-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, t5VtWEr6dm+X/RRrNY3LjMrr0wcNRRpBFF73D/VGpe2Xls8JznEU3C7vBv5I4YNs 6sgt/FYFG1ENlvZ6fiWiCQ== 0000043837-95-000001.txt : 19950427 0000043837-95-000001.hdr.sgml : 19950427 ACCESSION NUMBER: 0000043837-95-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950426 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENMAN BROTHERS INC CENTRAL INDEX KEY: 0000043837 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090] IRS NUMBER: 111771705 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06083 FILM NUMBER: 95531515 BUSINESS ADDRESS: STREET 1: 105 PRICE PKWY CITY: FARMINGDALE STATE: NY ZIP: 11735 BUSINESS PHONE: 5162935300 MAIL ADDRESS: STREET 1: 105 PRICE PARKWAY STREET 2: 105 PRICE PARKWAY CITY: FARMINGDALE STATE: NY ZIP: 11735 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended January 28, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 1-6083 GREENMAN BROS. INC. (Exact name of registrant as specified in its charter) NEW YORK 11-1771705 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 105 Price Parkway, Farmingdale, N.Y. 11735 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 293-5300 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $.10 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE 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. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as of April 19, 1995 was $27,302,020 based on the closing price of same stock on that date. The number of shares of common stock outstanding as of April 19, 1995 was 5,263,040. Documents Incorporated by reference: Certain portions of Registrant's definitive proxy statement with respect to its 1995 Annual Meeting of Stockholders to be filed, pursuant to Regulation 14A under the Securities Exchange Act of 1934, with the Commission within 120 days of the close of Registrant's fiscal year ended January 28, 1995 are incorporated by reference into Part III of this report. TABLE OF CONTENTS PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders . . . 6 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 7 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 10 Item 8. Financial Statements and Supplementary Data . . . . . . . . 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 17 PART III Item 10. Directors and Executive Officers of the Registrant. . . . . 17 Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 17 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . 18 Item 13. Certain Relationships and Related Transactions. . . . . . . 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 19 PART I ITEM 1. BUSINESS. (a) General Greenman Bros. Inc., a New York corporation organized in 1946 (herein together with its wholly-owned subsidiaries called "Registrant" or "Company"), is engaged in the wholesale distribution of general merchandise with emphasis on housewares, toys and stationery. The principal consumer products distributed by Registrant are housewares products, consisting of cookware, kitchen gadgets and utensils, cleaning aids, household chemicals, plastics and glassware; toys, games, and related products; and stationery products and school supplies. The Company is also engaged in the retail toy business including a retail concept developed by Registrant that offers a broad range of educationally oriented children's toys and other products such as books, video and audio tapes, computer software, crafts and science. (b) Financial Information About Industry Segments Registrant's operations fall into two industry segments. The larger segment includes the wholesale distribution of general merchandise. The other segment includes the retail sales of childrens toys and other products. The sales, operating profit and the identifiable assets attributable to each segment for the three years ended January 28, 1995 are set forth in Note 9 (Industry Segments) of the Notes to Consolidated Financial Statements, which Note is incorporated herein by reference. (c) Narrative Description of Business Wholesale Operations Registrant's wholesale operations are conducted from warehouses located in Farmingdale, New York; Phillipsburg, New Jersey and West Haven, Connecticut. Registrant services virtually every class - 1 - of retail trade from small independent stores to drug stores, supermarkets, variety stores, discount stores, department stores, home improvement centers and college bookstores. Registrant believes that its broad and diversified customer base helps protect it against the peaks and valleys that occur in any particular segment of the retail business. There is a continuing trend of consolidation in manufacturing, wholesaling and retailing in all commodities distributed by Registrant. Registrant believes that its financial strength, buying power and market share are significant benefits both in the current marketplace and for the future. Retail Operations Registrant's current retail operations include the Noodle Kidoodle TM (TM is purposely omitted everywhere else) and Playworld Toy store divisions. The Company is shifting its emphasis towards development and expansion of its Noodle Kidoodle concept. The Company opened its first Noodle Kidoodle store in Nassau County, New York in November 1993 and opened three more stores, located in Nassau County, New York and Bergen and Passaic Counties in New Jersey, during fiscal 1995. The Company opened its fifth store in Essex County, New Jersey early in fiscal 1996, and plans to open fifteen more stores during the year. Currently these openings are planned to include additional locations in Long Island, New York, New Jersey and locations in new markets including Connecticut, upstate New York and Chicago, Illinois. Noodle Kidoodle stores have to date been located in strip centers and their size is approximately 10,000 square feet. Several of the stores expected to open in fiscal 1996 will be located in large regional enclosed malls. These stores focus on educationally oriented products for children, merchandised in an entertaining and interactive environment. - 2 - Books, video and audio tapes, computer software, arts and crafts, science and construction are major merchandise categories. The majority of their merchandise is delivered from the Company's warehouses with the rest drop shipped by manufacturers. The buying and merchandising management operates independently from the wholesale toy business and the other retail businesses of the Company. The Playworld division currently consists of two stores operating under the name of Playworld Toys which are located in Nassau County, New York, one store operating under the name Toy Park which is located in Manhattan, New York and one licensed store operating under the name Toy Park, which is located in Huntington, New York. On August 10, 1994 the Company announced that it would be closing its retail stores operating under the name Playworld Toys and one leased department operation by the end of fiscal 1995. Due to leasing issues it is now expected that two of these stores will remain open indefinitely and consideration is being given to changes in their format. The Playworld Stores and leased department that were closed represented 8.0% of consolidated sales for fiscal 1995 and 7.9% for fiscal 1994. The remaining Playworld Toy Stores are approximately 10,000 square feet. One store is located in a strip center while the second store is situated in a neighborhood shopping district. Stores are primarily serviced by Registrant's warehouses located in Farmingdale, New York and Phillipsburg, New Jersey. A relatively small amount of merchandise is drop shipped by manufacturers directly to the stores. The Toy Park locations are situated in neighborhood shopping districts and are 4,000 and 7,000 square feet for the Huntington and Manhattan stores, respectively. Toy Park carries more upscale and educationally oriented toys and related products than the Playworld stores. - 3 - The majority of their merchandise is delivered from the Company's warehouses with the rest drop shipped by manufacturers. The merchandise management for both the Playworld and Toy Park stores are independent of the wholesale toy and the Noodle Kidoodle businesses. However, a significant portion of the Toy Park merchandise assortment and virtually all of the Playworld assortment is purchased by the wholesale toy business and transferred at cost to these retail stores. General Backlog is not considered relevant to an understanding of any of Registrant's businesses. Registrant is required to carry substantial amounts of inventory in the months of June through September of each year in order to meet pre-Christmas delivery requirements, particularly in its toy wholesale and retail businesses. Registrant does not have any customers that represented more than 10% of the Company's consolidated revenues for the year ended January 28, 1995 ("fiscal 1995"). The following chart sets forth, for Registrant's last three fiscal years, the approximate percentage of Registrant's total revenues from operations contributed by each class of similar products: Class 1995 1994 1993
Toys, games, and related products 56% 53% 49% Housewares products 32% 35% 38% Stationery products 12% 12% 13%
Registrant's wholesale and retail sales of toys, games and related products are highly seasonal. During the 1995 fiscal year, 35% of such sales were made in November and December. - 4 - Competition All phases of Registrant's business are highly competitive. In its wholesale business, Registrant competes with other distributors and, to some extent, with certain manufacturers (including some of Registrant's own suppliers) which sell directly to retailers. Registrant believes that it is one of the largest wholesale distributors of housewares, toys and stationery products in the United States. Price, service and selling terms are the key competitive factors in the wholesale operation. At the retail level, Registrant is in competition with all specialty retailers of toys, educationally oriented childrens' products, video games, traditional games, books, computer software and related products; discount chains, large department stores and small single unit retail shops which do business in the areas where Registrant operates. Certain of these competitors are customers of Registrant's wholesale operation. In retail operations, price, service, environment, variety of merchandise, location and convenience are all key competitive factors. Employees Registrant employed approximately 595 persons at the end of the 1995 fiscal year, 124 of whom were in administrative and clerical positions, 156 in sales positions, 248 in warehouse positions and the balance in its retail units. A substantial number of additional personnel are employed by Registrant on a temporary basis, particularly during the pre- Christmas season. Approximately 152 of Registrant's employees (primarily warehouse personnel) are covered by contracts with various unions. ITEM 2. PROPERTIES. Registrant operates three major distribution centers, located in three states, containing a total of approximately 629,000 square feet. Two of these distribution centers, located in Farmingdale, New York and - 5 - Phillipsburg, New Jersey, containing a total of approximately 569,000 square feet, are owned by Registrant and one distribution center located in West Haven, Connecticut, containing approximately 60,000 square feet, is held under lease. The lease expires March 31, 1996 with options to extend it for up to eight additional years. Retail stores are leased in all cases. A substantial number of leases for Noodle Kidoodle stores have been signed to date. Registrant also subleases one former distribution center (a 105,810 square foot warehouse in Birmingham, Alabama), and two former retail stores to unaffiliated third parties. Registrant's executive offices are located at its Farmingdale, New York owned facility. Registrant believes that each of the foregoing facilities is adequate for its present operations and such facilities are maintained in a good state of repair. Significant increases in Registrant's wholesale or retail operations might require additions to existing facilities or new facilities. Reference is made in Note 4 (Commitments and Contingencies) of the Notes to Consolidated Financial Statements for additional information concerning the lease obligations of Registrant. ITEM 3. LEGAL PROCEEDINGS. Registrant is currently involved in only ordinary and routine litigation incidental to the Company's business, none of which is material with respect to the Company's operations taken as a whole. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. - 6 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded on the American Stock Exchange (Symbol GMN). The range of high and low sales prices for the common stock for each quarterly period during the fiscal years ended January 28, 1995 and January 29, 1994 were: Fiscal Year Ended January 28, 1995 Quarter High Low
First . . . . . . . . . . . . . . . . $7.50 $5.88 Second . . . . . . . . . . . . . . . . 7.25 5.75 Third . . . . . . . . . . . . . . . . 7.13 6.38 Fourth . . . . . . . . . . . . . . . . 6.50 4.38
Fiscal Year Ended January 29, 1994 Quarter High Low
