
Provision for income taxes 44,447 29,820 22,225
-------------------------------------
NET EARNINGS $ 58,439 $ 39,215 $ 29,341
=====================================
Net earnings per share:
Primary $ 1.67 $ 1.22 $ 0.93
-------------------------------------
Fully diluted $ 1.66 $ 1.19 $ 0.93
-------------------------------------
Weighted average number of common shares:
Primary 34,953 32,234 31,796
Fully diluted 35,706 34,546 33,582
</TABLE>
See notes to consolidated financial statements.
18 Tiffany & Co. and Subsidiaries
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
------------------------
(in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $117,161 $ 81,966
Accounts receivable, less allowances of $6,864 and $5,698 80,772 80,084
Inventories 335,389 311,252
Deferred income taxes 14,297 8,060
Prepaid expenses 21,364 20,042
------------------------
Total current assets 568,983 501,404
Property and equipment, net 129,346 115,214
Deferred income taxes 10,259 10,033
Other assets, net 30,830 27,606
------------------------
$739,418 $ 654,257
------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 76,338 $ 78,967
Accounts payable and accrued liabilities 110,068 107,609
Income taxes payable 25,829 19,672
Merchandise and other customer credits 14,237 11,054
------------------------
Total current liabilities 226,472 217,302
Long-term trade payable - 25,688
Reserve for product return 5,800 11,238
Long-term debt 92,675 101,500
Postretirement/employment benefit obligation 19,191 18,031
Other long-term liabilities 17,016 16,120
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value; authorized 60,000 shares, issued 34,529 and 31,976 345 320
Additional paid-in capital 150,045 82,460
Retained earnings 237,959 185,823
Foreign currency translation adjustments (10,085) (4,225)
------------------------
Total stockholders' equity 378,264 264,378
------------------------
$739,418 $ 654,257
========================
</TABLE>
See notes to consolidated financial statements.
Tiffany & Co. and Subsidiaries 19
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 58,439 $ 39,215 $ 29,341
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 20,828 18,790 16,501
Provision for uncollectible accounts 2,138 1,745 1,825
Reduction in reserve for product return (5,438) (1,865) (560)
Provision for inventories 5,220 3,044 1,788
Deferred income taxes (6,695) (7,528) (2,039)
Income tax receivable - 7,925 4,592
Gain on sale of subsidiary's net assets (4,500) (2,330) -
Impairment loss on certain assets 2,281 2,419 -
Loss on disposal of fixed assets - 2,956 -
Provision for postretirement/employment benefits 1,160 1,450 2,261
Changes in assets and liabilities:
Accounts receivable (9,439) (15,830) 5,839
Inventories (53,176) (54,746) 2,630
Prepaid expenses (1,688) (2,674) 393
Other assets, net (7,557) 2,203 (7,863)
Accounts payable 1,916 12,883 (3,055)
Accrued liabilities 4,932 15,449 4,877
Income taxes payable 6,867 6,893 6,700
Merchandise and other customer credits 3,183 2,525 1,582
Other long-term liabilities 1,285 1,070 762
---------------------------------------
Net cash provided by operating activities 19,756 33,594 65,574
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (39,884) (26,455) (19,227)
Proceeds from lease incentives 1,590 1,729 250
Proceeds from sale of subsidiary's net assets 15,000 - -
Other - 174 (133)
---------------------------------------
Net cash used in investing activities (23,294) (24,552) (19,110)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) short-term borrowings 7,089 22,826 (4,072)
Prepayment of long-term trade payable (26,029) - -
Proceeds from issuance of long-term debt 46,625 - -
Proceeds from exercise of stock options 13,462 7,971 967
Tax benefit from exercise of stock options 4,805 2,233 356
Cash dividends on Common Stock (6,303) (4,424) (4,391)
Redemption of Convertible Subordinated Debentures (916) - -
---------------------------------------
Net cash provided by (used in) financing activities 38,733 28,606 (7,140)
---------------------------------------
Net increase in cash and cash equivalents 35,195 37,648 39,324
Cash and cash equivalents at beginning of year 81,966 44,318 4,994
---------------------------------------
Cash and cash equivalents at end of year $117,161 $ 81,966 $ 44,318
=======================================
</TABLE>
See notes to consolidated financial statements.
20 Tiffany & Co. and Subsidiaries
<PAGE> 10
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Total Common Stock Additional Currency
Stockholders' ----------------- Paid-in Retained Translation
(in thousands) Equity Shares Amount Capital Earnings Adjustments
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 31, 1994 $189,081 15,660 $157 $ 70,498 $126,082 $ (7,656)
Exercise of stock options 967 43 - 967 - -
Tax benefit from exercise of stock options 356 - - 356 - -
Cash dividends on Common Stock (4,391) - - - (4,391) -
Foreign currency translation adjustments 6,343 - - - - 6,343
Net earnings 29,341 - - - 29,341 -
-----------------------------------------------------------------------
Balances, January 31, 1995 221,697 15,703 157 71,821 151,032 (1,313)
Exercise of stock options 7,971 266 3 7,968 - -
Tax benefit from exercise of stock options 2,233 - - 2,233 - -
Issuance of Common Stock 598 19 - 598 - -
Cash dividends on Common Stock (4,424) - - - (4,424) -
Foreign currency translation adjustments (2,912) - - - - (2,912)
Net earnings 39,215 - - - 39,215 -
-----------------------------------------------------------------------
Balances, January 31, 1996 264,378 15,988 160 82,620 185,823 (4,225)
Two-for-one stock split - 17,197 172 (172) - -
Exercise of stock options 13,462 449 4 13,458 - -
Tax benefit from exercise of stock options 4,805 - - 4,805 - -
Issuance of Common Stock 1,000 18 - 1,000 - -
Conversion of Convertible
Subordinated Debentures 49,084 877 9 49,075 - -
Bond fees relating to the conversion of
Convertible Subordinated Debentures (741) - - (741) - -
Cash dividends on Common Stock (6,303) - - - (6,303) -
Foreign currency translation adjustments (5,860) - - - - (5,860)
Net earnings 58,439 - - - 58,439 -
-----------------------------------------------------------------------
Balances, January 31, 1997 $378,264 34,529 $345 $150,045 $237,959 $(10,085)
=======================================================================
</TABLE>
See notes to consolidated financial statements.
