-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sd77sNXsC/Uzd/0xlV4QWbm+qqbWWyk8Q0OpJmwAhn4IBaQjqAc0PES6HRvNZ8YN 1rDK5aujn8r4S14auV+PeA== 0000891618-98-005341.txt : 19981216 0000891618-98-005341.hdr.sgml : 19981216 ACCESSION NUMBER: 0000891618-98-005341 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GYMBOREE CORP CENTRAL INDEX KEY: 0000786110 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 942615258 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21250 FILM NUMBER: 98770169 BUSINESS ADDRESS: STREET 1: 700 AIRPORT BLVD STE 200 CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 4155790600 MAIL ADDRESS: STREET 2: 700 AIRPORT BLVD #200 CITY: BURLINGAME STATE: CA ZIP: 94010 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended OCTOBER 31, 1998 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ____________________ to ________________________ Commission file number 000-21250 THE GYMBOREE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2615258 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 700 AIRPORT BOULEVARD, BURLINGAME, CALIFORNIA 94010-1912 (Address of principal executive offices) (Zip code) (650) 579-0600 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No ------- -- Number of shares of common stock outstanding at November 28, 1998: 24,172,134 2 TABLE OF CONTENTS ----------------- Page Number ------ PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations................3 Condensed Consolidated Balance Sheets..........................4 Condensed Consolidated Statements of Cash Flows................5 Notes to Condensed Consolidated Financial Statements...........6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................8 Item 3. Quantitative and Qualitative Disclosures about Market Risk....14 PART II OTHER INFORMATION Item 1. Legal Proceedings.............................................15 Item 2. Changes in Securities and Use of Proceeds.....................15 Item 3. Defaults Upon Senior Securities...............................15 Item 4. Submission of Matters to a Vote of Security Holders...........15 Item 5. Other Information.............................................15 Item 6. Exhibits......................................................15 SIGNATURES..................................................................16 EXHIBIT INDEX...............................................................17 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA) (UNAUDITED)
13 Weeks Ended 39 Weeks Ended ----------------------------- ----------------------------- October 31, November 1, October 31, November 1, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net Sales $ 113,991 $ 101,120 $ 316,886 $ 258,044 Cost of goods sold, including buying and occupancy expenses (72,897) (55,261) (200,979) (142,787) --------- --------- --------- --------- Gross Profit 41,094 45,859 115,907 115,257 Selling, general and administrative expenses (42,132) (29,129) (112,967) (79,434) Play program income 608 163 1,369 265 --------- --------- --------- --------- Operating income (loss) (430) 16,893 4,309 36,088 Currency transaction gain (loss) (113) (146) 32 (159) Interest income 114 499 490 2,231 --------- --------- --------- --------- Income (loss) before income taxes (429) 17,246 4,831 38,160 Income tax (expense) benefit 156 (6,381) (1,787) (14,120) --------- --------- --------- --------- Net income (loss) $ (273) $ 10,865 $ 3,044 $ 24,040 ========= ========= ========= ========= Net income (loss) per share: Basic $ (0.01) $ 0.44 $ 0.13 $ 0.98 Diluted (0.01) 0.44 0.13 0.96 Weighted average shares outstanding: Basic 24,172 24,570 24,148 24,589 Diluted 24,172 24,858 24,210 24,939 Number of stores at end of period 548 427 548 427
See notes to condensed consolidated financial statements. 3 4 THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
October 31, January 31, November 1, 1998 1998 1997 ----------- ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,170 $ 17,870 $ 8,413 Investments -- 18,642 37,848 Accounts receivable 11,095 5,184 6,005 Merchandise inventories 95,037 75,293 68,641 Prepaid expenses and other 6,214 4,467 2,825 -------- -------- -------- Total current assets 114,516 121,456 123,732 -------- -------- -------- PROPERTY AND EQUIPMENT Land and Buildings 9,969 10,405 7,541 Leasehold improvements 76,379 58,082 56,164 Furniture, fixtures and equipment 85,630 66,819 62,919 -------- -------- -------- 171,978 135,306 126,624 Less accumulated depreciation and amortization (42,038) (30,934) (27,649) -------- -------- -------- 129,940 104,372 98,975 OTHER ASSETS 3,864 3,372 2,980 -------- -------- -------- TOTAL ASSETS $248,320 $229,200 $225,687 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 17,450 $ -- $ -- Trade accounts payable 18,314 26,046 20,653 Accrued liabilities 16,757 15,781 15,232 Income taxes payable 2,028 8,039 5,279 -------- -------- -------- Total current liabilities 54,549 49,866 41,164 -------- -------- -------- DEFERRED RENT AND OTHER 30,336 21,624 18,418 -------- -------- -------- STOCKHOLDERS' EQUITY: Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized 24,172,134, 24,015,096 and 24,642,015 shares outstanding at October 31, 1998, January 31, 1998 and November 1, 1997, respectively) 25,115 23,109 42,491 Restricted stock deferred compensation -- (337) (337) Unrealized change in value of investments -- 28 121 Cumulative translation adjustments 334 (32) 17 Retained earnings 137,986 134,942 123,813 -------- -------- -------- Total stockholders' equity 163,435 157,710 166,105 -------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $248,320 $229,200 $225,687 ======== ======== ========
See notes to condensed consolidated financial statements. 4 5 THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
39 Weeks Ended October 31, November 1, 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,044 $ 24,040 Adjustments to reconcile net income to net cash provided by/ (used in) operating activities: Depreciation and amortization 13,755 9,516 Non-cash compensation expenses -- 416 Provision for deferred income tax (58) 1,287 Cumulative translation adjustments 366 16 Tax benefit from exercise of stock options 240 2,392 Loss on disposal of property and equipment 1,238 1,347 Change in assets and liabilities: Accounts receivable (5,911) (1,669) Inventories (19,744) (19,662) Prepaid expenses and other assets (5,138) (3,194) Accounts payable (7,732) (1,296) Income tax payable (6,011) (1,352) Deferred liabilities 8,712 3,847 Accrued liabilities 3,933 2,128 -------- -------- Net cash provided by/(used in) operating activities (13,306) 17,816 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (40,585) (39,249) Proceeds from sales of assets 24 -- Proceeds from sale of investments 18,614 44,414 -------- -------- Net cash provided by/(used in) investing activities (21,947) 5,165 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock 2,103 7,402 Repurchase of common stock -- (29,997) Net proceeds from short-term debt borrowings 17,450 -- -------- -------- Net cash provided by / (used in) financing activities 19,553 (22,595) -------- -------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (15,700) 386 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,870 8,027 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,170 $ 8,413 ======== ========
See notes to condensed consolidated financial statements. 5 6 THE GYMBOREE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The unaudited interim condensed consolidated financial statements of The Gymboree Corporation and its wholly-owned subsidiaries (the "COMPANY") as of and for the periods ended October 31, 1998 and November 1, 1997 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended January 31, 1998. The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented and necessary to present fairly the results of operations, the financial position and cash flows for the periods presented. All such adjustments are of a normal and recurring nature. Certain prior year amounts have been reclassified to conform with the current year presentation. 2. MERCHANDISE INVENTORIES Merchandise inventories are recorded under the retail method of accounting and are stated at the lower of cost or market. 3. INCOME TAXES The Company's effective tax rate in the third quarter of fiscal 1998 was 37%, consistent with the same period last year. 4. COMPREHENSIVE INCOME During the first fiscal quarter of fiscal 1998, the Company adopted statement of financial accounting standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS 130 requires the presentation, by major components and as a single total, the change in the Company's net assets during a period from non-owner sources. The adoption of this statement resulted in a change in financial statement presentation, but did not have an impact on the Company's condensed consolidated balance sheets, statements of operations or cash flows. Comprehensive income and its components are as follows:
13 Weeks Ended 39 Weeks Ended ------------------------------------- ------------------------------------- October 31, 1998 November 1, 1997 October 31, 1998 November 1, 1997 ---------------- ---------------- ---------------- ---------------- (in 000's) Net income (loss) $(273) $ 10,865 $ 3,044 $ 24,040 Unrealized gain (loss) on investments 0 (15) (28) (98) Cumulative translation adjustments 51 324 366 16 ----- -------- ------- -------- Total comprehensive income (loss) $(222) $ 11,174 $ 3,382 $ 23,958 ===== ======== ======= ========
6 7 5. FINANCIAL INSTRUMENTS The Company enters into forward foreign exchange contracts to reduce exposure to foreign currency exchange risk. These contracts are designed as hedges of certain intercompany receivables denominated in foreign currencies. The Company will continue to engage in these financial instrument transactions in an attempt to reduce exposure to foreign currency fluctuations. 6. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes annual and interim reporting standards for operating segments of an enterprise and related disclosures about its products, services, geographic areas and major customers. SFAS No. 131 is effective for the Company's fiscal years ending after January 31, 1998. Adoption of this standard will not impact the Company's consolidated balance sheets, statements of income or cash flows, and any effect will be limited to the form and content of its disclosures. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, (i) selected statement of operations data expressed as a percentage of net sales, (ii) the percentage change from the same period of the prior year in such selected income statement data and (iii) the number of stores open at the end of each such period:
As a Percentage of Net Sales ----------------------------------------------------------- Percentage Change Thirteen Thirty-Nine in Dollar Amounts Weeks Ended Weeks Ended From 1997 to 1998 --------------------------- --------------------------- ---------------------- October 31, November 1, October 31, November 1, 1998 1997 1998 1997 13 weeks 39 weeks ----------- ----------- ----------- ----------- -------- -------- Net sales 100.0% 100.0% 100.0% 100.0% 13% 23% Cost of goods sold, including buying and occupancy expenses (63.9) (54.6) (63.4) (55.3) 32% 41% ----- ----- ----- ----- Gross Profit 36.1 45.4 36.6 44.7 -10% 1% Selling, general and administrative expenses (37.0) (28.9) (35.6) (30.8) 45% 42% Play program income 0.5 0.2 0.4 0.1 273% 417% ----- ----- ----- ----- Operating income (0.4) 16.7 1.4 14.0 -103% -88% Currency transaction gain (loss) (0.1) (0.1) 0.0 (0.1) -23% -120% Interest income 0.1 0.5 0.2 0.9 -77% -78% ----- ----- ----- ----- Income before income taxes (0.4) 17.1 1.6 14.8 -102% -87% Income taxes 0.1 (6.4) (0.6) (5.5) -102% -87% ----- ----- ----- ----- Net income (0.3)% 10.7% 1.0% 9.3% -103% -87% ===== ===== ===== ===== Number of stores at end of period 548 427 548 427
THIRTEEN WEEKS ENDED OCTOBER 31, 1998 COMPARED TO THIRTEEN WEEKS ENDED NOVEMBER 1, 1997 NET SALES Net sales in the third quarter of fiscal 1998 increased 13% to $114.0 million compared to $101.1 million in the same period last year. Sales for the additional 113 stores opened in fiscal 1998 contributed $15.0 million of the increase in net sales. Stores opened prior to fiscal 1998, but not qualifying as comparable stores, in addition to the twenty-two stores that were relocated or expanded in fiscal 1998, contributed $4.0 million of the increase in net sales. Comparable store net sales decreased 6.9% or $6.1 million in the third quarter. GROSS PROFIT Gross profit for the thirteen weeks ended October 31, 1998 decreased 10% to $41.1 million from $45.9 million in the same period last year. As a percentage of net sales, gross profit was 36.1% in the third quarter of 1998 compared to 45.4% in the same period last year. The high degree of promotional activity continued to adversely affect gross profit as a percentage of sales during the thirteen weeks ended October 31, 1998. As the Company continues to reduce inventories, gross profit as a percentage of net sales will remain below fiscal 1997 levels. 8 9 RESULTS OF OPERATIONS (CONTINUED) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("S, G&A"), which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to 37.0% of net sales in the third quarter of fiscal 1998, compared to 28.9% of net sales in the same period last year. The increase in total S, G&A expenses, as a percentage of net sales was primarily attributable to the decrease in comparable store sales coupled with new store additions, both domestic and international, and startup expenses for the development of the new retail concept. Other increases in S, G&A included continued marketing expenses associated with direct mail and other promotional campaigns. The Company expects total S, G&A expenses, as a percentage of net sales, to remain above last year levels due to funding of the development of the Company's new retail concept, increased marketing efforts in the form of direct mail, print and television advertising. These higher expenses, combined with the expected lower gross profit as a percentage of net sales, are expected to result in full year net earnings growth at a level less than those achieved in recent years. FOREIGN EXCHANGE TRANSACTIONS Foreign exchange transaction losses totalled $0.1 million during the third quarter of 1998 and were consistent with the third quarter of 1997. This loss resulted from currency fluctuations in intercompany transactions between the Company's U.S. operations and its foreign subsidiaries. INTEREST INCOME Interest income decreased 77% to $114,000 during the third quarter of 1998 from $499,000 during the third quarter of the prior year. The decrease in interest income was due to the decrease in cash, cash equivalents, and investments during the third quarter of 1998 as compared to the same period in 1997 which was primarily the result of two stock repurchases completed during fiscal 1997 for a total of $50.0 million. This trend of declining interest income is expected to continue for the foreseeable future. INCOME TAX The Company's effective tax rate for the third quarter of fiscal 1998 was 37%, consistent with the same period last year. 9 10 THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 COMPARED TO THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 NET SALES Net sales for the thirty-nine weeks ended October 31, 1998 increased 23% to $316.9 million compared to $258.0 million in the same period last year. Sales for the additional 113 stores opened in fiscal 1998 contributed $24.5 million of the increase in net sales. Stores opened prior to fiscal 1998, but not qualifying as comparable stores, in addition to the twenty-two stores that were relocated or expanded in fiscal 1998, contributed $29.8 million of the increase in net sales. Comparable store net sales increased 2% in the thirty-nine weeks ended October 31, 1998. The increase in comparable store net sales was primarily attributable to promotional pricing and contributed $4.6 million of the increase in net sales. GROSS PROFIT Gross profit for the thirty-nine weeks ended October 31, 1998 increased 1% to $115.9 million from $115.3 million in the same period last year. As a percentage of net sales, gross profit was 36.6% in the first nine months of fiscal 1998 compared to 44.7% in the same period last year. The decrease in gross profit as a percentage of net sales was attributable to a significant increase in the promotional pricing of merchandise and increases in occupancy expenses attributable to larger domestic stores and higher rents paid in Europe during the first three quarters of fiscal 1998 as compared to the same period last year. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES S, G&A increased to 35.6% of net sales in the thirty-nine weeks ended October 31, 1998 compared to 30.8% of net sales in the same period last year. The increase in S, G&A was primarily attributable to the funding of the Company's international expansion into Europe and Canada, the costs associated with a cancelled plan to enter Japan and Hong Kong, start-up expenses for the development of the new retail concept, and increases in distribution costs due to the opening of a new distribution center in Dixon, California and the closure of the existing facility located in Hayward, California. Other increases in S, G&A included marketing, expenses associated with direct mail and other promotional campaigns and Year 2000 related professional services. FOREIGN EXCHANGE TRANSACTIONS Foreign exchange transaction gains were $0.03 million for the thirty-nine weeks ended October 31, 1998 compared to losses of $0.2 million for the thirty-nine weeks ended November 1, 1997. This gain resulted from currency fluctuations in intercompany transactions between the Company's U.S. operations and its foreign subsidiaries. INTEREST INCOME Interest income decreased 78% to $0.5 million from $2.2 million in the prior year. The decrease in interest income was due to the decrease in cash, cash equivalents, and investments during the first three quarters of 1998 as compared to the same period in 1997 which was primarily the result of two stock repurchases