First . . . . . . . . . . . . . . . . $4.88 $4.00 Second . . . . . . . . . . . . . . . . 5.25 4.13 Third . . . . . . . . . . . . . . . . 5.50 4.25 Fourth . . . . . . . . . . . . . . . . 6.88 5.00
As of January 28, 1995 there were 600 holders of record of the Company's common stock. The Company has followed a policy of reinvesting earnings in the business and consequently has not paid any cash dividends. At the present time, no change in this policy is under consideration by the Board of Directors. The payment of cash dividends in the future will be determined by the Board of Directors based on conditions then existing, including the Company's earnings, financial requirements and condition, opportunities for reinvesting earnings, business conditions and other factors. Such payment is also subject to certain restrictions on the payment of dividends pursuant to certain covenants in its revolving credit agreement. See Note 3 (Long-Term Debt) of the Notes to Consolidated Financial Statements. - 7 - On February 4, 1993, Registrant's Board of Directors authorized the repurchase by Registrant of up to 500,000 shares of its common stock in the open market or in privately negotiated transactions from time to time depending upon prices and market conditions. As of April 13, 1995 the Company had repurchased 413,600 of the authorized shares. The Board, at that time, decided to rescind its authorization for the remainder of the shares. -8- ITEM 6. SELECTED FINANCIAL DATA. For the Years Ended 1/28/95 1/29/94 1/30/93 2/1/92 2/2/91 (52 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks) (in thousands, except per share data)
Net sales $ 136,502 $ 142,850 $ 154,738 $ 164,568 $ 144,021 Net income (loss) from: Continuing operations $ (3,394) $ 709 $ 1,801 $ 3,928 $ (1,034) Discontinued operations - - - - (13,893) Extraordinary item (bond repurchase) - - - (263) 325 Net income (loss) $ (3,394) $ 709 $ 1,801 $ 3,665 $ (14,602) Net income (loss) per share from: Continuing operations $ (.65) $ .13 $ .32 $ .71 $ (.17) Discontinued operations - - - - (2.34) Extraordinary item (bond repurchase) - - - (.05) .06 Net income (loss) per share $ (.65) $ .13 $ .32 $ .66 $ (2.45) Total assets $ 59,819 $ 63,787 $ 68,386 $ 66,374 $ 78,390 Long term debt - - - - 14,877 Obligations under capital leases 572 636 696 752 804 Dividends declared per common share - - - - -
-9- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS In the fiscal year ended January 28, 1995 ("fiscal 1995") the Company reported a net loss of $3.4 million ($.65 per share) compared to net income of $.7 million ($.13 per share) and $1.8 million ($.32 per share) for fiscal 1994 and 1993, respectively. The net loss for fiscal 1995 versus net income for fiscal 1994 was primarily attributable to the net charge for Playworld Toy Stores closings of $2.3 million ($.45 per share) and lower wholesale earnings resulting from the decline in wholesale revenues. The decrease in fiscal 1994 versus fiscal 1993 was primarily attributable to lower wholesale earnings resulting from decline in revenues and slightly lower margins and a loss on retail operations versus income in the 1993 fiscal year. Revenues Sales in fiscal 1995 were $136.5 million versus $142.9 million and $154.7 million in fiscal 1994 and 1993, respectively. Wholesale sales decreased $8.9 million or 7.3% to $113.2 million in fiscal 1995 versus fiscal 1994. The decline reflects lower volume to our existing customer base in all merchandise categories offset by increased business and customer base in the chain drug, deep discount drug and supermarket channels of distribution. Wholesale sales are expected to continue to decline in fiscal 1996 at a similar rate. Retail sales of our Playworld Toy Stores and Noodle Kidoodle operation represented 17.1% of total sales in fiscal 1995 compared to 14.5% in fiscal 1994. Overall retail sales increased 12.5% to $23.3 million in fiscal 1995 versus fiscal 1994. Comparable store sales decreased 3.4% as a result of the announcement on August 10, 1994 that the Company was closing its retail stores operating under the name Playworld Toy Stores and one -10- leased department operation. The improvement in overall sales resulted from the opening of three Noodle Kidoodle stores during fiscal 1995 and full year results for our first Noodle Kidoodle store opened in the latter part of fiscal 1994. Retail sales are expected to be over 60% higher for fiscal 1996 due to the combination of expected openings of approximately sixteen additional Noodle Kidoodle stores, a full year for the three new stores opened in fiscal 1995 and increases in existing stores partially offset by the closing of the Playworld Toy Stores and one leased department. Sales for the closed Playworld stores were $10,923, $11,257 and $10,955 for fiscal 1995, 1994 and 1993, respectively. The decrease in the Company's sales of 7.7% in fiscal 1994 versus fiscal 1993 resulted from a 10.5% decline in our wholesale business partially offset by higher retail sales. The decline in wholesale sales resulted from a combination of factors, including weak retail sales in our product lines, bankruptcies and more direct purchases from manufacturers by certain of our customers. The improvement in overall retail sales resulted from the opening of our first Noodle Kidoodle store, two additional Playworld holiday stores and full year results for two Playworld and two leased departments which were opened in the latter part of fiscal 1993. Gross Profit The Company's gross profit as a percentage of sales for fiscal 1995 was 24.1% versus 23.8% and 24.3% for fiscal 1994 and fiscal 1993, respectively. The increase in the overall gross profit percentage of .3% in fiscal 1995 versus fiscal 1994 was primarily attributable to higher margins in the retail segment and an increase in the sales mix of higher margin retail sales in relation to the total business partially offset by lower margins in the wholesale segment. -11- Margins in the wholesale segment decreased to 21.7% in fiscal 1995 from 21.9% in fiscal 1994. The decrease resulted primarily from the decline in the wholesale business sales in product lines (primarily housewares) that have traditionally carried higher margins offset by a LIFO benefit of $.2 million or .2% in fiscal 1995 versus a LIFO charge of $.2 million or .2% in fiscal 1994. Margins in the retail segment increased .8% to 35.9% in fiscal 1995 versus 35.1% in fiscal 1994. The improvement resulted primarily from increased sales in the Noodle Kidoodle stores which operate with higher margins. The decrease of .5% in the Company's gross profit in fiscal 1994 versus fiscal 1993 was primarily attributable to lower margins in the wholesale segment partially offset by an increase in sales mix of higher margin retail sales in relation to the total business. Margins in the wholesale segment decreased .9% primarily from the decline in product lines (primarily housewares) that have traditionally carried higher margins with .2% of the decrease was attributable to the LIFO charge in fiscal 1994. Retail segment margins remained flat at 35.1% in both fiscal 1994 and 1993, respectively. Operating Expenses Expenses other than interest and provision for store closings and restructured operations totalled $34.9 million in fiscal 1995 versus $33.1 million and $34.0 million in fiscal 1994 and 1993, respectively. Operating expenses as a percent of sales were 25.5%, 23.2% and 22.0% for fiscal 1995, 1994 and 1993, respectively. Wholesale expenses as a percent of sales for fiscal 1995 were 20.2% versus 19.3% in fiscal 1994. The increase resulted primarily from revenue decreases where selling and distribution expense reductions did not keep pace with revenue reductions. The operating expenses for the - 12 - retail segment increased 4.0% as a percent of sales in fiscal 1995 versus fiscal 1994. The increase resulted from higher selling expenses due to lower comparable store sales in the Playworld operation and costs associated with the opening of Noodle Kidoodle stores that did not reach maturity by the end of fiscal 1995. The increase of .9% in the Company's operating expenses as a percent of sales for fiscal 1994 versus fiscal 1993 resulted primarily from higher selling expenses as percent of sales in the retail segment due to lower comparable Playworld Toy Store sales and costs associated with the development of the concept and the opening of the first Noodle Kidoodle store. In the wholesale segment expenses remained virtually flat which is substantially attributable to the steps that the Company took through the first phases of the reorganization and consolidation of its wholesale segment which was reported in fiscal 1993. Provision for Store Closings and Restructured Operations The Company recorded a pre-tax provision for closing the stores operating under the name Playworld Toy Stores in the amount of $3.9 million ($2.3 million or $.45 per share net of income taxes) in fiscal 1995 of which $3.5 million was recorded during the second quarter and $.4 million was provided during the fourth quarter. The provision reflects a one time charge to cover losses from store operations from the date of announcement until closing, employee severance costs, estimated lease liabilities, losses on liquidation of inventories and disposition of assets and other related restructuring costs. Due to leasing issues it is now expected that two of the Playworld stores will remain open indefinitely and consideration is being given to changes in their format. -13- The Company recorded a pre-tax provision for restructured wholesale operations in the amount of $1.1 million in fiscal 1993 ($.6 million or $.12 per share net of income taxes). The provision included anticipated severance and relocation costs, as well as costs resulting from realigning the distribution of merchandise among the Company's warehouses. The restructuring resulted in the consolidation of the three divisional commodity-based organizations into a single general merchandise distribution company in order to lower costs by streamlining the administrative, sales and purchasing functions and by enhancing the ability to market multiple commodities to the customer base that we expect to serve in the future. Interest Expense and Income Pre-tax interest expense was $.08 million in fiscal 1995 and $.1 million in both fiscal 1994 and 1993, respectively. The Company did not require any seasonal borrowings in fiscal 1995 or 1994. Pre-tax interest income was $.4 million in both fiscal 1995 and 1994 versus $.6 million for fiscal 1993. Interest income is derived from the Company's investment of cash in high grade commercial paper, U.S. Treasury bills and tax exempt money market funds as well as additional vendor cash discounts for early payment of dated invoices. The decrease in interest income for fiscal 1994 versus fiscal 1993 resulted primarily from lower average rates of 2.7% versus 4.3% on the investments. Income Taxes The Company recorded a tax benefit based on an effective income tax rate of 38.2% for fiscal 1995. In fiscal 1994 and 1993 the Company recorded a tax provision based on an effective income tax rate of 40.4% and 38.7%, respectively. The Company adopted SFAS 109 in fiscal 1994 which resulted in no material impact on the Company's results of operations or financial position. -14- LIQUIDITY AND SOURCES OF CAPITAL The Company's cash position (including cash equivalents) was $10.9 million at January 28, 1995, $5.8 million at January 29, 1994 and $10.5 million at January 30,1993. Cash flows provided from operating activities for the year ended January 28, 1995 were $7.6 million versus cash flows used of $3.0 million for the year ended January 29, 1994. Net loss before non-cash expenditures of depreciation, provision for doubtful accounts, restructuring charges and deferred income taxes used $1.3 million of cash offset by changes in working capital components which contributed $8.9 million of cash for fiscal 1995. The working capital contribution to cash was primarily from decreases in inventory levels of $10.4 million. In fiscal 1994, net earnings before non-cash expenditures contributed cash of $1.9 million less cash required for working capital components of $4.9 million. The working capital requirements included a $1.6 million prepayment of dated invoices to vendors, increased inventories of $1.5 million and a decrease in income tax liability of $1.2 million. In fiscal 1995, a total of $2.5 million of cash was used for investing activities. Approximately $4.0 million was utilized for property additions offset by proceeds from the sale of marketable securities of $1.0 million and proceeds from a life insurance policy of $.5 million. In fiscal 1994, investing activities provided cash of $.2 million of which approximately $3.0 million was provided from the redemption of certain U.S. Treasury securities offset by $1.0 million of cash used to purchase a Treasury bill in the same year and $2.0 million was utilized for property additions. The 1995 property additions resulted primarily from the opening of three Noodle Kidoodle stores and construction in progress on a fourth store, installation of a warehouse management system and an upgrade to the data processing system. - 15 - The Company has budgeted approximately $10.0 million for various capital additions in fiscal 1996, primarily relating to the opening of sixteen additional Noodle Kidoodle stores. The balance of the additions are for the distribution facilities and data processing. Cash used in financing activities of $1.9 million in fiscal 1994 was primarily due to the repurchase of 413,600 shares of the Company's common stock at an average price of $4.52 per share. The Company had no additional repurchases of stock in fiscal 1995 and expects none for fiscal 1996. The Company has an unsecured revolving credit facility from a bank which currently provides for maximum borrowing of $10.0 million that expires in June, 1995. There were no borrowings under this agreement in fiscal 1995 and 1994. The Company is currently negotiating a new credit agreement which is expected to be in place upon the expiration of the prior agreement. The Company anticipates capital expenditures of approximately $10.0 million for fiscal 1996. These expenditures and the working capital requirements for the expected new stores will result in the need for capital in excess of existing cash and cash to be generated from operations. We are reviewing various options at this time, however it is likely that the Company will utilize bank borrowings for several months during the second half of the year. IMPACT OF INFLATION Inflation has not been a significant factor to the Company for many years. The Company attempts to pass on increased costs by increasing product prices over time. - 16 - The Company utilizes the LIFO method of accounting for certain of its inventories which results in a better matching of costs and revenues by reporting the cost of products sold in the financial statements at a level which approximates current costs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to Item 14. 