Tiffany & Co. and Subsidiaries 21
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Tiffany & Co. is the internationally renowned jeweler and specialty retailer.
Sales are made through TIFFANY & CO. stores and boutiques and to select
retailers and distributors in the Americas, the Asia-Pacific region, Europe and
the Middle East. Direct Marketing sales are made through Tiffany's corporate and
catalog divisions.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tiffany & Co. and
all majority-owned domestic and foreign subsidiaries (the "Company") after
elimination of all material intercompany balances and transactions.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and related
notes to the financial statements. The most significant estimates include
valuation of inventories, provision for uncollectible accounts and the
recoverability of long-lived assets. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS AND SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
The Company's cash and cash equivalents include highly liquid investments with
an original maturity of three months or less when purchased.
Supplemental cash flow information for the years ended January 31, 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Cash paid during
the year for:
Interest $10,985 $11,372 $12,445
--------------------------------
Income taxes $39,001 $15,188* $13,326
--------------------------------
</TABLE>
* Net of $7,925 Federal income tax refund.
Supplemental Noncash Investing and Financing Activities for the years ended
January 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Financing activities:
Conversion of
Subordinated
Debentures to equity $48,343 -- --
--------------------------------
Issuance of Common
Stock for the Employee
Profit Sharing and
Retirement Savings
Plan $ 1,000 $598 --
--------------------------------
</TABLE>
RECEIVABLES AND FINANCE CHARGES
Accounts receivable finance charge income on retail revolving charge accounts
was not material and has been included as a reduction of Selling, general and
administrative expenses.
The Company's domestic and international presence and large, diversified
customer base serve to limit overall credit risk. The Company maintains reserves
for potential credit losses and such losses, in the aggregate, have not exceeded
expectations.
INVENTORIES
Inventories are valued at the lower of cost or market with cost being determined
by the LIFO (last-in, first-out) method for domestic and foreign branch
inventories and the FIFO (first-in, first-out) method for inventories held by
foreign subsidiaries.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and is
depreciated on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the estimated
useful lives of the improvements or the terms of the related leases.
Expenditures for repairs and maintenance are expensed as incurred and
expenditures for major renewals and improvements are capitalized. Upon
retirement or disposition of property and equipment, the applicable cost and
accumulated depreciation are removed from the accounts and any resulting gains
or losses are included in the results of operations.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has occurred, the
loss would be recognized during that period.
22 Tiffany & Co. and Subsidiaries
<PAGE> 12
PREOPENING COSTS
Costs associated with the opening of new retail stores are expensed in the
period incurred.
ADVERTISING
Advertising costs, which include media, production and catalogs, aggregated
$43,900,000, $37,200,000 and $31,000,000 for the years ended January 31, 1997,
1996 and 1995. Media and production costs are expensed as incurred, while
catalog costs are expensed upon mailing.
INCOME TAXES
The Company provides for income taxes based upon the tax rate at which the items
of income and expense are expected to be settled in the Company's tax return.
The Company, its domestic subsidiaries and its foreign branches, file a
consolidated Federal income tax return. Certain items of revenue and expense are
reported for income tax purposes in different periods than for financial
reporting purposes, thereby resulting in deferred income tax items.
FOREIGN CURRENCY
Assets and liabilities of foreign operations are translated into U.S. dollars
using current exchange rates in effect at the balance sheet date, while revenue
and expense amounts are translated at average rates of exchange prevailing
during the period. Adjustments resulting from such translation are included as a
separate component of stockholders' equity.
The Company recognized $315,000, $(67,000) and $924,000 of net foreign currency
transaction gains (losses), included in Other income (deductions), related to
its foreign operations for the years ended January 31, 1997, 1996 and 1995.
REVENUE RECOGNITION
The Company recognizes revenue at the "point of sale," which occurs when
merchandise is taken in an "over-the-counter" transaction or upon shipment to a
customer. For the years ended January 31, 1997, 1996 and 1995, the largest
portion of the Company's sales were denominated in U.S. dollars.
GOODWILL
Goodwill represents the excess of cost over fair value of net assets acquired
and is being amortized over 20 years using the straight-line method. Management
periodically reviews goodwill for impairment based upon projected undiscounted
cash flows from operations of the subsidiaries to which goodwill relates. At
January 31, 1997 and 1996, the remaining unamortized amounts of $4,794,000 and
$5,937,000 are included in Other assets, net.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for retired
employees and accrues the cost of providing these benefits throughout the
employees' active service periods until they attain full eligibility for those
benefits. Substantially all of the Company's employees may become eligible for
these benefits if they reach normal or early retirement age while working for
the Company. The Company's employee and retiree health care benefits are
administered by an insurance company and premiums on life insurance are based on
benefits paid during the year.
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits for former employees after
employment but before retirement and accrues the cost of these benefits as they
are earned rather than expensing the costs when paid. These benefits include
salary continuation, severance payments, disability benefits and continuation of
health care benefits and life insurance coverage.
EARNINGS PER SHARE
Primary earnings per common share is computed based on the weighted average
number of shares of common stock and common stock equivalents outstanding,
including dilutive stock options. The computation of fully diluted earnings per
common share reflects the assumed conversion of the Debentures through the
second quarter of 1996.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS No. 128")
designed to improve the EPS information provided in financial statements by
simplifying the existing computational guidelines, revising disclosure
requirements, and increasing comparability of EPS data on an international
basis. The statement requires dual presentation of basic and diluted EPS on the
face of the income statement and a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
23
<PAGE> 13
diluted EPS computation. The adoption of this standard, required for the fiscal
year ending January 31, 1998, is not expected to have a material impact on the
Company's EPS.