completed during fiscal 1997 for a total of $50.0 million. INCOME TAX The Company's effective tax rate in the first nine months of fiscal 1998 was 37%, consistent with the same period last year. 10 11 FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash used in operating activities was $13.3 million compared to cash provided by operating activities of $17.8 in the prior year. The use of cash in operating activities was primarily due to lower net income coupled with a decrease in working capital. Cash used in investing activities of $21.9 million resulted from $40.6 million in capital expenditures related primarily to new store openings, as well as the relocation and/or expansion of certain existing stores offset by $18.6 million generated from sales of marketable securities. Cash provided by financing activities of $19.6 million was primarily due to $17.5 million of short-term borrowings. The combined balances of cash, cash equivalents and investments were $2.1 million at October 31, 1998, a decrease of $34.3 million from January 31, 1998. Working capital as of October 31, 1998 was $60.0 million compared to $71.6 million at the end of fiscal 1997. The decrease in working capital was primarily due to increases in current liabilities. The Company estimates that capital expenditures during fiscal 1998 will be between $45 million and $50 million, and will be principally used to fund the opening of 128 new stores and the relocation or expansion of approximately 22 to 25 existing stores. At the end of the third quarter of fiscal 1998, the Company had a line of credit with Bank of America NT&SA that allowed up to $70 million in unsecured letters of credit (of which $11 million can be used for standby letters of credit) and up to $30 million in borrowings through the end of November, up to $15 million in borrowings during the month of December, and no borrowings thereafter until the expiration of the agreement on May 31, 1999. As the borrowing capacity is reduced, the amount available for unsecured letters of credit is increased. The interest rate for any borrowings is the Bank of America NT&SA's reference rate or the LIBOR rate plus 0.75 percentage points, which was 6.72% on October 31, 1998. The Company uses these lines primarily to support letters of credit which fund its foreign sourcing of merchandise inventories. As of October 31, 1998, $12.6 million was available in borrowings. In addition, under this same line, the Company may engage in up to $50 million in foreign exchange contracts, of which $25.9 million was available at October 31, 1998. The Company continues to explore a number of financing alternatives, however, the Company anticipates that cash generated from operations, together with its existing cash resources and funds that are expected to be available from its current and planned future credit facilities, will be sufficient to satisfy its cash needs through at least fiscal 1998. 11 12 YEAR 2000 In the next two years, most companies could face a potential serious information systems problem because many software applications and operational programs written in the past were designed to handle date formats with two-digit years and thus may not properly recognize calendar dates beginning in the Year 2000. This problem could result in computers either outputting incorrect data or shutting down altogether when attempting to process a date such as "01/01/00". Gymboree's Year 2000 initiative extends throughout the entire Company and includes all operating functions. Managing this effort on a regular basis is Gymboree's Year 2000 Project Office, which reports to a member of the Executive Committee. It is through this office that various roles and accountabilities regarding Year 2000 readiness have been established. Each of Gymboree's business units have been directed to work on Year 2000 projects and assemble teams to identify and implement plans to help mitigate potential problems. STATE OF READINESS All of Gymboree's mission critical information technology and non-information technology systems have been inventoried, ranked in terms of risk, and analyzed as to their Year 2000 readiness. The Company has completed an Enterprise Master Plan, Enterprise Test Plan, Configuration Management Plan, and Quality Assurance Plan. A Test Data Center will be constructed which is being used to remediate and test all mission critical systems. Gymboree's business processes are organized into eleven groups of applications. The Plans call for completing the remediation and testing phase for all groups by the end of the second quarter 1999. Enterprise and remote site testing is scheduled for completion by the end of the third quarter 1999. The Company currently expects Year 2000 problems material to the Company to be corrected prior to December 1999. COSTS Based on best estimates, the total cost of the Year 2000 readiness initiative which covers fiscal years 1998 and 1999 is approximately $2.0 - $3.0 million. $0.6 million has been expensed for the nine months ended October 31, 1998. There can be no assurance that these estimates will not be exceeded. All costs will be paid from the Company's operating funds. RISKS OF YEAR 2000 ISSUES The area of greatest risk to the Company's business operations is ensuring the readiness of our critical trading partners. We have surveyed all of our critical trading partners to ascertain their Year 2000 readiness. To date, seventy-one percent of our trading partners have responded with a formal plan to be Year 2000 compliant. Failure of Year 2000 compliance by our trading partners could result in a delay in the receipt of inventory, an inability to open stores, and lost sales. There can be no assurance that the Year 2000 problem will not have a material adverse effect on the Company's business, operating results or financial condition. CONTINGENCY PLANS Contingency plans have been developed for each mission critical application. The contingency plan for trading partners that are not Year 2000 compliant by January 1999 is to obtain alternate suppliers that are Year 2000 compliant. This plan was communicated to our trading partners during the surveying process. However, there can be no assurance that such contingency plans will remediate all Year 2000 issues which the Company might ultimately encounter. 12 13 OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE This Form 10-Q contains certain forward-looking statements reflecting the Company's current expectations, including statements regarding anticipated store openings, and future comparable store net sales, inventory, expense, earnings and liquidity levels. There can be no assurance that actual results will not vary materially from results projected in such forward-looking statements as a result of a number of factors, including competitive market conditions, levels of discretionary consumer spending, general economic conditions, the degree of promotional pricing activity by the Company, inventory levels, and the ability of the Company to successfully identify and respond to emerging children's fashion trends, to effectively monitor and control costs, and to effectively manage anticipated international and domestic growth. Other factors that may cause actual results to differ materially include those set forth in the reports that the Company files from time to time with the Securities and Exchange Commission. Other factors that may affect future performance include the following: COMPETITION The children's apparel segment of the specialty retail business in the United States is becoming more competitive. The Company competes on a national level with GapKids (a part of The Gap, Inc.) and certain leading department stores as well as certain discount retail chains such as Kids `R' Us (a division of Toys `R' Us, Inc.). Gymboree also competes with a wide variety of local and regional specialty stores and with certain other retail chains. The continued success of the Company is contingent upon its ability to compete. INVENTORY LEVELS The Company is taking steps to reduce inventories and to pursue new merchandising and marketing initiatives. This will cause gross profit as a percentage of net sales to continue to remain below fiscal 1997 levels for the balance of fiscal 1998. INTERNATIONAL EXPANSION During the third quarter of fiscal 1998, the Company opened one additional store in Canada, bringing the number of stores in Canada to Fourteen and also opened six stores in the United Kingdom and one in Ireland, bringing the total number of stores in the United Kingdom and Ireland to twenty-one. For the remainder of fiscal 1998, the Company plans to further its international expansion in the United Kingdom. The success of this planned expansion will depend upon a number of factors, including the ability of the Company to compete internationally, the availability of suitable store locations, the ability to provide an adequate supply of inventory and the ability to hire and train qualified employees, of which there can be no assurance. The Company has decided, however, to defer its expansion into Japan and Hong Kong. NEW RETAIL CONCEPT During the first quarter of 1998, the Company announced its plans to launch a new retail concept. It is intended to broaden the Company's market by introducing clothing stores targeted for children between the ages of 6 and 12 years old. This retail concept will offer apparel, footwear and accessories to boys and girls within those ages. This new concept represents a significant shift in concept, design and target market demographics from the Company's traditional products. These products may have short life cycles, thereby requiring more frequent product introductions than the Company's traditional product line. Further, these products and the introduction of more products could dilute the Company's image as a leading supplier of children's apparel in the 0-7 age range and lead to a reduced demand for its existing products. The first of these stores is expected to open in the first quarter of 1999. 