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. Information with respect to directors and executive officers of the Company is incorporated herein by reference to the information set forth under the captions "Election of Directors", "Executive Officers" and "Compliance with Section 16(a) of the Exchange Act" in the Company's Proxy Statement for its 1995 Annual Meeting of Stockholders (the "1995 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. Information with respect to executive compensation is incorporated herein by reference to the information set forth under the captions "Committees, Meetings and Director Compensation" and "Executive Compensation", excluding the information under the captions "Executive Compensation - Compensation Committee Report on Executive Compensation" and "Executive Compensation - Performance Graph", in the Company's 1995 Proxy Statement. -17- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to security ownership is incorporated herein by reference to the information set forth under the caption "Security Ownership" in the Company's 1995 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to certain relationships and related transactions is incorporated herein by reference to the information, if any, set forth under the caption "Certain Relationships and Related Transactions" in the Company's 1995 Proxy Statement. -18- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements Page Report of independent certified public accountants . . . 23 Consolidated balance sheets at January 28, 1995 and January 29, 1994 . . . . . . . . . . . . . . . . . . . 24 Consolidated statements of income for the years ended January 28, 1995, January 29, 1994 and January 30, 1993 . . . . . . . . . . . . . . . . . . . 25 Consolidated statements of stockholders' equity for the years ended January 28, 1995, January 29, 1994 and January 30, 1993 . . . . . . . . . . . . . . . . . 26 Consolidated statements of cash flows for the years ended January 28, 1995, January 29, 1994 and January 30, 1993 . . . . . . . . . . . . . . . . . 27 Notes to consolidated financial statements . . . . . 28-35 2. Schedules VIII Valuation and qualifying accounts. . . . . . . 36 All other schedules have been omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. The individual financial statements and schedules of Registrant have been omitted since consolidated financial statements have been filed and Registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements filed are wholly-owned subsidiaries. Shareholders may obtain a copy of any exhibit not contained herein by writing to William A. Johnson Jr., Vice President, Chief Financial Officer and Secretary, Greenman Bros. Inc., 105 Price Parkway, Farmingdale, New York 11735. -19- 3. Index to Exhibits Page 3.01 Restated Certificate of Incorporation of Registrant, with all amendments (Incorporated by reference to Exhibits 3.01,3.02, 3.03, 3.04 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 29, 1983 and Exhibit 3.01 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1989). . . ** 3.02 By-Laws of Registrant, as amended through July 9, 1991 (Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended January 29, 1994) . . . . . ** 4.01 Rights Agreement, dated as of May 6, 1988, between Registrant and Manufacturers Hanover Trust Company, as Rights Agent (Incorporated by reference to Registrant's Report on Form 8-K dated May 6, 1988 and the exhibits filed therewith). . . . . . . . . . . . . . . . . . . . . ** 4.02 First Amendment to Rights Agreement dated as of November 22, 1991 (Incorporated by reference to Registrant's Report on Form 8-K, dated November 22, 1991, and the exhibits filed therewith) . . . . . . . . . . . . . . . . ** 4.03 Credit Agreement, dated as of April 16, 1992, between Registrant and Chemical Bank as successor by merger to Manufacturers Hanover Trust Company (the "Credit Agreement")(Incorporated by reference to Item 6(a) to Registrant's quarterly report on Form 10-Q for the period ended May 2, 1992 and the exhibits filed therewith) . . . ** 4.04 Amendment to the Credit Agreement dated August 13, 1992 (Incorporated by reference to Exhibit 4.04 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 30, 1993) . . . . . . . . . . . . . . . . . . . . ** 4.05 Second Amendment and Waiver to the Credit Agreement dated September 1, 1993 (Incorporated by reference to Item 6(a) to Registrant's quarterly report on Form 10-Q for the period ended October 3, 1993 and the exhibits filed therewith) . ** 10.01 Stock Incentive Plan and Outside Directors Stock Option Plan, dated April 26, 1994 (Incorporated by reference to Registrant's Form S-8 Registration Statement (Commission File No. 33-82104), effective July 26, 1994 and the exhibits filed therewith)*. . . . . . . . . . . . . . . . ** 10.02 Employment Agreement by and between Registrant and Stanley Greenman dated as of February 1, 1995* . . . . . 37-51 10.03 Employment Agreement by and between Registrant and Stewart Katz dated as of February 1, 1995*. . . . . . . . 52-66 10.04 Non-Contributory Insured Medical Reimbursement Plan (Incorporated by reference to Exhibit 10.05 to Registrant's Annual Report on Form 10-K for the fiscal year ended January 30, 1993)*. . . . . . . . . . . . . . . . . . . . ** -20- 10.05 Short Term Executive Incentive Bonus Plan for the fiscal year ended January 29, 1994 (Incorporated by reference to Exhibit 10.06 to Registrant's Annual Report on Form 10-K for fiscal year ended January 29, 1994)*. . . . . . . . . ** 10.06 Long Term Executive Incentive Bonus Plan for the fiscal year ended January 29, 1994 (Incorporated by reference to Exhibit 10.07 to Registrant's Annual Report on Form 10-K for fiscal year ended January 29, 1994)*. . . . . . . . . ** 10.07 Agreement and Plan of Merger dated February 1, 1994 by and between Registrant and certain wholly-owned subsidiaries of the Registrant (Incorporated by reference to Exhibit 10.08 to Registrant's Annual Report on Form 10-K for fiscal year ended January 29, 1994) . . . . . . . . . ** 11.01 Computation of Earnings Per Share . . . . . . . . . . . . 67 21 Subsidiaries of Registrant . . . . . . . . . . . . . . . 68 * Management Contract or Compensation Plan or Agreement required to be filed as an Exhibit pursuant to Item 14(c) of Form 10-K. ** Previously filed. (b) Reports on Form 8-K None -21- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GREENMAN BROS. INC. (Registrant) April 19, 1995 BY:Stanley Greenman Stanley Greenman, Chairman of the Board, Chief Executive Officer, Director 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 in the capacities and on the date indicated. Stanley Greenman Joshua Biblowitz Stanley Greenman,Chairman of the Joshua Biblowitz, Director Board, Chief Executive Officer, Director (Principal Executive Officer) Robin Farkas Robin Farkas, Director Stewart Katz Stewart Katz, President, Chief Lester Greenman Operating Officer, Director Lester Greenman, Director Joseph Madenberg William A. Johnson Jr. Joseph Madenberg, Director William A. Johnson Jr., Vice- President, Chief Financial Officer and Secretary (Principal Financial Barry W. Ridings and Accounting Officer) Barry W. Ridings, Director Robert Stokvis Robert Stokvis, Director Benjamin Zdatny Benjamin Zdatny, Director -22- INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Greenman Bros. Inc.: We have audited the accompanying consolidated balance sheets of Greenman Bros. Inc. and Subsidiaries as of January 28, 1995 and January 29, 1994 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended January 28, 1995. Our audits also include the financial statement schedules listed in the index at Item 14 (a) 2. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Greenman Bros. Inc. and Subsidiaries as of January 28, 1995 and January 29, 1994, and the results of their operations and cash flows for each of the years in the three year period ended January 28, 1995 in conformity with generally accepted accounting principles. Further, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. Janover Rubinroit & Co. Certified Public Accountants New York, New York April 18, 1995 -23- GREENMAN BROS. INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 28, 1995 AND JANUARY 29, 1994 1995 1994 ASSETS (in thousands)
Current assets: Cash and cash equivalents $10,908 $ 5,764 Short-term investments - 1,000 Trade receivables, less allowance for doubtful accounts of $983 and $874, respectively 13,622 14,737 Merchandise inventories 20,264 30,667 Prepaid expenses and other current assets 1,926 1,952 Recoverable income taxes 1,429 - Deferred income taxes 1,815 1,219 Total current assets 49,964 55,339 Property, plant and equipment at cost 17,363 14,991 Less accumulated depreciation 7,690 7,347 9,673 7,644 Other assets 182 804 $59,819 $63,787
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Trade accounts payable $12,109 $14,182 Obligations under capital leases 64 60 Accrued expenses and taxes 5,858 4,418 Income taxes 133 137 Total current liabilities 18,164 18,797 Obligations under capital leases 572 636 Deferred income taxes 213 290 Commitments and contingencies Stockholders' equity: Preferred stock - authorized 500 shares, par value $1.00 (none issued) Preferred stock - Series A Junior Participating - authorized 440 shares, par value $1.00 (none issued) Common stock - authorized 10,000 shares, par value $.10; issued 6,185 and 6,119 shares, respectively 619 612 Capital in excess of par value 25,801 25,608 Retained earnings 18,242 21,636 44,662 47,856 Less treasury stock, at cost - 924 shares 3,792 3,792 40,870 44,064 $ 59,819 $ 63,787 The accompanying notes are an integral part of the financial statements
- 24 - GREENMAN BROS. INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994 AND JANUARY 30, 1993 1995 1994 1993 (in thousands, except per share data)
Net sales $136,502 $142,850 $154,738 Costs and expenses: Cost of products sold 103,537 108,830 117,213 Selling and administrative expenses 33,507 31,936 33,179 Depreciation 1,101 896 795 Provision for doubtful accounts 250 275 42 Provision for store closings and restructured operations 3,900 - 1,050 142,295 141,937 152,279 Operating income (loss) (5,793) 913 2,459 Interest income 372 392 624 Interest expense (75) (115) (143) Income (loss) before income taxes (5,496) 1,190 2,940 Income taxes (benefit) (2,102) 481 1,139 Net income (loss) $ (3,394) $ 709 $ 1,801 Net income (loss) per share $ (.65) $ .13 $ .32 The accompanying notes are an integral part of the financial statements
-25- GREENMAN BROS. INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 28, 1995 JANUARY 29, 1994 AND JANUARY 30, 1993 (in thousands) Capital in Treasury Stock Common Stock excess of Retained (at cost) Shares Amount par value earnings Shares Amount
Balance - February 1, 1992 6,051 $605 $25,281 $19,126 511 $1,920 Exercise of stock options including related tax benefits 66 7 313 - - - Net income for the year - - - 1,801 - - Balance - January 30, 1993 6,117 $612 $25,594 $20,927 511 $1,920 Exercise of stock options including related tax benefits 2 - 14 - - - Purchase of treasury stock - - - - 413 1,872 Net income for the year - - - 709 - - Balance - January 29,1994 6,119 $612 $25,608 $21,636 924 $3,792 Exercise of stock options (net of stock tendered) including related tax benefits 66 7 193 - - - Net loss for the year - - - (3,394) - - Balance - January 28,1995 6,185 $619 $25,801 $18,242 924 $3,792 The accompanying notes are an integral part of the financial statements.