STOCK SPLIT
On May 16, 1996, the Board of Directors declared a two-for-one split of the
Company's Common Stock, effected in the form of a share distribution (stock
dividend) paid on July 23, 1996 to stockholders of record on June 28, 1996. All
share and per share data have been restated to reflect the split.
RECLASSIFICATIONS
To conform to 1997's presentation, certain reclassifications were made to prior
years' consolidated financial statements.
B. BUSINESS DISPOSITION/RESTRUCTURING
During the year ended January 31, 1997, the Company sold the assets and business
of Howard H. Sweet & Son, Inc., a manufacturer of gold and silver components and
finished products located in Massachusetts, for $15,000,000. As a result of this
sale, the Company recorded a pretax gain of $4,500,000 which is included in
Other income (deductions).
During the year ended January 31, 1996, the Company restructured its watch
operations in Switzerland by divesting its assembly operations and outsourcing
these activities to a third-party watch manufacturer. In conjunction with this
transaction, the Company repatriated $15,700,000 in cash dividends from its
Swiss subsidiary, sold its Swiss subsidiary for $3,500,000 and recorded a pretax
gain of $2,300,000 which is included in Other income (deductions). This gain was
primarily due to the recognition of previously deferred foreign currency
translation adjustments relating to the Swiss subsidiary's equity.
C. INVENTORIES
<TABLE>
<CAPTION>
(in thousands) 1997 1996
---------------------
<S> <C> <C>
Finished goods $286,109 $257,344
Raw materials 47,969 48,366
Work-in-process 3,054 7,217
--------------------
337,132 312,927
Reserves (1,743) (1,675)
--------------------
$335,389 $311,252
--------------------
</TABLE>
At January 31, 1997 and 1996, $249,904,000 and $229,300,000 of inventories were
valued using the LIFO method. The excess of current cost over the LIFO inventory
value was $14,870,000 and $11,870,000 at January 31, 1997 and 1996. The LIFO
valuation method had the effect of decreasing net earnings by $0.05 and $0.04
per share for the years ended January 31, 1997 and 1996.
D. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $ 118,805 $ 110,551
Office equipment 33,462 34,247
Machinery and equipment 52,460 31,929
---------------------------
204,727 176,727
Accumulated depreciation
and amortization (75,381) (61,513)
---------------------------
$ 129,346 $ 115,214
---------------------------
</TABLE>
For the years ended January 31, 1997, 1996 and 1995, the provision for
depreciation and amortization amounted to $19,835,000, $17,117,000 and
$14,057,000.
E. IMPAIRMENT OF LONG-LIVED ASSETS
During the years ended January 31, 1997 and 1996, the Company recorded a pretax
charge of $2,300,000 and $2,500,000, included in Selling, general and
administrative expenses, as a result of evaluating cash flows projected to be
generated by its long-lived assets at the retail store level and continued
difficult operating conditions in certain of its European markets. The
impairment loss was calculated as the difference between the asset carrying
values and the present value of projected net cash flows or comparable market
values, giving consideration to recent operating performance and pricing trends.
These projections represent the Company's best estimate of fair value based on
current information available.
F. ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------
<S> <C> <C>
Accounts payable - trade $ 48,585 $ 49,346
Accrued rent payable 9,961 8,781
Accrued compensation and
commissions 11,150 9,112
Other 40,372 40,370
------------------------
$110,068 $107,609
------------------------
</TABLE>
24
<PAGE> 14
G. DEBT
During the year ended January 31, 1997, the Company entered into a yen
5,000,000,000, 15-year term loan agreement bearing interest at a rate of 4.50%.
The proceeds from this loan were used for working capital and construction costs
associated with the Company's flagship store in Tokyo which opened in May 1996,
as well as to reduce short-term indebtedness in Japan.
On June 24, 1996 (the "Redemption Date"), the Company redeemed $916,000 of its
$50,000,000 principal amount 6-3/8% Convertible Subordinated Debentures Due 2001
(the "Debentures"). The remaining $49,084,000 principal amount of the Debentures
was converted, at the option of the holders, into shares of the Company's Common
Stock. In accordance with the terms of the Debentures, the redemption price was
101% of their principal amount, subject to conversion of principal at the rate
of $28.00 per share (adjusted to reflect the two-for-one stock split in July
1996). The right of conversion expired at the close of business on the
Redemption Date. If the Debentures had been converted at the beginning of the
period, primary earnings per share would have been reduced by $0.03 per share.
During the year ended January 31, 1996, the Company entered into an agreement
for a new five-year $130,000,000 multicurrency revolving credit facility (the
"Credit Facility") which replaced a $100,000,000 revolving credit facility and a
yen 2,500,000,000 noncollateralized line of credit, both of which expired in
July 1995. At January 31, 1997 and 1996, the amounts outstanding under the
Company's new Credit Facility amounted to $76,338,000 and $78,967,000. The new
syndicated, noncollateralized Credit Facility entitles the Company to borrow up
to $25,000,000 on a pro-rata basis from each of four banks and up to $30,000,000
from the agent bank at interest rates based upon a prime rate or a
reserve-adjusted LIBOR. During the years ended January 31, 1997 and 1996,
interest rates ranged from 0.69% to 16.5% and 0.75% to 11.31%. The weighted
average interest rate for the years ended January 31, 1997 and 1996 was 1.71%
and 2.59%.
The Credit Facility requires the payment of an annual fee based on the total
amount of available credit and letters of credit issued and contains covenants
that require maintenance of certain debt-equity and interest coverage ratios, as
well as other requirements customary to loan facilities of this nature. In
addition, such agreement contains a cross-default provision relating to an event
of default under any debt of the Company or its subsidiaries which exceeds
$5,000,000.
On January 29, 1993, the Company entered into an agreement with a group of
lenders to issue, at par, $51,500,000 of 7.52% Senior Notes Due 2003. The Note
Purchase Agreements (the "Note Agreements") require lump sum repayment upon
maturity, maintenance of specific financial covenants and ratios, and limit
certain payments, investments and indebtedness, in addition to other
requirements customary in such circumstances. The Note Agreements also provide
that, in the event a default has occurred under any debt of the Company in
excess of $1,000,000, the unpaid principal amount of these Senior Notes may
become immediately due and payable.