13 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company enters into forward foreign exchange contracts to hedge certain intercompany receivables denominated in foreign currencies (principally Irish Punts, British Pounds Sterling, and Canadian Dollars). The term of the forward exchange contracts is generally less than 90 days. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar net cash inflow resulting from the repayment of certain intercompany receivables from Gymboree's foreign subsidiaries will be adversely affected by changes in exchange rates. However, the Company may not be able to realize the benefits from these hedging activities due to the inherent risks associated with fluctuation in foreign currency exchange rates. The table below summarizes by major currency the contractual amounts of Gymboree's forward exchange contracts in U.S. dollars. Foreign currency amounts are translated at rates current at the reported date. The amounts represent the U.S. dollar equivalent of commitments to buy or sell foreign currencies.
BALANCE AT OCTOBER 31, 1998 ($ IN MILLIONS) ------------------ Irish Punts 12.9 British Pounds Sterling 6.4 Canadian Dollars 4.8 ----- Total $24.1 =====
There were no open currency contracts at the end of the third quarter last year. 14 15
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION a. Management Change of Control Plan The Company adopted The Gymboree Corporation Management Change of Control Plan (the "Management Plan") on February 24, 1998 in order to provide key employees with certain severance benefits upon termination of employment following a change of control. The employees eligible to participate in the Management Plan include the Company's Chief Executive Officer, Senior Vice Presidents, Vice Presidents and Directors. The Company believes that such benefits will provide these employees with enhanced financial security and provide an efficient incentive and encouragement to these employees to remain with the Company, notwithstanding the possibility or occurrence of a change of control, and to maximize the value of the Company upon a change of control for the benefit of its stockholders. Subject to the terms of the Management Plan, the benefits provided by the Management Plan are available to those employees who have received and returned to the Company a signed notice of participation. Thereafter, subject to the terms of the Management Plan, if a participant's employment involuntarily terminates at any time within the eighteen month period following a change of control, then such participant shall be entitled to receive severance benefits in accordance with the terms of the Management Plan. Such severance benefits are determined pursuant to a formula set forth in the Management Plan. b. Management Severance Plan The Company adopted The Gymboree Corporation Management Severance Plan (the "Severance Plan") on February 24, 1998 in order to provide for the payment of severance benefits to participants whose employment with the Company terminates in an involuntary termination other than in connection with a change of control. The employees eligible to participate in the Management Severance Plan include the Company's Chief Executive Officer, Senior Vice Presidents and Vice Presidents. The Company believes that severance benefits of this kind will aid the Company in attracting and retaining the highly qualified individuals that are essential to its success. Subject to the terms of the Severance Plan, the benefits provided by the Plan are available to those employees who have received and returned to the Company a signed notice of participation. The severance benefits are determined pursuant to a formula set forth in the Severance Plan. ITEM 6. EXHIBITS (a) Exhibits 10.26 Management Change of Control Plan 10.27 Management Severance Plan 11 Computation of Net Income per Share 27 Financial Data Schedule
15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GYMBOREE CORPORATION ------------------------ (Registrant) December 15, 1998 By: /s/ GARY WHITE - ----------------- -------------------------------------- Date Gary White Chief Executive Officer (Principal executive officer of the registrant) December 15, 1998 By: /s/ LAWRENCE H. MEYER - ----------------- -------------------------------------- Date Lawrence H. Meyer Chief Financial Officer (Principal financial and accounting officer of the registrant) 16 17 EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 10.26 Management Change of Control Plan 10.27 Management Severance Plan 11 Computation of Net Income per Share 27 Financial Data Schedule
17 EX-10.26 2 MANAGEMENT CHANGE OF CONTROL PLAN 1 EXHIBIT 10.26 THE GYMBOREE CORPORATION MANAGEMENT CHANGE OF CONTROL PLAN ARTICLE I PURPOSE, ESTABLISHMENT AND APPLICABILITY OF PLAN 1. Purposes. It is expected that the Company from time to time will consider the possibility of a Change of Control. The Board recognizes that such consideration can be a distraction to key Employees and can cause such Employees to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of these Employees, notwithstanding the possibility, threat or occurrence of a Change of Control. The Board believes that it is in the best interests of the Company and its stockholders to provide these Employees with certain severance benefits upon termination of employment following a Change of Control. Such benefits provide these Employees with enhanced financial security and provide an efficient incentive and encouragement to these Employees to remain with the Company, notwithstanding the possibility or occurrence of a Change of Control, and to maximize the value of the Company upon a Change of Control for the benefit of its stockholders. 2. Establishment of Plan. As of the Effective Date, the Company hereby establishes the Plan, as set forth in this document. 3. Applicability of Plan. Subject to the terms of this Plan, the benefits provided by this Plan shall be available to those Employees who, on or after the Effective Date, receive a Notice of Participation. 4. Contractual Right to Benefits. This Plan and the Notice of Participation establish and vest in each Participant a contractual right to the benefits to which he or she is entitled pursuant to the terms thereof, enforceable by the Participant against the Company. ARTICLE II DEFINITIONS AND CONSTRUCTION Whenever used in the Plan, the following terms shall have the meanings set forth below. 1. Annual Compensation. "Annual Compensation" shall mean an amount equal to the sum of (i) the Participant's gross annual base salary, exclusive of bonuses, commissions and other incentive pay, as in effect immediately preceding the Change of Control, and (ii) the Participant's Average Annual Bonus. 1 2 2. Average Annual Bonus. "Average Annual Bonus" shall mean the average bonus payments received by the Participant under the Company's incentive bonus and variable compensation programs as in effect on the Effective Date (or any predecessor or successor programs) for the three most recent consecutive and complete fiscal years of the Company prior to the fiscal year in which the Change of Control occurs. For purposes of calculating a Participant's Average Annual Bonus, the following rules shall apply: (i) In the event a Participant was not eligible to participate in such bonus and variable compensation programs for the entire three year period, the Average Annual Bonus shall be calculated based upon the Participant's actual period of eligibility; and (ii) In the event a Participant first became eligible to participate in such bonus and variable compensation programs in the fiscal year in which the Change of Control occurs, the Participant's Average Annual Bonus shall be based on his or her targeted bonus and variable compensation amounts as in effect immediately prior to such Change of Control. 3. Benefits Continuation Period. "Benefits Continuation Period" shall mean the period set forth in a Participant's Notice of Participation. 4. Board. "Board" shall mean the Board of Directors of the Company. 