-26- GREENMAN BROS. INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 28, 1995, JANUARY 29, 1994 AND JANUARY 30,1993 1995 1994 1993 (in thousands)
Cash flows from operating activities: Net income (loss) $(3,394) $ 709 $ 1,801 Adjustments to reconcile to net cash provided (used): Depreciation 1,101 896 795 Provision for doubtful accounts 250 275 42 Restructuring charges - non cash portion 834 - 1,050 Deferred income taxes - non-current (77) 25 265 Decrease (increase) in non-cash working capital accounts: Trade receivables, deferred income taxes, prepaid expenses and other current assets (884) (71) 2,186 Merchandise inventories 10,403 (1,459) (1,523) Trade accounts payable, accrued expenses and taxes (629) (2,216) (1,542) Income taxes ( 4) (1,199) 174 Net cash provided by (used in) operating activities 7,600 (3,040) 3,248 Cash flows from investing activities: Proceeds from sale of marketable securities 1,000 2,987 - Purchase of short-term marketable securities - (1,000) (989) Purchase of long-term marketable securities - - (1,998) Property additions (3,964) (2,006) (1,166) Other 492 206 234 Net cash provided by (used in) investing activities (2,472) 187 (3,919) Cash flows from financing activities: Reduction in long-term debt and obligations under capital leases (64) (60) (56) Purchase of treasury stock - (1,872) - Proceeds from exercise of employee stock options 80 14 290 Net cash provided by (used in) financing activities 16 (1,918) 234 Net increase (decrease) in cash and cash equivalents 5,144 (4,771) (437) Cash and cash equivalents - beginning of year 5,764 10,535 10,972 Cash and cash equivalents - end of year $10,908 $ 5,764 $ 10,535 Supplemental cash flow information: Net cash paid during the year for: Interest expense $ 75 $ 115 $ 143 Income taxes 328 1,068 1,633 The accompanying notes are an integral part of the financial statements.
- 27 - GREENMAN BROS. INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES: The following summary of the Company's major accounting policies is presented to assist in the interpretation of the financial statements. Principles of consolidation The consolidated financial statements include the accounts of the parent company and all subsidiary companies. Intercompany balances and material transactions are eliminated in consolidation. The Company and its consolidated subsidiaries are on a 52-53 week accounting period ending on the Saturday closest to January 31. Fiscal 1995, 1994 and 1993 each contained 52 weeks. Cash equivalents and short-term investments All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents; investments with maturities between three and twelve months are considered to be short-term investments. These investments are stated at cost which approximates market value. Concentration of credit risk The Company grants credit to its customers, who are primarily retailers operating under numerous retail formats. Sales are made primarily in the northeastern United States. The Company places its temporary cash investments in high grade instruments with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Inventories Inventories are stated at the lower of cost or market. Inventory costs have been determined by the last-in, first-out (LIFO) method for approximately 31% and 40% of inventories in fiscal 1995 and 1994, respectively. Costs of other inventories have been determined by the first-in, first-out (FIFO) method. The accumulated LIFO provision amounted to $570 and $763 at January 28, 1995 and January 29, 1994, respectively. The effect of LIFO upon income was to (decrease) increase cost of products sold by $(193), $225 and $(51) in fiscal 1995, 1994 and 1993, respectively. Earnings per share The computation of earnings per share is based on the weighted average number of outstanding common shares and equivalents (stock options) of 5,220, 5,338, and 5,575 for fiscal 1995, 1994 and 1993, respectively. The inclusion of common stock equivalents had no significant dilutive effect or were antidilutive and therefore were not utilized in the computations of net income (loss) per share. Property, plant and equipment Plant and equipment is stated at cost and is depreciated on a straight-line basis over estimated useful lives. Repairs and maintenance are charged to expense as incurred; renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized. - 28 - NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES: (Continued) Leasehold improvements are amortized over the terms of the respective leases or over their useful lives, whichever is shorter. Useful lives vary among the classifications, but generally fall within the following ranges: Buildings and improvements 10-40 years Fixtures and equipment 4-10 years Pre-opening expenses Costs incurred in the opening of new stores are amortized over the first twelve months of operations. These costs were not material. Income taxes In fiscal 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109. Deferred taxes provided under SFAS No. 109 result principally from temporary differences in depreciation, capitalized inventory costs, restructuring charges and allowance for doubtful accounts. Upon implementation of SFAS No. 109, there was no material impact on the Company's results of operations or financial position. The Company previously accounted for income taxes based upon SFAS No. 96. NOTE 2 - PROPERTY, PLANT AND EQUIPMENT: January 28, 1995 January 29, 1994 (in thousands) Owned Leased Total Owned Leased Total
Land $ 939 $ 129 $ 1,068 $ 939 $ 129 $ 1,068 Buildings and improvements 4,875 1,048 5,923 4,495 1,048 5,543 Fixtures and equipment 7,195 - 7,195 6,245 - 6,245 Leasehold improvements 3,177 - 3,177 2,135 - 2,135 16,186 1,177 17,363 13,814 1,177 14,991 Less accumulated depreciation 7,258 432 7,690 6,941 406 7,347 $ 8,928 $ 745 $ 9,673 $ 6,873 $ 771 $ 7,644
NOTE 3 - LONG-TERM DEBT: The Company has an unsecured revolving credit agreement with a bank which provides for maximum borrowings of $10 million until June 30, 1995. Interest on borrowings is at the lesser of the bank's prime rate or at a rate of 3/4% in excess of the Eurodollar Lending Office rate of the bank for U.S. dollar deposits. The agreement provides for a commitment fee of 1/4% per annum on the average daily amount of the unused portion of the commitment. The revolving credit agreement contains various restrictive covenants which, among other items, require the maintenance of minimum levels of working capital and net worth. The payment of cash dividends is limited to 25% of the preceding year's net income. The Company had no borrowings under this agreement during fiscal 1995 and 1994. - 29 - NOTE 4 - COMMITMENTS AND CONTINGENCIES: Operating leases Minimum annual commitments under non-cancellable leases in effect at January 28, 1995 are as follows: Sublease Capital Operating Rental Leases Leases Income (in thousands)
1996 $107 $ 3,791 $ 897 1997 106 4,015 750 1998 105 3,435 254 1999 104 3,357 157 2000 103 3,326 161 Thereafter 309 17,067 690 Total minimum obligations 834 $34,991 $ 2,909 Less amount representing interest 198 Present value of net minimum obligations 636 Less current installments 64 Long-term obligation at January 28, 1995 $572
At January 28, 1995, the Company and its subsidiaries were lessees of stores, a warehouse, vehicles and warehouse equipment under various leases. In addition to fixed rents and rentals based on sales, certain of the leases require the payment of taxes and other costs. Some leases include renewal options. Rental expense (income) for operating leases was as follows: 1995 1994 1993 (in thousands)
Minimum rentals $1,850 $1,647 $1,320 Taxes and other costs 1,027 635 655 Sublease rentals (953) (837) (851) $1,924 $1,445 $1,124
Letters of credit The Company and its subsidiaries are contingently liable for open letters of credit in the aggregate amount of $.6 million. These letters of credit relate to specific contracts for the purchase of merchandise. Litigation Several lawsuits are pending against the Company. In the opinion of management, the Company has meritorious defenses or is covered by insurance and the Company's liability, if any, when ultimately determined will not be significant. - 30 - NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued) Employment and consulting agreements The Company has employment and consulting agreements with certain directors, officers and employees. Certain agreements provide for minimum salary levels as well as for incentive bonuses which are payable if specified management goals are attained. NOTE 5 - CAPITAL STOCK: Stockholders' Rights Plan Each outstanding share of the Company's Common Stock carries a stock purchase right. Under certain circumstances, as defined in a rights agreement, each right may be exercised to purchase 1/100 of a share of Series A Junior Participating Preferred Stock for $25, subject to certain anti-dilution adjustments. The rights are redeemable by the Company or, under certain circumstances, by a third party to whom the Company assigns its rights at $.01 each until a person or group acquires twenty percent of the Company's Common Stock or until they expire on May 15, 1998. Treasury Stock On February 4, 1993, the Company's Board of Directors authorized the repurchase from time to time of up to 500,000 shares of its common stock. As of January 29, 1994, the Company purchased 413,600 shares of common stock at an average price of $4.52 per share. NOTE 6 - STOCK OPTIONS: In 1994, the Company's shareholders adopted a Stock Incentive Plan for key employees and consultants and a Stock Option Plan for eligible directors who are not employees of the Company. The Stock Incentive Plan reserves 500,000 shares of common stock for the issuance of stock options, stock appreciation rights (SARs), dividend equivalent rights, restricted stock, unrestricted stock and performance shares and is administered by the Stock Option Committee (the "Committee") of the board of directors of the Company. The outside directors Stock Option Plan reserves 75,000 shares of common stock for the issuance of stock options. Under the terms of the Stock Incentive Plan (the Plan)options granted may be either nonqualified or incentive stock options and the exercise price, determined by the Committee, shall be at least 75% (100% in the case of an incentive stock option) of the fair market value of a share on the date of grant. SARs may be granted in connection with all or any part of, or independently of, any option granted under the Plan. SARs granted in connection with a nonqualified stock option may be granted at or after the time of grant of such option. SARs granted in connection with an incentive stock option may be granted only at the time of grant of such option. Other than restrictions which limit the sale and transfer of restricted stock awards and performance share awards, grantees are entitled to all the rights of a shareholder. No SARs, dividend equivalent rights, restricted stock, unrestricted stock or performance shares were granted during fiscal 1995. Options granted under the Stock Incentive Plan are exercisable in installments; however, no options are exercisable within one year or later than ten years from the date of grant. - 31 - NOTE 6 - STOCK OPTIONS (Continued) The outside directors Stock Option Plan provides that upon the initial election to the Board, each eligible director is granted an option to purchase 5,000 shares of common stock and 1,000 shares each year thereafter at the fair market value on the date of grant. The options have a term of five years and become exercisable 50% on the first anniversary of the date of grant and 50% on the second anniversary of the date of grant. The Company's 1984 Stock Option Plan expired in April 1994 and the remaining options available but not granted under the Plan were cancelled. The following summary sets forth the activity under the Company's stock incentive plans: Years Ended January 28,1995 January 29, 1994 Shares Price Range Shares Price Range