H. FINANCIAL HEDGING INSTRUMENTS
The Company maintains a foreign currency hedging program intended to reduce the
Company's risk in foreign currency-denominated (primarily yen) transactions in
order to reduce the potentially negative impact on the Company's financial
statements of a significant strengthening of the U.S. dollar against the yen. In
connection with this program, the Company will, from time to time, enter into
foreign currency-purchased put options and forward-exchange contracts that are
designated as hedges of commitments to purchase merchandise and settle
liabilities in foreign currencies. The market value gains and losses on these
foreign exchange contracts are initially deferred and then recognized in income
or as adjustments of carrying amounts of inventories and liabilities when the
related transactions are settled. At January 31, 1997, the Company had
outstanding purchased put options maturing at various dates through January 23,
1998, giving it the right, but not the obligation, to sell yen 7,754,000,000 at
predetermined contract-exchange rates. The deferred unrealized gain on the
Company's purchased put options amounted to $8,144,000 at January 31, 1997. If
the market yen-exchange rates at maturity are below the contract rates, the
Company will allow the options to expire. The Company's pretax expense related
to its hedging program was $1,827,000 and $1,127,000 for the years ended January
31, 1997 and 1996. At January 31, 1997, the Company also had $5,864,000 of
outstanding forward exchange yen contracts, which matured on February 26, 1997,
to support the settle-
25
<PAGE> 15
ment of merchandise liabilities for the Company's business in Japan. At
January 31, 1996, there were no material outstanding forward exchange contracts.
On January 31, 1993, the Company entered into a three-year $50,000,000 interest
rate swap agreement, which expired on January 31, 1996, to modify the interest
characteristics of its outstanding Senior Notes from a fixed-rate to a
floating-rate basis. The interest rate swap agreement had the effect of
increasing interest expense by $547,000 and $375,000 for the years ended January
31, 1996 and 1995.
I. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table sets forth the carrying amounts and estimated fair values of
the Company's financial instruments at January 31, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Asset (liability) Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash
equivalents $117,161 $117,161 $ 81,966 $ 81,966
Senior Notes (51,500) (52,267) (51,500) (53,650)
Convertible
Subordinated
Debentures -- -- (50,000) (52,000)
Japan long-
term debt (41,175) (45,414) -- --
</TABLE>
The carrying amounts of the Company's Senior Notes, Debentures and Japan
long-term debt in the above table are included in Long-term debt in the
consolidated balance sheets at January 31, 1997 and 1996.
The fair values of these financial instruments at January 31, 1997 and 1996 were
estimated as follows: the Cash and cash equivalents approximate carrying amount
due to their short-term maturity; the Senior Notes were based upon the quoted
market prices of comparable instruments; the Debentures were based upon their
quoted market price; and the Japan long-term debt was based upon discounted cash
flow analysis for securities with similar characteristics.
J. COMMITMENTS AND CONTINGENCIES
The Company leases certain office, distribution, retail and manufacturing
facilities. The leases, which expire at various dates through 2016, subject in
some cases to renewal options, also provide for the payment of taxes, insurance
and maintenance, and certain leases contain escalation clauses resulting from
the pass-through of increases in operating costs, property taxes and consumer
price indices.
During the year ended January 31, 1996, the Company entered into a lease
agreement for a 269,000 square-foot distribution, office and manufacturing
facility that will consolidate the Company's existing New Jersey facilities.
Under the terms of the agreement, the Company's operating lease commitment will
be $3,600,000 annually and commenced during the fourth quarter of 1996. The
lease consists of an initial term of three years followed by nine consecutive
one-year renewal terms up to a maximum of 12 years.
Rent-free periods and other incentives granted under certain leases, and
scheduled rent increases, are charged to rent expense on a straight-line basis
over the related terms of such leases. Rent expense under leases, including
escalations, for the years ended January 31, 1997, 1996 and 1995 amounted to
$37,078,000, $32,686,000 and $29,046,000.
Future minimum annual rental payments under noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Minimum Annual
Fiscal Year Ending Rental Payments
January 31, (in thousands)
- --------------------------------------------------------
<S> <C>
1998 $ 32,018
1999 33,223
2000 30,756
2001 23,231
2002 22,971
2003 and thereafter 134,977
</TABLE>
The Company is, from time to time, involved in routine litigation incidental to
the conduct of its business including proceedings to protect its trademark
rights, litigation instituted by persons injured upon premises within the
Company's control and litigation with present and former employees. Management
believes that such pending litigation will not have a material adverse effect on
the Company's consolidated results of operations or financial condition.
K. RELATED PARTY TRANSACTIONS
Mitsukoshi Limited ("Mitsukoshi"), a leading Japanese department store group,
owns approximately 12% of the Company's
26
<PAGE> 16
outstanding Common Stock. Until July 1993, Mitsukoshi served as the Company's
principal distributor in Japan. Pursuant to a written agreement, the Company now
operates TIFFANY & CO. boutiques in Mitsukoshi's stores and a flagship store in
Tokyo and, in exchange, pays Mitsukoshi fees based on a percentage of net retail
sales; such fees amounted to $45,400,000, $46,500,000 and $39,400,000 for the
years ended January 31, 1997, 1996 and 1995. Mitsukoshi continues to operate
certain boutiques, primarily outside of Japan. Wholesale sales to Mitsukoshi
amounted to $21,400,000, $17,000,000 and $19,000,000 for the years ended January
31, 1997, 1996 and 1995. Trade receivables due from Mitsukoshi were $3,220,000
and $1,746,000 at January 31, 1997 and 1996.
During the year ended January 31, 1994, the Company realigned its primary
Japanese distribution arrangement and assumed full merchandising and marketing
responsibility for 29 TIFFANY & CO. boutiques previously operated by Mitsukoshi
in Japan. As part of the transaction, the Company agreed to repurchase over the
following four years approximately $115,000,000 of TIFFANY & CO. merchandise
previously sold to Mitsukoshi. Under this agreement, $12,174,000 of merchandise
remains to be repurchased throughout the period ending February 28, 1998. On
February 15, 1996, the Company prepaid its long-term trade payable to Mitsukoshi
which amounted to yen 2,750,000,000, which was due on or before February 28,
1998.