5. Cause. "Cause" shall mean (i) any act of personal dishonesty taken by the Participant in connection with his or her responsibilities as an Employee and intended to result in substantial personal enrichment of the Participant, (ii) the Participant's conviction of a felony that is injurious to the Company, (iii) a willful act by the Participant which constitutes gross misconduct and which is injurious to the Company, or (iv) continued substantial violations by the Participant of the Participant's employment duties which are demonstrably willful and deliberate on the Participant's part after there has been delivered to the Participant a written demand for performance from the Company which specifically sets forth the factual basis for the Company's belief that the Participant has not substantially performed his duties. 6. Change of Control. "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); 2 3 or (iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the consummation of the sale or disposition by the Company of all or substantially all of the Company's assets. 7. Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. 8. Company. "Company" shall mean The Gymboree Corporation, any subsidiary corporations, any successor entities as provided in Article VII hereof, and any parent or subsidiaries of such successor entities. 9. Disability. "Disability" shall mean that the Participant has been unable to perform his or her duties as an Employee as the result of incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Participant or the Participant's legal representative (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least 30 days' written notice by the Company of its intention to terminate the Participant's employment. In the event that the Participant resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked. 10. Effective Date. "Effective Date" shall mean the date this Plan is approved by the Board. 11. Employee. "Employee" shall mean an employee of the Company. 12. ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 13. Involuntary Termination. "Involuntary Termination" shall mean (i) without the Participant's express written consent, the significant reduction of the Participant's title, duties or responsibilities relative to the Participant's title, duties or responsibilities in effect immediately prior to such reduction; provided, however, that a reduction in title, duties or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Financial Officer of The Gymboree Corporation remains as such following a Change of Control and is not made the Chief Financial Officer of the acquiring corporation) shall not constitute an "Involuntary Termination;" (ii) without the Participant's express written consent, a reduction by the Company in the annual base salary or in the maximum dollar amount of potential annual cash bonuses relative to the annual base salary and 3 4 maximum dollar amount of potential annual cash bonuses as in effect immediately prior to such reduction; (iii) without the Participant's express written consent, a material reduction by the Company in the kind or level of employee benefits to which the Participant is entitled immediately prior to such reduction with the result that the Participant's overall benefits package is significantly reduced; (iv) the relocation of the Participant to a facility or a location more than 25 miles from the Participant's then present location, without the Participant's express written consent; (v) any purported termination of the Participant by the Company which is not effected for Disability or for Cause; or (vi) the failure of the Company to obtain the assumption of this agreement by any successors contemplated in Article VII below. 14. Notice of Participation. "Notice of Participation" shall mean an individualized written notice of participation in the Plan from an authorized officer of the Company. 15. Participant. "Participant" shall mean an individual who meets the eligibility requirements of Article III. 16. Plan. "Plan" shall mean this Gymboree Corporation Management Change of Control Plan. 17. Plan Administrator. "Plan Administrator" shall mean the Board of Directors of the Company, or its committee or designate, as shall be administering the Plan. 18. Pro-Rated Bonus Amount. "Pro-Rated Bonus Amount" shall mean a pro-rated portion of the Participant's quarterly and annual bonus and variable compensation calculated as of the Change of Control date, as follows: (i) In the case of quarterly bonus or variable compensation, the portion shall be the amount of quarterly bonus or variable compensation paid or payable to the Participant with respect to the fiscal quarter of the Company completed as of or prior to the fiscal quarter in which the Change of Control occurs, pro-rated by multiplying such amount by a fraction, the numerator of which is the number of days during the fiscal quarter in which the Change of Control occurs prior to the occurrence of the Change of Control, and the denominator of which shall be ninety-one and one-quarter; and (ii) In the case of annual bonus or variable compensation, the portion shall be the amount of annual bonus or variable compensation payable to the Participant under the Company's annual bonus or variable compensation program in effect as of the Change of Control date, based on year-to-date financial performance of the Company for the period ended immediately prior to the Change of Control. For this purpose, the performance measures for such fiscal year shall be adjusted, as appropriate, to take into account the shortened performance period. The amount so determined shall be pro-rated by multiplying such amount by a fraction, the numerator of which is the number of days during such fiscal year prior to the occurrence of the Change of Control, and the denominator of which shall be three hundred and sixty-five. 19. Severance Payment. "Severance Payment" shall mean the payment of severance compensation as provided in Article IV hereof. 4 5 20. Severance Payment Percentage. "Severance Payment Percentage" shall mean, for each Participant, the Severance Payment Percentage set forth in such Participant's Notice of Participation. 21. Vesting Continuation Period. "Vesting Continuation Period" shall mean, for each Participant, the period set forth in the Participant's Notice of Participation. ARTICLE III ELIGIBILITY 1. Waiver. As a condition of receiving benefits under the Plan, an Employee must sign a general waiver and release on a form provided by the Company. 2. Participation in Plan. Each Employee who is designated by the Board and who signs and timely returns to the Company a Notice of Participation shall be a Participant in the Plan. A Participant shall cease to be a Participant in the Plan (i) upon ceasing to be an Employee, or (ii) upon receiving written notice from the Plan Administrator prior to a Change of Control that the Participant is no longer eligible to participate in the Plan, unless in either case such Participant is entitled to benefits hereunder. A Participant entitled to benefits hereunder shall remain a Participant in the Plan until the full amount of the benefits have been delivered to the Participant. ARTICLE IV SEVERANCE BENEFITS 1. Termination Following A Change of Control. If a Participant's employment terminates at any time within the eighteen (18) month period following a Change of Control, then, subject to Article V hereof, the Participant shall be entitled to receive severance benefits as follows: (a) Severance Pay Upon an Involuntary Termination. If the Participant's employment with the Company terminates as a result of Involuntary Termination, the Participant shall be entitled to receive a Severance Payment equal to the sum of (i) the product obtained by multiplying the Participant's Severance Payment Percentage times the Participant's Annual Compensation, plus (ii) the Participant's Pro-Rated Bonus Amount. Any such Severance Payment shall be paid in cash by the Company to the Participant in a single lump sum payment, less applicable tax withholding, within ten (10) business days of the Participant's termination date, and shall be in lieu of any other severance or severance-type benefits to which the Participant may be entitled under any other Company-sponsored plan, practice or arrangement. EXAMPLE: A Change of Control is consummated on June 15, 1998. Participant is Involuntarily Terminated other than for Cause as of July 1, 1998. Participant's Annual Compensation is $150,000. The Severance Payment Percentage set forth in the Participant's Notice of Participation is 100%. The Participant's Pro-Rated Bonus 5 6 Amount for the 1997 fiscal year is $90,000. The Participant is entitled to a Severance Payment equal to (i) 100% x $150,000, plus (ii) $90,000, for a total Severance Payment equal to $240,000. (b) Employee Benefits Upon an Involuntary Termination. If the Participant's employment with the Company is terminated as a result of Involuntary Termination other than for Cause, then the Company shall continue to provide the Participant with medical, dental, vision, disability and life insurance coverage and employee assistance programs (or such comparable alternative benefits as the Company may, in its discretion, determine to be sufficient to satisfy its obligations to the Participant under this Plan) that are no less favorable to the Participant than such coverage as was provided to the Participant immediately prior to the Change of Control, with the same percentage of any premiums or costs for such coverage paid for by the Company as was paid for by the Company on behalf of such Participant immediately prior to the Change of Control (the "Company-Paid Coverage"). Company-Paid Coverage shall be provided to the Participant for a period that ends on the earlier of (i) termination of the Participant's Benefits Continuation Period, or (ii) the date that the Participant and his or her covered dependents become covered under another employer's employee benefit plans providing benefits and levels of coverage comparable to the Company-Paid Coverage. For purposes of Title X of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the "qualifying event" for the Participant and his or her covered dependents shall be the date upon which Company-Paid Coverage terminates. Company-Paid Coverage shall be provided at the Company's discretion, under either, (i) the Company's plans, or (ii) other plans or arrangements secured by the Company no less favorable to the Participant and his or her dependents. 