Outstanding at beginning of year 582,878 $3.50-$6.25 576,503 $3.50-$6.25 Granted 96,750 $5.50-$6.50 22,000 $4.13-$5.00 Exercised 168,544 $4.00-$4.50 2,100 $4.00-$4.50 Terminated 9,625 $4.00-$6.25 13,525 $3.75-$4.81 Outstanding at end of year 501,459 $4.00-$6.50 582,878 $3.50-$6.25 Exercisable at end of year 384,209 $3.50-$6.50 540,228 $3.50-$6.25 Available for grant at end of year 484,250 - 115,886 -
NOTE 7 - TAXES ON INCOME: Income taxes consist of the following: 1995 1994 1993 (in thousands)
Current: Federal $(1,429) $ 180 $ 951 State and local - 184 361 (1,429) 364 1,312 Deferred (673) 117 (173) $(2,102) $ 481 $1,139 A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows: Tax at statutory rates (34)% 34% 34% State and local taxes, net of federal tax benefits (4) 6 6 Other - - (1) (38)% 40% 39%
-32- NOTE - 7 TAXES ON INCOME: (Continued) The components of deferred tax assets (liabilities) consist of the following: 1995 1994
Capitalizable inventory costs $ 411 $ 529 Allowance for doubtful accounts 393 297 Restructured operations and other 1,011 393 Gross assets 1,815 1,219 Depreciation (213) (290) Gross liabilities (213) (290) Net deferred tax assets $ 1,602 $ 929
Deferred income taxes result from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. Principal items resulting in deferred income tax liabilities or assets are differences in depreciation, inventory valuations, restructuring charges and allowance for doubtful accounts. Management has determined, based on the Company's history of prior operating earnings and its expectations for the future, that operating income of the Company will more likely than not be sufficient to recognize fully these net deferred tax assets. There can be no assurance, however, that the Company will generate taxable income or any specific level of continuing earnings in the future. NOTE 8 - EMPLOYEE RETIREMENT PLANS: The Company has a 401-k savings plan designed to provide additional financial security during retirement by providing eligible employees with an incentive to make regular savings. The Company matches 10% of the first 4% of compensation contributed by the employee. Certain employees are covered by union sponsored, multi-employer pension plans. Contributions and costs are determined in accordance with the provisions of negotiated labor contracts or terms of the plans. The Company does not administer nor control the plans. One of the plans, to which the Company and many other employers make contributions, is having financial difficulties. The Employee Retirement Income Security Act ("ERISA") imposes certain liabilities upon employers who are contributors to multi-employer pension plans in the event of withdrawal or termination of such a plan. The union has advised the Company that they will no longer accept contributions to the plan. The Company has been advised that cessation of contributions will result in a withdrawal liability. The Company provided for an estimated settlement cost in the fourth quarter of fiscal 1995. - 33 - NOTE 9 - INDUSTRY SEGMENTS: The Company operates substantially in two industry segments which consist of the wholesale distribution of housewares, toys, and stationery products and the retail distribution of toys. Two customers in fiscal 1994 and 1993 represented sales in excess of 10% of consolidated sales 1994-13.5% and 10.3%; 1993- 12.7% and 10.1%. Financial information by reportable business segments for fiscal 1995, 1994, and 1993 is included in the following summary: 1995 1994 1993 (in thousands)
Sales to unaffiliated customers: Wholesale (excluding $146, $385, and $425 of inter-segment sales, respectively) $113,194 $122,138 $136,488 Retail 23,308 20,712 18,250 $136,502 $142,850 $154,738 Operating profit (loss): Wholesale $ 1,781 $ 3,171 $ 3,633 Retail (5,293) (437) 367 $ (3,512) $ 2,734 $ 4,000 Identifiable assets: Wholesale $ 37,289 $ 48,062 $ 47,216 Retail 10,005 9,422 8,509 Corporate 12,525 $ 6,303 12,661 $ 59,819 $ 63,787 $ 68,386 Depreciation: Wholesale $ 694 $ 671 $ 657 Retail 407 225 138 $ 1,101 $ 896 $ 795 Additions to property and equipment: Wholesale $ 1,362 $ 559 $ 448 Retail 2,602 1,447 718 $ 3,964 $ 2,006 $ 1,166 Reconciliation of operating profit (loss) to net income (loss): Operating profit (loss) $ (3,512) $ 2,734 $ 4,000 Interest expense (75) (115) (143) Interest income 372 392 624 General corporate expense (2,281) (1,821) (1,541) (Income) taxes/benefit 2,102 (481) (1,139) Net income (loss) $ (3,394) $ 709 $ 1,801
- 34 - NOTE 10 - PROVISION FOR STORE CLOSINGS AND RESTRUCTURING CHARGES: On August 10, 1994 the Company announced the closing of stores operating under the name Playworld Toy Stores and one leased department operation. Provision of $3,900 was recorded for store closings represents losses from store operations from the date of announcement until closing, employee severance costs, estimated lease liabilities, losses on liquidation of inventories and disposition of assets and other related restructuring costs. This charge increased the net loss for fiscal 1995 by $2,340 ($.45 per share). Revenues for these operations amounted to $10,923, $11,257, and $10,955 during fiscal 1995, 1994 and 1993, respectively. During fiscal 1993 the Company recorded a restructuring charge of $1,050 for severance and relocation costs resulting from the realignment of its wholesale distribution business. The effect of the restructuring enabled the Company to reduce costs and improve operating efficiency. This charge resulted in a decrease in fiscal 1993 net income of $644 ($.12 per share). NOTE 11 - INTERIM FINANCIAL DATA (UNAUDITED): First Second Third Fourth Quarter Quarter Quarter Quarter (in thousands, except per share data)
Year ended January 28, 1995: Sales $ 27,168 $ 30,229 $ 35,374 $ 43,731 Gross profit 6,315 7,296 8,153 11,201 Net income (loss) (886) (2,687) (224) 403 Net income (loss) per share $ (.17) $ (.52) $ (.04) $ .08 Year ended January 29, 1994: Sales $ 30,954 $ 30,838 $ 38,175 $ 42,883 Gross profit 7,501 7,165 8,497 10,857 Net income (loss) (189) (342) 324 916 Net income (loss) per share $ (.03) $ (.06) $ .06 $ .17
During the second quarter of fiscal 1995, the Company provided a pre-tax charge of $3,500,000 ($2,100,000, $.40 per share after taxes) to cover the unusual costs of the decision to close its Playworld Toy Stores. An additional pre-tax charge of $400,000 ($240,000, $.05 per share after taxes) was provided during the fourth quarter. The Company's wholesale and retail sales are highly seasonal. During fiscal 1995 and 1994, 58% and 57%, respectively, of such sales were made in the second half of the year. Income (loss) per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year income (loss) per share amount. The fourth quarter of fiscal 1994 includes the dilutive effect of common stock equivalents. The inclusion of common stock equivalents were either antidilutive or had no significant dilutive effect in the other quarters and therefore were not utilized in the above computations of income (loss) per share. - 35 - GREENMAN BROS. INC. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 28, 1995 JANUARY 29, 1994 AND JANUARY 30, 1993 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS (1) (2) Balance at Charged to Balance at beginning costs Charged to end of Description of period and expenses other accounts Deductions period (in thousands)
Year ended January 28, 1995: For estimated losses in collection $ 874 $ 250 $ - $ 141 (a) $ 983 Year ended January 29,1994: For estimated losses in collection $1,229 $ 275 $ - $ 630 (a) $ 874 Year ended January 30, 1993: For estimated losses in collection $2,000 $ 42 $ - $ 813 (a) $1,229 (a) Write-offs net of recoveries
- 36 - EXHIBIT 11.01 GREENMAN BROS. INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE For the Years Ended Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992 Feb. 2, 1991 (52 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
a) Net income (loss) $(3,394,364) $ 709,487 $ 1,801,120 $ 3,665,196 $(14,601,598) b) Weighted average number of shares of common stock outstanding during period 5,220,222 5,338,012 5,574,547 5,540,212 5,948,975 Income (loss) per share (a/b) $ (.65) $ .13 $ .32 $ .66 $ (2.45) c) Incremental shares based on the treasury stock method for stock options, using the average market price 141,219 59,673 94,082 1,427 59,585 d) Incremental shares based on the treasury stock method for stock options, using the ending market price 153,038 82,310 94,082 28,047 71,088 Income (loss) per common and common equivalent shares (primary) (a/(b+c)) $ (.65) $ .13 $ .32 $ .66 $ (2.43) Income (loss) per common and common equivalent shares assuming full dilution (a/(b+d)) $ (.65) $ .13 $ .32 $ .66 $ (2.43) NOTE: The inclusion of common stock equivalents were antidilutive in fiscal 1995 and 1991 and had no significant dilutive effect in all other years presented and therefore were not utilized in the above computation of income (loss) per share.