L. STOCKHOLDERS' EQUITY
AUTHORIZED STOCK
On May 16, 1996, the stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the number of common shares
authorized from 30,000,000 shares to 60,000,000 shares. On that date, the Board
of Directors declared a two-for-one split of the Company's Common Stock, which
was later effected in the form of a share distribution (stock dividend), paid on
July 23, 1996 to stockholders of record on June 28, 1996. All applicable share
and per share data have been retroactively adjusted to reflect the stock split.
PREFERRED STOCK
The Board of Directors is authorized to issue, without further action by the
stockholders, shares of Preferred Stock, and to fix and alter the rights related
to such stock. In March 1987, the stockholders authorized 2,000,000 shares of
Preferred Stock, par value $0.01 per share. In November 1988, the Board of
Directors designated certain shares of such Preferred Stock as Series A Junior
Participating Cumulative Preferred Stock, par value $0.01 per share, to be
issued in connection with the exercise of certain stock purchase rights under
the Stockholder Rights Plan. At January 31, 1997 and 1996, there were no shares
of Preferred Stock issued or outstanding.
STOCKHOLDER RIGHTS PLAN
Under the Company's Stockholder Rights Plan, each outstanding share of Common
Stock has a stock purchase right which will become exercisable should certain
take-over-related events occur. The rights expire on November 17, 1998, and are
subject to redemption at $0.01 per right. Following such events, but before any
person has acquired beneficial ownership of 20% of the common shares, each right
may be used to purchase one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock at an exercise price of $140 (subject
to adjustment); after such an acquisition, each right may be used to purchase
for the exercise price common shares having a market value equal to two times
such exercise price. If, after such an acquisition, a merger of the Company
occurs (or 50% of the Company's assets are sold), each right may be exercised to
purchase, for the exercise price, common shares of the acquiring corporation
having a market value equal to two times the exercise price. Rights held by such
a 20% owner may not be exercised.
CASH DIVIDENDS
On May 16, 1996, the Company's Board of Directors approved a 43% increase in the
quarterly cash dividend to $0.10 per share on a "pre-split" basis. This was
equivalent to $0.05 per share on a "post-split" basis. Cash dividends declared
and paid during the years ended January 31, 1997, 1996 and 1995 amounted to
$6,303,000, $4,424,000 and $4,391,000. On February 20, 1997, the Company's Board
of Directors declared a regular quarterly dividend of $0.05 per common share,
for stockholders of record on March 20, 1997, to be paid on April 10, 1997.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS
27
<PAGE> 17
No. 123"), which establishes a fair-value-based method of accounting for
stock-based compensation plans, including stock options and stock purchase
plans. SFAS No. 123 allows companies to adopt a fair-value-based method of
accounting for stock-based compensation plans or, at their option, to retain the
intrinsic-value-based method of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and supplement it
with pro forma disclosures of net earnings and earnings per share data as if the
fair-value-based method had been applied. The Company has elected to continue to
account for stock-based compensation plans under APB No. 25 and, as such, the
adoption of this standard has not impacted the consolidated results of earnings
or financial condition.
The Company has two fixed Stock Option Plans which reserve shares of Common
Stock for certain key employees. Under the 1985 and 1986 plans, a maximum of
720,000 and 6,418,000 options to purchase shares of Common Stock may be granted
to key employees of the Company at prices not less than 100% of the fair market
value at the date of option grant. All options are exercisable in installments
within a period not to exceed 11 years from the date of grant. No further grants
may be made under the 1985 plan.
On May 19, 1988, the stockholders of the Company approved the Tiffany & Co. 1988
Director Option Plan, under which options to acquire 300,000 shares of Common
Stock may be granted to nonemployee directors of the Company at a price equal to
50% of the fair market value on the date of grant. Each director may elect to
receive options in lieu of all or 50% of an annual retainer fee. Options granted
under this plan have a maximum term of 15 years and are exercisable in full one
year following the date of grant. The Company has recognized compensation
expense relating to the Director Option Plan based on the difference between the
option price and the fair market value at the date of grant.
Had the fair-value-based method of accounting been adopted to recognize
compensation expense for the above plans, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts for the
years ended January 31, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Net earnings:
As reported $58,439 $39,215
Pro forma 57,680 39,188
Primary earnings per share:
As reported 1.67 1.22
Pro forma 1.65 1.22
Fully diluted earnings per share:
As reported 1.66 1.19
Pro forma 1.63 1.19
</TABLE>
The fair value of each option grant under all plans is estimated on the date of
grant using the Black-Scholes option-pricing model based on the following
assumptions:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Dividend yield 0.8% 0.8%
Expected volatility 20.0% 18.6%
Risk-free interest rate 6.2% 5.4%
Expected life (years) 5 5
</TABLE>
Stock option share activity and weighted average exercise price under these
plans for the years ended January 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Weighted-
Number Average
of Exercise
Shares Price
- --------------------------------------------------------------------
<S> <C> <C>
Outstanding, January 31, 1994 3,139,502 $ 16.52
Granted 706,520 15.59
Exercised (85,002) 9.73
Forfeited (230,770) 18.70
----------
Outstanding, January 31, 1995 3,530,250 16.36
Granted 754,110 26.30
Exercised (531,902) 14.84
Forfeited (189,922) 17.58
----------
Outstanding, January 31, 1996 3,562,536 18.90
Granted 427,961 36.54
Exercised (763,147) 17.48
Forfeited (120,663) 19.20
----------
Outstanding, January 31, 1997 3,106,687 21.46
----------
Weighted-average fair value of
options granted during the year
ended January 31, 1997 $ 10.78
----------
</TABLE>
The number of options exercisable were 1,961,108 at January 31, 1995; 1,896,776
at January 31, 1996 and 1,745,551 at January 31, 1997.