2. Voluntary Resignation; Termination For Cause. If the Participant's employment terminates by reason of the Participant's voluntary resignation (and is not an Involuntary Termination), or if the Company terminates the Participant for Cause, then the Participant shall not be entitled to receive severance or other benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company's then existing benefit plans and policies at the time of such termination. 3. Disability; Death. If the Participant's employment terminates by reason of the Participant's death, or in the event the Company terminates the Participant's employment for Disability, then the Participant shall not be entitled to receive severance or other benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company's then existing benefit plans and policies at the time of such death or Disability. 4. Termination Apart from Change of Control. In the event that a Participant's employment terminates for any reason prior to the occurrence of a Change of Control or after the eighteen (18)-month period following a Change of Control, then the Participant shall not be entitled to receive severance or other benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company's then existing benefit plans and policies at the time of such termination. 6 7 ARTICLE V GOLDEN PARACHUTE EXCISE TAX AND NON-DEDUCTIBILITY LIMITATIONS 1. Benefits Cap. Except if specifically otherwise set forth in a Participant's Notice of Participation, in the event that the benefits under this Plan, when aggregated with any other payments or benefits received by a Participant, or to be received by a Participant, would (i) constitute "parachute payments" within the meaning of Section 280G of the Code, and (ii) but for this provision, would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, then the Participant's Plan benefits shall be reduced to such lesser amount or degree as would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code. 2. Determination. Unless the Company and the Participant otherwise agree in writing, any determination required under this Article or the Participant's Notice of Participation shall be made in writing by the same firm of independent public accountants who were employed by the Company immediately prior to the Change of Control (the "Accountants"), whose determination shall be conclusive and binding upon the Participant and the Company for all purposes. For purposes of making the calculations required by this Article, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Article. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Article. ARTICLE VI EMPLOYMENT STATUS; WITHHOLDING 1. Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Company any obligation to retain the Participant as an Employee, to change the status of the Participant's employment, or to change the Company's policies regarding termination of employment. The Participant's employment is and shall continue to be at-will, as defined under applicable law. If the Participant's employment with the Company or a successor entity terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Participant shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Plan, or as may otherwise be available in accordance with the Company's established employee plans and practices or other agreements with the Company at the time of termination. 2. Taxation of Plan Payments. All amounts paid pursuant to this Plan shall be subject to regular payroll and withholding taxes. 7 8 ARTICLE VII SUCCESSORS TO COMPANY AND PARTICIPANTS 1. Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Plan and agree expressly to perform the obligations under this Plan by executing a written agreement. For all purposes under this Plan, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection or which becomes bound by the terms of this Plan by operation of law. 2. Participant's Successors. All rights of the Participant hereunder shall inure to the benefit of, and be enforceable by, the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. ARTICLE VIII DURATION, AMENDMENT AND TERMINATION 1. Duration. This Plan shall terminate on the fifth anniversary of the Effective Date, unless, (a) this Plan is extended by the Board, (b) a Change of Control occurs prior to the fifth anniversary of the Effective Date or (c) the Board terminates the Plan in accordance with Article VIII.2 below. If a Change of Control occurs prior to termination of this Plan pursuant to the preceding sentence, then this Plan shall terminate upon the date that all obligations of the Company hereunder have been satisfied. A termination of this Plan pursuant to the preceding sentences shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits earned by a Participant prior to the termination of this Plan. 2. Amendment and Termination. The Board shall have the discretionary authority to amend the Plan in any respect, including as to the removal or addition of Participants, by resolution adopted by a majority of the Board, unless a Change of Control has previously occurred. The Plan may be terminated by resolution adopted by a majority of the Board, unless a Change of Control has previously occurred. If a Change of Control occurs, the Plan and the designation of Participants thereto shall no longer be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever. ARTICLE IX CLAIMS PROCESS 1. Right to Appeal. A Participant or former Participant who disagrees with his or her allotment of benefits under this Plan may file a written appeal with the designated Human Resources representative. Any claim relating to this Plan shall be subject to this appeal process. The written appeal must be filed within sixty (60) days of the Participant's termination date. 8 9 2. Form of Appeal. The appeal must state the reasons the Participant or former Participant believes he or she is entitled to different benefits under the Plan. The designated Human Resources representative shall review the claim. If the claim is wholly or partially denied, the designated Human Resources representative shall provide the Participant or former Participant a written notice of the denial, specifying the reasons the claim was denied. Such notice shall be provided within ninety (90) days of receiving the written appeal. 3. Right to Review. If the claim is denied, in whole or in part, the Participant may request a review of the denial at any time within ninety (90) days following the date the Participant received written notice of the denial of his or her claim. For purposes of this subsection, any action required or authorized to be taken by the Participant may be taken by a representative authorized in writing by the Participant to represent him or her. The designated Human Resources representative shall afford the Participant a full and fair review of the decision denying the claim and, if so requested, shall: (a) permit the Participant to review any documents that are pertinent to the claim; and (b) permit the Participant to submit to the designated Human Resources representative issues and comments in writing. 4. Decision on Review. The decision on review by the designated Human Resources representative shall be in writing and shall be issued within 60 days following receipt of the request for review. The decision on review shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision of the designated Human Resources representative is based. ARTICLE X NOTICE 1. General. Notices and all other communications contemplated by this Plan shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Participant, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Senior Vice President, Human Resources. 