- 67 - EXHIBIT 21 Subsidiaries of the Registrant 1. Martin Zippel Co. Inc., Incorporated in New Jersey, doing business as same. (a) 2. Kleban Distribution Services, Inc., Incorporated In Delaware, doing business as same. (a) 3. C.W.P.W. Inc., Incorporated in Michigan, doing business as Playworld, Toy Park, Hudson Berlind Sales Associates, Martin Zippel Sales Associates and Noodle Kidoodle. 4. M.Z. Catalogue Services, Inc., Incorporated in New Jersey, doing business as same. (a) As of April 1, 1994, Martin Zippel Co. Inc., and Kleban Distribution Services, Inc., were merged into Greenman Bros. Inc. - 68 - EX-27 2
5 1000 YEAR JAN-28-1995 JAN-30-1994 JAN-28-1995 10908 0 14605 983 20264 49964 17363 7690 59819 18164 0 619 0 0 40251 59819 136502 136502 103537 103537 35508 250 75 (5496) (2102) (3394) 0 0 0 (3394) (.65) (.65)
EX-99 3 EXHIBIT 10-02 EMPLOYMENT AGREEMENT AGREEMENT, dated as of February 1, 1995, between GREENMAN BROS. INC., a New York corporation ("GMN" or the "Company"), and Stanley Greenman (the "Executive"). It is hereby agreed as follows: 1. Nature of Employment. GMN hereby employs Executive as its Chairman and Chief Executive Officer, and confirms the election of Executive by GMN's Board of Directors as its Chairman and Chief Executive Officer, and agrees to use its best efforts to cause Executive to be reelected as Chairman and Chief Executive officer during the term of this Agreement. Executive accepts employment upon the terms and conditions hereinafter set forth and agrees to serve GMN as its Chairman and Chief Executive Officer, and as a member of its Board of Directors so long as so elected during the term of this Agreement. The Executive shall report to the Board of Directors of GMN. The Executive shall also serve without additional compensation as an officer and director of all corporations from time to time owned or controlled by GMN if so elected or appointed. The Executive shall devote his full time, energies, skills and attention to the performance of his duties and responsibilities hereunder, and shall perform then faithfully and diligently. The office of the Executive shall be located within a 20 mile radius of the Executive's residence on the date of this -37- Agreement and the Executive shall not be required to locate his office elsewhere without his prior written consent. 2. Term of Employment. The term of the Executive's employment under this Agreement shall be for the period commencing as of February 1, 1995 and terminating on January 31, 1998 unless sooner terminated by either party for cause or as hereinafter provided. (a) In the event of the death or "total disability" (as defined below) of the Executive, the Executive's employment shall terminate as of the date of his death or the date of his certification of total disability, in either of which events, Executive, his estate, legal representative or designee, as the case may be, shall receive the full salary compensation provided for the Executive in Section 3 below for a period of six (6) months from the date of the Executive's death or total disability. (b) In the event the Board of Directors of GMN shall determine, as confirmed by competent medical evidence (which shall include a certificate from Executive's then personal physician), that Executive has become "totally disabled" and, on the same or subsequent occasion, shall determine that such disability shall have continued for a period of three (3) consecutive months, then Executive's employment shall terminate thirty (30) days after the date upon which GMN shall have given notice to the Executive of its election to terminate his employ- ment because of such total disability, provided, however, that -38- prior to termination the Board of Directors shall have received confirming competent medical evidence as to the existence of the Executive's total disability at such time. Any controversy arising in the determination of whether the Executive shall be deemed to be "totally disabled" for purposes of his being terminated as provided for herein shall be settled by an independent physician licensed to practice medicine selected by the Board of Directors of GMN and approved by the Executive. Prior to any such termination, GMN's obligations with respect to compensation and benefits shall continue during the period of disability. (c) In the event of a change in control (as defined herein) of GMN, which results in an actual or constructive termination of employment, the Executive shall have the right within six (6) months after any such termination, to terminate his employment hereunder and to receive an amount, payable in a lump sum as severance pay within 10 days after he shall have given notice of his election to terminate, equal to the amount by which two hundred ninety-nine percent (299%) of the base amount exceeds the present value of all other payments which would be considered as contingent on a change of ownership or control (other than payments which would not be treated as parachute payments) under section 28OG of the Internal Revenue Code. The "base amount" for purposes of this subsection (c) shall mean the average annual compensation which was payable by GMN and was includible in the Executive's gross income for tax purposes for the most recent five (5) taxable years of the Executive ending -39- before the date on which a change in control occurs. A "change in control" for purposes of this subsection (c) shall mean (i) the acquisition (directly or indirectly) by any person, entity or group of more than twenty-five percent (25%) of the outstanding voting stock of GMN (acquisition shall include accumulation in one or more transactions, including, without limitation, any issuance, transfer or purchase of stock, reclassification of securities, stock split, stock dividend or distribution, reverse stock split, recapitalization, merger or consolidation with subsidiaries, and any transaction which has the direct or indirect effect of increasing the proportionate share of the outstanding voting stock of GMN held by such person, entity or group), or (ii) the individuals who currently con- stitute the directors of GMN, or individuals elected by more than two-thirds of such current directors to replace any of such current directors, no longer constitute a majority of the direc- tors of GMN. A "constructive termination of employment" for purposes of this subsection (c) shall mean any of the following, if done without the Executive's consent and having a material adverse effect on his employment or the conditions under which he works: (i) a change in the title, duties or responsibilities of the Executive, including the person or body to whom the Executive reports, (ii) a change in the location where the Executive's services are rendered, (iii) a change in the office or secretarial arrangements affecting the Executive, or (iv) any reduction in compensation or fringe benefits or change of any other term of this Agreement, or any other breach of this -40- Agreement by GMN. A constructive termination shall be determined by the Executive in his sole, reasonable discretion. 3. Compensation. (a) Subject to the provisions of Section 2, as compensation for his services hereunder GMN agrees to pay the Executive a salary, payable at such times as may be customary for the payment of compensation to other GMN employees, or at such times as the Executive and GMN shall agree upon, at the rate of $275,000 per annum or at such increased rate as the Board, with the advice of the Compensation Committee, may from time to time determine. (b) In addition to the salary to be paid pursuant to Section 3(a), the Executive shall be eligible for a bonus (the "Performance Bonus") with respect to each of the three fiscal years of the Company ending January 31, 1996 (Year 1), January 31, 1997 (Year 2), and January 31, 1998 (Year 3) (together, the "Three-Year Period") based upon the net pre-tax profits or losses of the Company ("Profits" or "Losses") in such years, as follows: (i) Year 1: if Losses are greater than $3,666,000, no Performance Bonus shall be payable; and if Losses are less than $2,757,000, the Performance Bonus shall be payable in the amount of 30% of the Executive's salary for such year (the "Maximum Performance Bonus"). Between these two levels of Losses, the Performance Bonus will increase pro rata from 0% to 30% of salary, depending upon Loss levels between $3,666,000 and $2,757,000. In other words, for each $9,090 of decreasing losses below ($3,666,000) until ($2,757,000) in Year 1, 1% of the -41- Maximum Performance Bonus in Year 1 (i.e., three-tenths of one per cent (.3%) of the Executive's salary for Year 1 shall be payable as the Performance Bonus for Year 1. (ii) Year 2: if Profits are less than $798,000, no Performance Bonus shall be payable; and if Profits equal or exceed $1,064,000, the Performance Bonus shall be payable in the amount of 30% of the Executive's salary for such year (the "Maximum Performance Bonus"). Between these two levels of Profits, the Performance Bonus will increase pro rata from 0% to 30% of salary, depending upon Profit levels between $798,000 and $1,064,000. In other words, for each $2,660 of incremental Profits above $798,000 (up to $1,064,000) 1% of the Maximum Performance Bonus in Year 2 (i.e., three-tenths of one per cent (.3%) of the Executive's salary for Year 2) shall be payable as the Performance Bonus for Year 2. (iii) Year 3: if Profits are less than $4,943,250, no Performance Bonus shall be payable; and if Profits equal or exceed $6,591,000, the Performance Bonus shall be payable in the amount of 30% of the Executive's salary for such year (the "Maximum Performance Bonus"). Between these two levels of Profits, the Performance Bonus will increase pro rata from 0% to 30% of salary, depending upon Profit levels between $4,943,250 and $6,591,000. In other words, for each $16,480 of incremental Profits above $4,943,000, 1% of the Maximum Performance Bonus in Year 3 (i.e., three-tenths of one per cent -42- (.3%) of the Executive's salary for Year 3) shall be payable as the Performance Bonus for Year 3. (iv) Aggregate: if the Maximum Performance Bonus shall not be payable for all of the years in the Three-Year Period under the formulas contained in paragraphs (i), (ii) and (iii) above, the Executive shall nevertheless be eligible to make up the shortfall as follows: If the aggregate net Profits of the Three-Year Period -- i.e., the total of Profits net of any Losses incurred by the Company during such period ("Aggregate Profits") exceed $2,075,000) a tentative calculation of a Performance Bonus based upon Aggregate Profits ("Aggregate Performance Bonus") shall be made, as follows: For each $2,823 of incremental Aggregate Profits above $2,075,000 1% of the Maximum Aggregate Performance Bonus shall be payable to the Executive. If the Aggregate Performance Bonus calculated in this manner exceeds the total of the Performance Bonuses paid or payable to the Executive for Years 1, 2 and 3 pursuant to paragraphs (i), (ii) and (iii) above, then the Executive shall be paid an amount equal to the difference between the Aggregate Performance Bonus, and the amounts of Performance Bonuses previously paid; provided, however, the maximum Aggregate Performance Bonus shall be an amount equal to 30% of the sum of the Executive's salary for Years 1, 2 and 3. In addition, the maximum amount of the Aggregate Performance Bonus shall be subject to the further limitation that, together with the Aggregate Performance Bonus payable to Stewart Katz pursuant to the Employment Agreement between the Company and Mr. Katz dated the date hereof, it shall -43- not exceed 10% of the Company's Profits for Year 3 (calculated without reference to the Aggregate Performance Bonus). In the event that the sum of both such bonuses calculated as provided herein and in Mr. Katz's Employment Agreement exceed this limitation, both bonuses shall be reduced pro rata until, in the aggregate, they amount to 10% of the Company's Profits for Year 3 (calculated without reference to the Aggregate Performance Bonus). (v) Performance Bonuses shall be paid promptly following the determination of Profits or Losses at the end of each of Years 1, 2 and 3. The Aggregate Performance Bonus, if payable, shall be paid promptly following determination of Aggregate Profits, following conclusion of the Three-Year Period. (c) The Executive shall also be eligible for grants of stock options to acquire shares of Common Stock of the Company ("Options") pursuant to the Company's 1994 Stock Incentive Plan (the "Plan") depending upon the level of Profits or Losses achieved in Year 1, Year 2 and during the Three-Year Period, in the aggregate, as follows: (i) Year 1: If Losses are greater than $3,666,000, no Options shall be granted; and if Losses are less than $2,757,000, 30,000 Options will be granted (the "Maximum Option Grant"). Between these two levels of Profits, the Option grant will increase pro rata from zero to 30,000 Options, depending upon Loss levels between $3,666,000 and $2,757,000. In other words, for each $9,090 of decreasing Losses below -44- $3,666,000 in Year 1, 300 Options shall be granted, up to a maximum of 30,000 Options. (ii) Year 2: If Profits are less than $798,000, no Options shall be granted; and if Profits equal or exceed $1,064,000, 30,000 Options will be awarded (the "Maximum Option Grant"). Between these two levels of Profits, the Option grant will increase pro rata from zero to 30,000 Options, depending upon Profit levels between $798,000 and $1,064,000. In other words, for each $2,660 of incremental Profits above $798,000 in Year 2) 300 Options shall be granted, up to a maximum of 30,000 Options. (iii) If the Maximum Option Grant shall not have been awarded for both Year 1 and Year 2 under the formulas contained in paragraphs (i) and (ii) above, the Executive shall nevertheless be eligible