28
<PAGE> 18
The following table summarizes information concerning currently outstanding and
exercisable options at January 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (years) Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.90 - $15.00 347,166 4.3 years $ 9.64 338,166 $ 9.51
$15.00 - $25.00 1,678,221 7.3 years 17.52 1,207,835 18.02
$25.00 - $41.00 1,081,300 10.2 years 30.90 199,550 27.10
------------------------------------------------------------------------------------
3,106,687 8.0 years $ 21.46 1,745,551 $17.41
------------------------------------------------------------------------------------
</TABLE>
M. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The actuarial present value of accumulated postretirement benefit obligations
and the amounts recognized in the Company's consolidated balance sheets at
January 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands, except percentages) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 6,114 $ 6,679
Fully eligible active plan participants 2,436 2,943
Other active plan participants 6,103 7,468
-----------------------
Total accumulated postretirement
benefit obligation 14,653 17,090
Unrecognized gain 4,681 919
-----------------------
Postretirement benefit obligation $19,334 $18,009
-----------------------
Discount rate 7.50% 7.00%
Health care cost trend 6.50% 9.50%*
</TABLE>
*Gradually declining to 5.50% to be achieved in the year 2011.
Postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during period $1,101 $1,016 $1,132
Interest cost on projected
benefit obligation 804 717 1,137
---------------------------
Total postretirement
benefit cost $1,905 $1,733 $2,269
---------------------------
</TABLE>
Based on current estimates, increasing the health-care-cost trend rate by one
percentage point would increase the Company's accumulated postretirement benefit
obligation by $1,300,000 and the aggregate service and interest cost components
of net periodic postretirement benefit for the year ended January 31, 1997 by
$200,000.
N. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan (the "Plan")
covering substantially all domestic salaried and full-time hourly employees. The
Company accounts for pension expense using the projected unit credit actuarial
method for financial reporting purposes. Plan benefits are based on the highest
five consecutive years of compensation or as a percentage of actual
compensation, as applicable in the circumstances, and the number of years of
service. The actuarial present value of the vested benefit obligation is
calculated based on the expected date of separation or retirement of the
Company's eligible employees.
29
<PAGE> 19
Net periodic pension expense included the following
components:
<TABLE>
<CAPTION>
(in thousands,
except percentages) 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during period $ 2,989 $2,272 $ 2,343
Interest cost on projected
benefit obligation 3,317 3,026 2,625
Actual return on assets (6,372) (7,852) 877
Net amortization
and deferrals 3,952 5,532 (2,703)
------------------------------------
Net periodic
pension expense $ 3,886 $2,978 $ 3,142
====================================
Discount rate 7.00% 8.50% 7.50%
Rate of increase
in compensation 4.50% 5.50% 5.00%
Long-term rate of
return on assets 9.00% 9.00% 9.00%
</TABLE>
The following table sets forth the funded status of the Plan and amounts
recognized in the Company's consolidated balance sheets at January 31, 1997 and
1996:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligation:
Vested $ 38,378 $ 35,124
Nonvested 4,595 5,650
-------------------------
Accumulated benefit obligation $ 42,973 $ 40,774
=========================
Projected benefit obligation $ 49,991 $ 47,489
Plan assets at fair value,
primarily stocks and fixed
income securities 48,511 38,198
-------------------------
Projected benefit obligation
in excess of Plan assets 1,480 9,291
Unrecognized net loss (1,610) (7,156)
Unrecognized net obligation (445) (548)
Recognition of minimum liability -- 990
-------------------------
(Prepaid pension cost) pension
liability recognized in the
consolidated balance sheets $ (575) $ 2,577
=========================
</TABLE>
The assumptions used in the calculation of the projected benefit obligation are
as follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Discount rate 7.50% 7.00%
Rate of increase in compensation 5.00% 4.50%
</TABLE>
The Company has an Employee Profit Sharing and Retirement Savings Plan that
covers substantially all U.S.-based employees of the Company. Under the profit
sharing portion of the Plan, the Company makes contributions to the employees'
accounts based upon the achievement of certain targeted earnings objectives
established by the Board of Directors. The Company's contribution for the years
ended January 31, 1997 and 1996 amounted to $1,800,000 and $1,000,000 in the
form of newly issued Company Common Stock. Under the retirement savings feature,
employees who meet certain eligibility requirements can participate in the plan
by contributing up to 15% of their annual compensation. During the year ended
January 31, 1997, the Board of Directors approved a company contribution
equaling 50% of each employee's contribution up to 6% of each participant's
total compensation. The Company's contribution amounted to $1,631,000 for the
year ended January 31, 1997. No contribution was made for the year ended January
31, 1996.
O. INCOME TAXES
Earnings before income taxes consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
United States $ 76,357 $48,702 $41,894
Foreign 26,529 20,333 9,672
--------------------------------------
$102,886 $69,035 $51,566
======================================
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 27,637 $ 17,444 $ 12,672
State 9,896 4,649 6,689
Foreign 12,771 14,605 5,013
------------------------------------------
50,304 36,698 24,374
------------------------------------------
Deferred:
Federal (3,160) (4,087) (2,738)
State (1,469) (686) (717)
Foreign (1,228) (2,105) 1,306
------------------------------------------
(5,857) (6,878) (2,149)
------------------------------------------
$ 44,447 $ 29,820 $ 22,225
==========================================
</TABLE>
30
<PAGE> 20
During the year ended January 31, 1996, the Company received an income tax
refund amounting to $7,925,000, primarily due to the recognition of a tax
benefit from its year ended January 31, 1994, for domestic net operating losses
and foreign tax credits that were carried back to prior tax years.
During the year ended January 31, 1995, an audit of the Company's Federal income
tax returns for the 1989-1992 fiscal years was completed and no material
adjustments were proposed.