2. Notice of Termination by the Company. Any termination by the Company of the Participant's employment at any time within the eighteen (18) month period following a Change of Control shall be communicated by a notice of termination to the Participant at least five (5) days prior to the date of such termination (or at least thirty (30) days prior to the date of a termination by reason of the Participant's Disability). Such notice shall indicate the specific termination provision or provisions in this Plan relied upon (if any), shall set forth in 9 10 reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision or provisions so indicated, and shall specify the termination date. 3. Notice by the Participant of Involuntary Termination by the Company. In the event that the Participant determines that an Involuntary Termination has occurred at any time within the eighteen (18) month period following a Change of Control, the Participant shall give written notice to the Company that such Involuntary Termination has occurred. Such notice shall be delivered by the Participant to the Company within ninety (90) days following the date on which such Involuntary Termination occurred, shall indicate the specific provision or provisions in this Plan upon which the Participant relied to make such determination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such determination. The failure by the Participant to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Participant hereunder or preclude the Participant from asserting such fact or circumstance in enforcing his or her rights hereunder. ARTICLE XI MISCELLANEOUS PROVISIONS 1. No Duty to Mitigate. The Participant shall not be required to mitigate the amount of any benefits contemplated by this Plan, nor shall any such benefits be reduced by any earnings or benefits that the Participant may receive from any other source. 2. Severability. The invalidity or unenforceability of any provision or provisions of this Plan shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 3. No Assignment of Benefits. The rights of any person to payments or benefits under this Plan shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection shall be void. 4. Assignment by Company. The Company may assign its rights under this Plan to an affiliate, and an affiliate may assign its rights under this Plan to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment; provided, further, that the Company shall guarantee all benefits payable hereunder. In the case of any such assignment, the term "Company" when used in this Plan shall mean the corporation that actually employs the Participant. 10 11 ARTICLE XII ERISA REQUIRED INFORMATION 1. Plan Sponsor. The Plan sponsor and administrator is: The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 2. Designated Agent. Designated agent for service of process: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 3. Plan Records. Plan records are kept on a fiscal year basis. 4. Plan Funding. The Plan is funded from the Company's general assets. 11 12 THE GYMBOREE CORPORATION MANAGEMENT CHANGE OF CONTROL PLAN NOTICE OF PARTICIPATION [CEO] TO: [PARTICIPANT'S NAME] DATE: The Board has designated you as a Participant in the Plan, a copy of which is attached hereto. The terms and conditions of your participation in the Plan are as set forth in the Plan and herein. The terms defined in the Plan shall have the same defined meanings in this Notice of Participation. As a condition to receiving benefits under the Plan you agree to sign a general waiver and release in the form provided by the Company. The variables relating to your Plan participation are as follows: SEVERANCE PAYMENT PERCENTAGE: 300% BENEFITS CONTINUATION PERIOD: 18 months GOLDEN PARACHUTE EXCISE TAX TREATMENT:
Instead of the limitation set forth in Article V.1 of the Plan, the following provisions shall apply: In the event that the benefits provided for in the Plan, when aggregated with any other payments or benefits received by you, would (i) constitute "parachute payments" within the meaning of Section 280G of the Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay you an additional amount, such that the net amount retained by you shall be as if the Excise Tax did not apply to you. If you agree to participate in the Plan on these terms and conditions, please acknowledge your acceptance by signing below. Please return the signed copy of this Notice of Participation within ten (10) days of the date set forth above to: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 Your failure to timely remit this signed Notice of Participation will result in your removal from the Plan. Please retain a copy of this Notice of Participation, along with the Plan, for your records. Date: Signature: ----------------------------- ---------------------------------- 12 13 THE GYMBOREE CORPORATION MANAGEMENT CHANGE OF CONTROL PLAN NOTICE OF PARTICIPATION [SR. VP] TO: [PARTICIPANT'S NAME] DATE: The Board has designated you as a Participant in the Plan, a copy of which is attached hereto. The terms and conditions of your participation in the Plan are as set forth in the Plan and herein. The terms defined in the Plan shall have the same defined meanings in this Notice of Participation. As a condition to receiving benefits under the Plan you agree to sign a general waiver and release in the form provided by the Company. The variables relating to your Plan participation are as follows: SEVERANCE PAYMENT PERCENTAGE: 300% BENEFITS CONTINUATION PERIOD: 18 months GOLDEN PARACHUTE EXCISE TAX TREATMENT:
Instead of the limitation set forth in Article V.1 of the Plan, the following provisions shall apply: In the event that the benefits provided for in the Plan, when aggregated with any other payments or benefits received by you, would (i) constitute "parachute payments" within the meaning of Section 280G of the Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then your Plan benefits shall be either (a) delivered in full; or (b) delivered as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by you on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. If you agree to participate in the Plan on these terms and conditions, please acknowledge your acceptance by signing below. Please return the signed copy of this Notice of Participation within ten (10) days of the date set forth above to: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard, Suite 200 Burlingame, California 94010 Your failure to timely remit this signed Notice of Participation will result in your removal from the Plan. Please retain a copy of this Notice of Participation, along with the Plan, for your records. Date: Signature: ----------------------------- ---------------------------------- 13 14 THE GYMBOREE CORPORATION MANAGEMENT CHANGE OF CONTROL PLAN NOTICE OF PARTICIPATION [VP] TO: [PARTICIPANT'S NAME] DATE: The Board has designated you as a Participant in the Plan, a copy of which is attached hereto. The terms and conditions of your participation in the Plan are as set forth in the Plan and herein. The terms defined in the Plan shall have the same defined meanings in this Notice of Participation. As a condition to receiving benefits under the Plan you agree to sign a general waiver and release in the form provided by the Company. The variables relating to your Plan participation are as follows: SEVERANCE PAYMENT PERCENTAGE: 200% BENEFITS CONTINUATION PERIOD: 18 months GOLDEN PARACHUTE EXCISE TAX TREATMENT:
Instead of the limitation set forth in Article V.1 of the Plan, the following provisions shall apply: In the event that the benefits provided for in the Plan, when aggregated with any other payments or benefits received by you, would (i) constitute "parachute payments" within the meaning of Section 280G of the Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then your Plan benefits shall be either (a) delivered in full; or (b) delivered as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by you on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. If you agree to participate in the Plan on these terms and conditions, please acknowledge your acceptance by signing below. Please return the signed copy of this Notice of Participation within ten (10) days of the date set forth above to: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard, Suite 200 Burlingame, California 94010 Your failure to timely remit this signed Notice of Participation will result in your removal from the Plan. Please retain a copy of this Notice of Participation, along with the Plan, for your records. Date: Signature: ----------------------------- ---------------------------------- 14 15 THE GYMBOREE CORPORATION MANAGEMENT CHANGE OF CONTROL PLAN NOTICE OF PARTICIPATION [DIRECTORS] TO: [PARTICIPANT'S NAME] DATE: The Board has designated you as a Participant in the Plan, a copy of which is attached hereto. The terms and conditions of your participation in the Plan are as set forth in the Plan and herein. The terms defined in the Plan shall have the same defined meanings in this Notice of Participation. As a condition to receiving benefits under the Plan you agree to sign a general waiver and release in the form provided by the Company. The variables relating to your Plan participation are as follows: SEVERANCE PAYMENT PERCENTAGE: 100% BENEFITS CONTINUATION PERIOD: 12 months