to make up the shortfall as follows: If the Aggregate Profits exceed $2,075,000, a tentative calculation of the number of Options to be granted leased on the amount of such Profits shall be made. Such number shall be 300 Options for each $2,823 of such Incremental Profits, up to a maximum of 60,000 Options. If the number of Options which have been earned, calculated in this manner ("Aggregate Option Award") exceeds the total number of Options granted to Executive for Years 1 and 2 pursuant to paragraph (i) and (ii) above, then the Executive shall be granted Options equal to the difference between the Aggregate Option Award and the number of Options previously granted. -45- (iv) Options with respect to Year 1 and Year 2 shall be granted promptly following the determination of Profits for such fiscal years. An Aggregate Option Award shall be granted promptly after determination of Aggregate Profits, following conclusion of the Three-Year Period. Profits and Losses shall be calculated by the independent accountants regularly auditing the Company's financial statements, in accordance with generally accepted accounting principles, consistently applied, subject to review by the Board of Directors of the Company, whose determinations shall be final and binding on all parties. The exercise price shall be fair market value determined in accordance with the Stock Option Plan. Options shall provide for exercisability of 25% per year commencing one year after grant and be subject to such other provisions as are customarily contained in the Company's Stock Option Agreement with its executives under the Plan. 4. Additional Compensation; Benefits. The Board of Directors of GMN, in its sole and absolute discretion, may at any time and from time to time pay to the Executive such additional incentive payments, bonuses and/or profit sharing distributions, in addition to the compensation provided in Section 3, as the Board of Directors, with the advice of the Compensation Committee, may determine. The stock option and compensation committee of GMN in its sole and absolute discretion may at any time and from time to time award to the executive such stock options or other stock based pay under the Company's stock option plan or otherwise, in addition to the compensation provided for -46- in Section 3, as such committee or board may from time to time determine. The Executive shall, in any event, be entitled to the continuation of any employee benefits, including life, disability or accident insurance coverage, currently being received by the Executive, and shall be eligible to participate in any plan of GMN available to the employees of GMN and any other plan which may be adopted in the future with respect to employees or executives of GMN or any of its operating divisions if he shall be eligible under the terms of such plan without restriction or limitation by reason of this Agreement. The Executive shall also be entitled to paid vacation for such periods and times as have been heretofore customary for the Executive. 5. Expenses. GMN shall promptly reimburse the Executive for all specified items of travel, entertainment and miscellaneous expenses reasonably incurred by him in connection with the performance of his duties hereunder upon presentation of vouchers therefor in accordance with normal procedures and standards established by GMN for such purposes. GMN shall also, at its own expense, provide Executive with a new automobile of GMN's choice and shall bear all expenses of maintaining and insuring such automobile. 6. Nondisclosure; Noncompetition. -47- (a) Executive shall not, at any time during or following expiration or termination of Executive's employment (regardless of the reason therefor), directly or indirectly, disclose to any person (except in the regular course of GMN's business), or use in competition with GMN, any of GMN's trade secrets or confidential information. (b) For a period of one (1) year following expiration of his employment or termination of employment for any reason other than (i) termination by GMN without cause, or (ii) termination by the Executive in accordance with Section 2(c) hereof, the Executive shall not, without GMN's written consent, (A) enter into the employ of or render any services to any person, firm or corporation engaged in any "Competitive Business" (as defined below); (B) engage in any Competitive Business for his own account or (C) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, consultant, advisor or in any other relationship or capacity. As used herein, "Competitive Business" shall mean operating stores for the retail sale of educationally oriented products for children, including without limitation, toys, games, books, video and audio tapes, computer software, crafts, and science and construction merchandise. The geographic locations in which this covenant shall be operative shall include a [50] mile radius of any Noodle Kidoodle store then operated by the Company, or then planned by the Company to be opened within a twelve month period. -48- 7. Fees and Expenses. GMN shall pay all legal fees and related expenses incurred by the Executive as a result of (i) termination of his employment following a change in control of GMN (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or incurred by the Executive in seeking advice with respect to tax matters relating thereto) or (ii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement, if GMN shall have denied such right or withheld such benefit, and if the Executive shall prevail in obtaining or enforcing it. 8. Miscellaneous. (a) GMN will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business and/or assets, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that GMN would be required to perform it if no such succession had taken place. This clause shall not apply with respect to a purchase of GMN's wholesale business. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid -49- in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. (c) No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of GMN. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (d) The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. (e) In the event that any provision of this Agreement is held to be invalid or unenforceable in any jurisdiction for any reason unless narrowed by construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid or unenforceable provision had been more narrowly drawn so as not to be invalid or unenforceable; and such provision, as to such jurisdiction, shall be ineffective to the extent of such -50- invalidity, prohibition or unenforceability, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provisions in any other jurisdiction. (f) The invalidity or unenforcibility of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. (g) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association then in effect. (h) The Executive or his estate or designee shall be entitled to receive reasonable attorneys' fees, costs and expenses incurred in enforcing the Executive's rights under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. GREENMAN BROS. INC. By: ATTEST: Name: Stewart Katz Title: President By:Anne P. Olsen Executive Stanley Greenman -51- EX-99 4 EXHIBIT 10-03 EMPLOYMENT AGREEMENT AGREEMENT, dated as of February 1, 1995, between GREENMAN BROS. INC., a New York corporation ("GMN" or the "Company"), and Stewart Katz (the "Executive"). It is hereby agreed as follows: 1. Nature of Employment. GMN hereby employs Executive as its President and Chief Operating Officer, and confirms the election of Executive by GMN's Board of Directors as its President and Chief Operating Officer, and agrees to use its best efforts to cause Executive to be reelected as President and Chief Operating officer during the term of this Agreement. Executive accepts employment upon the terms and conditions hereinafter set forth and agrees to serve GMN as its President and Chief Operating Officer, and as a member of its Board of Directors so long as so elected during the term of this Agreement. The Executive shall report to the Board of Directors of GMN. The Executive shall also serve without additional compensation as an officer and director of all corporations from time to time owned or controlled by GMN if so elected or appointed. The Executive shall devote his full time, energies, skills and attention to the performance of his duties and responsibilities hereunder, and shall perform then faithfully and diligently. The office of the Executive shall be located within a 20 mile radius of the Executive's residence on the date of this -52- Agreement and the Executive shall not be required to locate his office elsewhere without his prior written consent. 2. Term of Employment. The term of the Executive's employment under this Agreement shall be for the period commencing as of February 1, 1995 and terminating on January 31, 1998 unless sooner terminated by either party for cause or as hereinafter provided. (a) In the event of the death or "total disability" (as defined below) of the Executive, the Executive's employment shall terminate as of the date of his death or the date of his certification of total disability, in either of which events, Executive, his estate, legal representative or designee, as the case may be, shall receive the full salary compensation provided for the Executive in Section 3 below for a period of six (6) months from the date of the Executive's death or total disability. (b) In the event the Board of Directors of GMN shall determine, as confirmed by competent medical evidence (which shall include a certificate from Executive's then personal physician), that Executive has become "totally disabled" and, on the same or subsequent occasion, shall determine that such disability shall have continued for a period of three (3) consecutive months, then Executive's employment shall terminate thirty (30) days after the date upon which GMN shall have given notice to the Executive of its election to terminate his employ- ment because of such total disability, provided, however, that -53- prior to termination the Board of Directors shall have received confirming competent medical evidence as to the existence of the Executive's total disability at such time. Any controversy arising in the determination of whether the Executive shall be deemed to be "totally disabled" for purposes of his being terminated as provided for herein shall be settled by an independent physician licensed to practice medicine selected by the Board of Directors of GMN and approved by the Executive. Prior to any such termination, GMN's obligations with respect to compensation and benefits shall continue during the period of disability. (c) In the event of a change in control (as defined herein) of GMN, which results in an actual or constructive termination of employment, the Executive shall have the right within six (6) months after any such termination, to terminate his employment hereunder and to receive an amount, payable in a lump sum as severance pay within 10 days after he shall have given notice of his election to terminate, equal to the amount by which two hundred ninety-nine percent (299%) of the base amount exceeds the present value of all other payments which would be considered as contingent on a change of ownership or control (other than payments which would not be treated as parachute payments) under section 28OG of the Internal Revenue Code. The "base amount" for purposes of this subsection (c) shall mean the average annual compensation which was payable by GMN and was includible in the Executive's gross income for tax purposes for the most recent five (5) taxable years of the Executive ending -54- before the date on which a change in control occurs. A "change in control" for purposes of this subsection (c) shall mean (i) the acquisition (directly or indirectly) by any person, entity or group of more than twenty-five percent (25%) of the outstanding voting stock of GMN (acquisition shall include accumulation in one or more transactions, including, without limitation, any issuance, transfer or purchase of stock, reclassification of securities, stock split, stock dividend or distribution, reverse stock split, recapitalization, merger or consolidation with subsidiaries, and any transaction which has the direct or indirect effect of increasing the proportionate share of the outstanding voting stock of GMN held by such person, entity or group), or (ii) the individuals who currently con- stitute the directors of GMN, or individuals elected by more than two-thirds of such current directors to replace any of such current directors, no longer constitute a majority of the direc- tors of GMN. A "constructive termination of employment" for purposes of this subsection (c) shall mean any of the following, if done without the Executive's consent and having a material adverse effect on his employment or the conditions under which he works: (i) a change in the title, duties or responsibilities of the Executive, including the person or body to whom the Executive reports, (ii) a change in the location where the Executive's services are rendered, (iii) a change in the office or secretarial arrangements affecting the Executive, or (iv) any reduction in compensation or fringe benefits or change of any other term of this Agreement, or any other breach of this -55- Agreement by GMN. A constructive termination shall be determined by the Executive in his sole, reasonable discretion. 