Deferred tax assets (liabilities) as of January 31, 1997 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Postretirement/employment benefits $ 9,091 $ 8,537
Product return reserves 4,004 5,113
Inventory reserves 8,085 6,262
Accrued expenses 3,018 1,537
Financial hedging instruments 1,687 --
Depreciation 558 (599)
Pension contribution (1,071) (1,958)
Undistributed earnings
of foreign subsidiaries (3,819) (1,979)
Other 3,003 1,180
-------------------------
$ 24,556 $ 18,093
=========================
</TABLE>
The income tax effects of items comprising the deferred income tax benefit are
as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Postretirement/employment
benefit obligation $ (528) $ (634) $(1,029)
Product return reserves 1,821 849 255
Undistributed earnings of
foreign subsidiaries 1,840 (1,722) (167)
State net operating loss
carry-forward -- -- 2,703
Accelerated depreciation (856) (1,475) (1,068)
Inventory reserves (1,399) (1,764) (1,033)
Financial hedging instruments (1,687) -- --
Excess pension contribution (1,768) 530 (704)
Other (3,280) (2,662) (1,106)
--------------------------------------
$(5,857) $(6,878) $(2,149)
======================================
</TABLE>
A reconciliation of the provision for income taxes at the statutory Federal
income tax rate to the Company's effective tax rate as reported is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal benefit 5.8 6.4 5.4
Foreign losses with
no tax benefit 1.1 1.2 1.1
Other 1.3 0.6 1.6
------------------------
Effective income tax rate 43.2% 43.2% 43.1%
========================
</TABLE>
During the year ended January 31, 1995, the Company utilized a state income tax
benefit of $2,703,000 attributable to net operating loss carry-forwards. The
Company has fully utilized all available foreign tax credits.
31
<PAGE> 21
P. FOREIGN OPERATIONS
Certain information relating to the Company's foreign operations is set forth
below:
<TABLE>
<CAPTION>
International
------------------------
(in thousands) U.S. Japan Other Unallocated Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1997
Sales $ 764,885 $ 246,579 $ 125,432 $ -- $ 1,136,896
Eliminations (199,333) (27) (15,428) -- (214,788)
----------------------------------------------------------------------
Net sales $ 565,552 $ 246,552 $ 110,004 $ -- $ 922,108
----------------------------------------------------------------------
Operating profit* $ 86,168 $ 79,086 $ 14,441 $ -- $ 179,695
Corporate expenses -- -- -- (70,282) (70,282)
Interest and other expenses, net -- -- -- (6,527) (6,527)
----------------------------------------------------------------------
Earnings before income taxes $ 86,168 $ 79,086 $ 14,441 $(76,809) $ 102,886
----------------------------------------------------------------------
Identifiable assets $ 523,484 $ 162,278 $ 116,653 $ -- $ 802,415
Eliminations -- (62,277) (720) -- (62,997)
----------------------------------------------------------------------
Identifiable assets $ 523,484 $ 100,001 $ 115,933 $ -- $ 739,418
----------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1996
Sales $ 639,840 $ 226,076 $ 92,826 $ -- $ 958,742
Eliminations (145,204) -- (10,246) -- (155,450)
----------------------------------------------------------------------
Net sales $ 494,636 $ 226,076 $ 82,580 $ -- $ 803,292
----------------------------------------------------------------------
Operating profit* $ 68,316 $ 68,006 $ (1,475) $ -- $ 134,847
Corporate expenses -- -- -- (54,834) (54,834)
Interest and other expenses, net -- -- -- (10,978) (10,978)
----------------------------------------------------------------------
Earnings (loss) before income taxes $ 68,316 $ 68,006 $ (1,475) $(65,812) $ 69,035
----------------------------------------------------------------------
Identifiable assets $ 462,616 $ 119,218 $ 115,364 $ -- $ 697,198
Eliminations -- (43,405) 464 -- (42,941)
----------------------------------------------------------------------
Identifiable assets $ 462,616 $ 75,813 $ 115,828 $ -- $ 654,257
----------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1995
Sales $ 524,892 $ 189,445 $ 76,373 $ -- $ 790,710
Eliminations (96,037) -- (11,842) -- (107,879)
----------------------------------------------------------------------
Net sales $ 428,855 $ 189,445 $ 64,531 $ -- $ 682,831
----------------------------------------------------------------------
Operating profit* $ 59,563 $ 54,158 $ 112 $ -- $ 113,833
Corporate expenses -- -- -- (49,178) (49,178)
Interest and other expenses, net -- -- -- (13,089) (13,089)
----------------------------------------------------------------------
Earnings before income taxes $ 59,563 $ 54,158 $ 112 $(62,267) $ 51,566
----------------------------------------------------------------------
Identifiable assets $ 370,413 $ 108,463 $ 109,581 $ -- $ 588,457
Eliminations -- (33,227) 1,442 -- (31,785)
----------------------------------------------------------------------
Identifiable assets $ 370,413 $ 75,236 $ 111,023 $ -- $ 556,672
----------------------------------------------------------------------
</TABLE>
*Represents earnings from operations before corporate expenses, realignments and
interest and other expenses, net.
32
<PAGE> 22
Q. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended
-------------------------------------------------
(in thousands, except per share amounts) April 30 July 31 October 31 January 31*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $180,741 $202,763 $210,985 $327,619
Gross profit 93,366 106,882 114,284 185,162
Earnings from operations 12,278 16,878 18,643 61,614
Net earnings 5,077 8,246 9,347 35,769
Net earnings per share:
Primary $ 0.15 $ 0.24 $ 0.26 $ 1.00
-----------------------------------------------
Fully diluted $ 0.15 $ 0.24 $ 0.26 $ 1.00
-----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995 Quarter Ended
------------------------------------------------
(in thousands, except per share amounts) April 30 July 31 October 31** January 31
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $150,144 $184,682 $187,766 $280,700
Gross profit 77,363 96,418 100,704 152,885
Earnings from operations 6,757 12,567 11,818 48,871
Net earnings 2,160 5,308 6,274 25,473
Net earnings per share:
Primary $ 0.07 $ 0.17 $ 0.19 $ 0.77
------------------------------------------------
Fully diluted $ 0.07 $ 0.17 $ 0.19 $ 0.74
------------------------------------------------
</TABLE>
* Nonrecurring pretax charges of $4,400 resulting from the planned
closing and relocation of a U.S. retail store within its existing
market and the impairment of certain European assets are included in
Earnings from operations and a nonrecurring pretax gain of $4,500
resulting from the sale of certain manufacturing assets (see Note B to
consolidated financial statements) is included in Other income
(deductions).
** A nonrecurring pretax charge of $2,500 resulting from the impairment of
certain European assets is included in Earnings from operations and a
nonrecurring pretax gain of $2,300 resulting from the Company's
restructuring of its watch operations in Switzerland (see Note B to
consolidated financial statements) is included in Other income
(deductions).
The sum of the quarterly net earnings per share amounts may not equal
the full-year amount since the computations of the weighted average
number of common and common-equivalent shares outstanding for each
quarter and the full year are made independently.
33
<PAGE> 23
REPORT OF MANAGEMENT
The Company's consolidated financial statements were prepared by management, who
are responsible for their integrity and objectivity. The financial statements
have been prepared in accordance with generally accepted accounting principles
and, as such, include amounts based on management's best estimates and
judgments.
Management is further responsible for maintaining a system of internal
accounting control designed to provide reasonable assurance that the Company's
assets are adequately safeguarded and that the accounting records reflect
transactions executed in accordance with management's authorization. The system
of internal control is continually reviewed and is augmented by written policies
and procedures, the careful selection and training of qualified personnel and a
program of internal audit.
The consolidated financial statements have been audited by Coopers & Lybrand
L.L.P., Independent Accountants. Their report is shown on this page.
The Audit Committee of the Board of Directors, which is composed solely of
independent directors, meets regularly to discuss specific accounting, financial
reporting and internal control matters. Both the independent accountants and the
internal auditors have full and free access to the Audit Committee. Each year
the Audit Committee selects the firm that is to perform audit services for the
Company.
/s/ William R. Chaney
William R. Chaney
Chairman of the Board and
Chief Executive Officer
/s/ Michael J. Kowalski
Michael J. Kowalski
President and
Chief Operating Officer
/s/ James N. Fernandez
James N. Fernandez
Senior Vice President - Finance and
Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Tiffany & Co.
We have audited the accompanying consolidated balance sheets of Tiffany & Co.
and Subsidiaries as of January 31, 1997 and 1996, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
three years in the period ended January 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tiffany & Co. and
Subsidiaries as of January 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1997, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 5, 1997
<PAGE> 1
Tiffany & Co. Report on Form 10K
Subsidiaries Exhibit 21.1
<TABLE>
<S> <C> <C> <C>
--------------
TIFFANY & CO.
Delaware
August 16, 1984
--------------
-------------------------- --------------------------
TIFFANY AND COMPANY TIFFANY & CO.
INTERNATIONAL
New York Delaware
May 30, 1868 October 11, 1984
-------------------------- --------------------------
Domestic Subsidiaries International Subsidiaries Domestic Subsidiaries International Subsidiaries
- --------------------- -------------------------- --------------------- --------------------------
TIFFANY & CO. TIFFANY & CO. TIFFANY & CO. TIFFANY & CO.
ICT, INC. (NEW YORK) PTY. LTD. JAPAN INC. OF NEW YORK LIMITED
Delaware Australia Delaware Hong Kong
- --------------------- -------------------------- --------------------- --------------------------
- --------------------- -------------------------- --------------------------
TIFFCO JEWELRY SOCIETE FRANCAISE POUR LE TIFFANY-FARAONE
AND CHAIN CRAFTS, INC. DEVELOPPEMENT DE LA S.p.A.
(Formerly Howard H. PORCELAINE D'ART
Sweet & Son, Inc.)
Delaware France Italy
Became Inactive
January 27,1997
- --------------------- -------------------------- --------------------------
- --------------------- -------------------------- --------------------------
JUDEL PRODUCTS CORP. TIFFANY & CO. TIFFCO KOREA LTD.
(Formerly Glassware (Unlimited Liability)
Acquisition Inc.)
West Virginia United Kingdom Republic of Korea
- --------------------- -------------------------- --------------------------
-------------------------- --------------------------
TIFFANY & CO. K.K. TIFFANY & CO.
[Tiffany and Company 51% OVERSEAS FINANCE B.V.
Mitsukoshi, Ltd. 49%]
Japan Netherlands
-------------------------- --------------------------
--------------------------
TIFFANY & CO.
PTE. LTD.
Singapore
--------------------------
--------------------------
TIFFANY & CO.
A.G.
Switzerland-Canton Zurich
--------------------------
--------------------------
TIFFANY & CO.
WATCH CENTER S.A.
Switzerland-Canton Vaud
--------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Tiffany & Co. and Subsidiaries on From S-8 of our report dated March 5, 1997,
on our audits of the consolidated financial statements and financial statement
schedule of Tiffany & Co. and Subsidiaries as of January 31, 1997 and 1996, and
for each of the three years in the period ended January 31, 1997, which report
is incorporated by reference in the Company's Annual Report on Form 10-K.
New York, New York /s/ Coopers & Lybrand L.L.P.
April 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 117,161,000
<SECURITIES> 0
<RECEIVABLES> 87,636,000
<ALLOWANCES> (3,580,000)
<INVENTORY> 335,389,000
<CURRENT-ASSETS> 568,983,000
<PP&E> 204,727,000
<DEPRECIATION> 75,381,000
<TOTAL-ASSETS> 739,418,000
<CURRENT-LIABILITIES> 226,472,000
<BONDS> 0
0
0
<COMMON> 345
<OTHER-SE> 377,919,000
<TOTAL-LIABILITY-AND-EQUITY> 739,418,000
<SALES> 922,108,000
<TOTAL-REVENUES> 922,108,000
<CGS> 422,414,000
<TOTAL-COSTS> 422,414,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,138,000
<INTEREST-EXPENSE> 9,480,000
<INCOME-PRETAX> 102,886,000
<INCOME-TAX> 44,447,000
<INCOME-CONTINUING> 58,439,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,439,000
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.66
</TABLE>