3. Compensation. (a) Subject to the provisions of Section 2, as compensation for his services hereunder GMN agrees to pay the Executive a salary, payable at such times as may be customary for the payment of compensation to other GMN employees, or at such times as the Executive and GMN shall agree upon, at the rate of $250,000 per annum or at such increased rate as the Board, with the advice of the Compensation Committee, may from time to time determine. (b) In addition to the salary to be paid pursuant to Section 3(a), the Executive shall be eligible for a bonus (the "Performance Bonus") with respect to each of the three fiscal years of the Company ending January 31, 1996 (Year 1), January 31, 1997 (Year 2), and January 31, 1998 (Year 3) (together, the "Three-Year Period") based upon the net pre-tax profits or losses of the Company ("Profits" or "Losses") in such years, as follows: (i) Year 1: if Losses are greater than $3,666,000, no Performance Bonus shall be payable; and if Losses are less than $2,757,000, the Performance Bonus shall be payable in the amount of 30% of the Executive's salary for such year (the "Maximum Performance Bonus"). Between these two levels of Losses, the Performance Bonus will increase pro rata from 0% to 30% of salary, depending upon Loss levels between $3,666,000 and $2,757,000. In other words, for each $9,090 of decreasing losses below ($3,666,000) until ($2,757,000) in Year 1, 1% of the -56- Maximum Performance Bonus in Year 1 (i.e., three-tenths of one per cent (.3%) of the Executive's salary for Year 1 shall be payable as the Performance Bonus for Year 1. (ii) Year 2: if Profits are less than $798,000, no Performance Bonus shall be payable; and if Profits equal or exceed $1,064,000, the Performance Bonus shall be payable in the amount of 30% of the Executive's salary for such year (the "Maximum Performance Bonus"). Between these two levels of Profits, the Performance Bonus will increase pro rata from 0% to 30% of salary, depending upon Profit levels between $798,000 and $1,064,000. In other words, for each $2,660 of incremental Profits above $798,000 (up to $1,064,000) 1% of the Maximum Performance Bonus in Year 2 (i.e., three-tenths of one per cent (.3%) of the Executive's salary for Year 2) shall be payable as the Performance Bonus for Year 2. (iii) Year 3: if Profits are less than $4,943,250, no Performance Bonus shall be payable; and if Profits equal or exceed $6,591,000, the Performance Bonus shall be payable in the amount of 30% of the Executive's salary for such year (the "Maximum Performance Bonus"). Between these two levels of Profits, the Performance Bonus will increase pro rata from 0% to 30% of salary, depending upon Profit levels between $4,943,250 and $6,591,000. In other words, for each $16,480 of incremental Profits above $4,943,000, 1% of the Maximum Performance Bonus in Year 3 (i.e., three-tenths of one per cent -57- (.3%) of the Executive's salary for Year 3) shall be payable as the Performance Bonus for Year 3. (iv) Aggregate: if the Maximum Performance Bonus shall not be payable for all of the years in the Three-Year Period under the formulas contained in paragraphs (i), (ii) and (iii) above, the Executive shall nevertheless be eligible to make up the shortfall as follows: If the aggregate net Profits of the Three-Year Period -- i.e., the total of Profits net of any Losses incurred by the Company during such period ("Aggregate Profits") exceed $2,075,000) a tentative calculation of a Performance Bonus based upon Aggregate Profits ("Aggregate Performance Bonus") shall be made, as follows: For each $2,823 of incremental Aggregate Profits above $2,075,000, 1% of the Maximum Aggregate Performance Bonus shall be payable to the Executive. If the Aggregate Performance Bonus calculated in this manner exceeds the total of the Performance Bonuses paid or payable to the Executive for Years 1, 2 and 3 pursuant to paragraphs (i), (ii) and (iii) above, then the Executive shall be paid an amount equal to the difference between the Aggregate Performance Bonus, and the amounts of Performance Bonuses previously paid; provided, how- ever, the maximum Aggregate Performance Bonus shall be an amount equal to 30% of the sum of the Executive's salary for Years 1, 2 and 3. In addition, the maximum amount of the Aggregate Performance Bonus shall be subject to the further limitation that, together with the Aggregate Performance Bonus payable to Stanley Greenman pursuant to the Employment Agreement between the Company and Mr. Greenman dated the date hereof, it shall not -58- exceed 10% of the Company's Profits for Year 3 (calculated without reference to the Aggregate Performance Bonus). In the event that the sum of both such bonuses calculated as provided herein and in Mr. Greenman's Employment Agreement exceed this limitation, both bonuses shall be reduced pro rata until, in the aggregate, they amount to 10% of the Company's Profits for Year 3 (calculated without reference to the Aggregate Performance Bonus). (v) Performance Bonuses shall be paid promptly following the determination of Profits or Losses at the end of each of Years 1, 2 and 3. The Aggregate Performance Bonus, if payable, shall be paid promptly following determination of Aggregate Profits, following conclusion of the Three-Year Period. (c) The Executive shall also be eligible for grants of stock options to acquire shares of Common Stock of the Company ("Options") pursuant to the Company's 1994 Stock Incentive Plan (the "Plan") depending upon the level of Profits or Losses achieved in Year 1, Year 2 and during the Three-Year Period, in the aggregate, as follows: (i) Year 1: If Losses are greater than $3,666,000, no Options shall be granted; and if Losses are less than $2,757,000, 30,000 Options will be granted (the "Maximum Option Grant"). Between these two levels of Profits, the Option grant will increase pro rata from zero to 30,000 Options, depending upon Loss levels between $3,666,000 and $2,757,000. In other words, for each $9,090 of decreasing Losses below -59- $3,666,000 in Year 1, 300 Options shall be granted, up to a maximum of 30,000 Options. (ii) Year 2: If Profits are less than $798,000, no Options shall be granted; and if Profits equal or exceed $1,064,000, 30,000 Options will be awarded (the "Maximum Option Grant"). Between these two levels of Profits, the Option grant will increase pro rata from zero to 30,000 Options, depending upon Profit levels between $798,000 and $1,064,000. In other words, for each $2,660 of incremental Profits above $798,000 in Year 2) 300 Options shall be granted, up to a maximum of 30,000 Options. (iii) If the Maximum Option Grant shall not have been awarded for both Year 1 and Year 2 under the formulas contained in paragraphs (i) and (ii) above, the Executive shall nevertheless be eligible to make up the shortfall as follows: If the Aggregate Profits exceed $2,075,000, a tentative calculation of the number of Options to be granted leased on the amount of such Profits shall be made. Such number shall be 300 Options for each $2,823 of such Incremental Profits, up to a maximum of 60,000 Options. If the number of Options which have been earned, calculated in this manner ("Aggregate Option Award") exceeds the total number of Options granted to Executive for Years 1 and 2 pursuant to paragraph (i) and (ii) above, then the Executive shall be granted Options equal to the difference between the Aggregate Option Award and the number of Options previously granted. -60- (iv) Options with respect to Year 1 and Year 2 shall be granted promptly following the determination of Profits for such fiscal years. An Aggregate Option Award shall be granted promptly after determination of Aggregate Profits, following conclusion of the Three-Year Period. Profits and Losses shall be calculated by the independent accountants regularly auditing the Company's financial statements, in accordance with generally accepted accounting principles, consistently applied, subject to review by the Board of Directors of the Company, whose determinations shall be final and binding on all parties. The exercise price shall be fair market value determined in accordance with the Stock Option Plan. Options shall provide for exercisability of 25% per year commencing one year after grant and be subject to such other provisions as are customarily contained in the Company's Stock Option Agreement with its executives under the Plan. 4. Additional Compensation; Benefits. The Board of Directors of GMN, in its sole and absolute discretion, may at any time and from time to time pay to the Executive such additional incentive payments, bonuses and/or profit sharing distributions, in addition to the compensation provided in Section 3, as the Board of Directors, with the advice of the Compensation Committee, may determine. The stock option and compensation committee of GMN in its sole and absolute discretion may at any time and from time to time award to the executive such stock options or other stock based pay under the Company's stock option plan or otherwise, in addition to the compensation provided for -61- in Section 3, as such committee or board may from time to time determine. The Executive shall, in any event, be entitled to the continuation of any employee benefits, including life, disability or accident insurance coverage, currently being received by the Executive, and shall be eligible to participate in any plan of GMN available to the employees of GMN and any other plan which may be adopted in the future with respect to employees or executives of GMN or any of its operating divisions if he shall be eligible under the terms of such plan without restriction or limitation by reason of this Agreement. The Executive shall also be entitled to paid vacation for such periods and times as have been heretofore customary for the Executive. 5. Expenses. GMN shall promptly reimburse the Executive for all specified items of travel, entertainment and miscellaneous expenses reasonably incurred by him in connection with the performance of his duties hereunder upon presentation of vouchers therefor in accordance with normal procedures and standards established by GMN for such purposes. GMN shall also, at its own expense, provide Executive with a new automobile of GMN's choice and shall bear all expenses of maintaining and insuring such automobile. 6. Nondisclosure; Noncompetition. -62- (a) Executive shall not, at any time during or following expiration or termination of Executive's employment (regardless of the reason therefor), directly or indirectly, disclose to any person (except in the regular course of GMN's business), or use in competition with GMN, any of GMN's trade secrets or confidential information. (b) For a period of one (1) year following expiration of his employment or termination of employment for any reason other than (i) termination by GMN without cause, or (ii) termi- nation by the Executive in accordance with Section 2(c) hereof, the Executive shall not, without GMN's written consent, (A) enter into the employ of or render any services to any person, firm or corporation engaged in any "Competitive Business" (as defined below); (B) engage in any Competitive Business for his own account or (C) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, consultant, advisor or in any other relationship or capacity. As used herein, "Competitive Business" shall mean operating stores for the retail sale of educationally oriented products for children, including without limitation, toys, games, books, video and audio tapes, computer software, crafts, and science and construction merchandise. The geographic locations in which this covenant shall be operative shall include a [50] mile radius of any Noodle Kidoodle store then operated by the Company, or then planned by the Company to be opened within a twelve month period. -63- 7. Fees and Expenses. GMN shall pay all legal fees and related expenses incurred by the Executive as a result of (i) termination of his employment following a change in control of GMN (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or incurred by the Executive in seeking advice with respect to tax matters relating thereto) or (ii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement, if GMN shall have denied such right or withheld such benefit, and if the Executive shall prevail in obtaining or enforcing it. 8. Miscellaneous. (a) GMN will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business and/or assets, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that GMN would be required to perform it if no such succession had taken place. This clause shall not apply with respect to a purchase of GMN's wholesale business. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid -64- in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. (c) No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of GMN. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimi- lar provisions or conditions at the same or at any prior or sub- sequent time. No agreements or representations, oral or other- wise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (d) The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. (e) In the event that any provision of this Agreement is held to be invalid or unenforceable in any jurisdiction for any reason unless narrowed by construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid or unenforceable provision had been more narrowly drawn so as not to be invalid or unenforceable; and such provision, as to such jurisdiction, shall be ineffective to the extent of such -65- invalidity, prohibition or unenforceability, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provisions in any other jurisdiction. (f) The invalidity or unenforcibility of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. (g) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association then in effect. (h) The Executive or his estate or designee shall be entitled to receive reasonable attorneys' fees, costs and expenses incurred in enforcing the Executive's rights under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. GREENMAN BROS. INC. By: ATTEST: Name: Stanley Greenman Title: C.E.O. By:Anne P. Olsen Executive Stewart Katz -66- -----END PRIVACY-ENHANCED MESSAGE-----