If you agree to participate in the Plan on these terms and conditions, please acknowledge your acceptance by signing below. Please return the signed copy of this Notice of Participation within ten (10) days of the date set forth above to: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard, Suite 200 Burlingame, California 94010 Your failure to timely remit this signed Notice of Participation will result in your removal from the Plan. Please retain a copy of this Notice of Participation, along with the Plan, for your records. Date: Signature: ----------------------------- ---------------------------------- 15 EX-10.26 3 MANAGEMENT SEVERANCE PLAN 1 EXHIBIT 10.27 THE GYMBOREE CORPORATION MANAGEMENT SEVERANCE PLAN ARTICLE I PURPOSE, ESTABLISHMENT AND APPLICABILITY OF PLAN 1. Purpose. The purpose of this Plan is to provide for the payment of severance benefits to Participants whose employment with the Company terminates in an Involuntary Termination other than in connection with a Change of Control. The Company believes that severance benefits of this kind will aid the Company in attracting and retaining the highly qualified individuals that are essential to its success. 2. Establishment of Plan. As of the Effective Date, the Company hereby establishes the Plan, as set forth in this document. 3. Applicability of Plan. Subject to the terms of this Plan, the benefits provided by this Plan shall be available to those Employees who, on or after the Effective Date, receive a Notice of Participation. 4. Contractual Right to Benefits. This Plan and the Notice of Participation establish and vest in each Participant a contractual right to the benefits to which he or she is entitled pursuant to the terms thereof, enforceable by the Participant against the Company. ARTICLE II DEFINITIONS AND CONSTRUCTION Whenever used in the Plan, the following terms shall have the meanings set forth below. 1. Base Compensation. "Base Compensation" shall mean the gross annual cash compensation paid to each Participant, exclusive of bonuses, commissions and other incentive pay, together with any increases in such compensation that may occur from time to time. Base Compensation of a Participant shall be computed with reference to the greatest Base Compensation received by that Participant in any full payroll period during the twelve (12) months preceding the Participant's termination. 2. Board. "Board" shall mean the Board of Directors of the Company. 3. Cause. "Cause" shall mean (i) any act of personal dishonesty taken by the Participant in connection with his or her responsibilities as an Employee and intended to result in substantial 2 personal enrichment of the Participant, (ii) the Participant's conviction of a felony that is injurious to the Company, (iii) a willful act by the Participant which constitutes gross misconduct and which is injurious to the Company, or (iv) continued substantial violations by the Participant of the Participant's employment duties which are demonstrably willful and deliberate on the Participant's part after there has been delivered to the Participant a written demand for performance from the Company which specifically sets forth the factual basis for the Company's belief that the Participant has not substantially performed his duties. 4. Change of Control. "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the consummation of the sale or disposition by the Company of all or substantially all of the Company's assets. 5. Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. 6. Company. "Company" shall mean The Gymboree Corporation, any subsidiary corporations, any successor entities as provided in Article VII hereof, and any parent or subsidiaries of such successor entities. 7. Disability. "Disability" shall mean that the Participant has been unable to perform his or her duties as an Employee as the result of incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a 3 physician selected by the Company or its insurers and acceptable to the Participant or the Participant's legal representative (such agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least 30 days' written notice by the Company of its intention to terminate the Participant's employment. In the event that the Participant resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked. 8. Effective Date. "Effective Date" shall mean the date this Plan is approved by the Board. 9. Employee. "Employee" shall mean an employee of the Company. 10. ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 11. Involuntary Termination. "Involuntary Termination" shall mean any termination of the Participant by the Company which is not effective for Disability, Cause or the failure of the Company to obtain the assumption of this agreement by any successors contemplated in Article VII below; provided, however, that the term Involuntary Termination shall not include an acceptance or rejection of an offer of continued employment with the Company that results in (i) a reduction of the Participant's title, duties or responsibilities relative to the Participant's title, duties or responsibilities in effect immediately prior to such reduction; (ii) a reduction by the Company in the annual base salary or in the maximum dollar amount of potential annual cash bonuses relative to the annual base salary and maximum dollar amount of potential annual cash bonuses as in effect immediately prior to such reduction; or (iii) a reduction by the Company in the kind or level of employee benefits to which the Participant is entitled immediately prior to such reduction with the result that the Participant's overall benefits package is reduced. 12. Notice of Participation. "Notice of Participation" shall mean an individualized written notice of participation in the Plan from an authorized officer of the Company. 13. Participant. "Participant" shall mean an individual who meets the eligibility requirements of Article III. 14. Plan. "Plan" shall mean this Gymboree Corporation Management Severance Plan. 15. Plan Administrator. "Plan Administrator" shall mean the Board of Directors of the Company, or its committee or designate, as shall be administering the Plan. 16. Severance Payment. "Severance Payment" shall mean the payment of severance compensation as provided in Article IV hereof. 17. Severance Payment Percentage. "Severance Payment Percentage" shall mean, for 4 each Participant, the Severance Payment Percentage set forth in such Participant's Notice of Participation. ARTICLE III ELIGIBILITY 1. Waiver. As a condition of receiving benefits under the Plan, an Employee must sign a general waiver and release on a form provided by the Company. 2. Participation in Plan. Each Employee who is designated by the Board and who signs and timely returns to the Company a Notice of Participation shall be a Participant in the Plan. A Participant shall cease to be a Participant in the Plan (i) upon ceasing to be an Employee, or (ii) upon receiving written notice from the Plan Administrator that the Participant is no longer eligible to participate in the Plan, unless in either case such Participant is entitled to benefits hereunder. A Participant entitled to benefits hereunder shall remain a Participant in the Plan until the full amount of the benefits have been delivered to the Participant. ARTICLE IV SEVERANCE BENEFITS 1. Severance Pay Upon an Involuntary Termination. If the Participant's employment with the Company terminates as a result of Involuntary Termination, the Participant shall be entitled to receive a Severance Payment equal to the sum of (i) the product obtained by multiplying the Participant's Severance Payment Percentage times the Participant's Base Compensation. Any such Severance Payment shall be paid in cash by the Company to the Participant in a single lump sum payment, less applicable tax withholding, within ten (10) business days of the Participant's termination date, and shall be in lieu of any other severance or severance-type benefits to which the Participant may be entitled under any other Company-sponsored plan, practice or arrangement. EXAMPLE: Participant is Involuntarily Terminated as of July 1, 1998. Participant's Base Compensation is $150,000. The Severance Payment Percentage set forth in the Participant's Notice of Participation is 50%. The Participant is entitled to a Severance Payment equal to 50% x $150,000 = $75,000. 2. Voluntary Resignation; Termination For Cause. If the Participant's employment terminates by reason of the Participant's voluntary resignation (and is not an Involuntary Termination), or if the Company terminates the Participant for Cause, then the Participant shall not be entitled to receive severance or other benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company's then existing benefit plans and policies at the time of such termination. 5 3. Disability; Death. If the Participant's employment terminates by reason of the Participant's death, or in the event the Company terminates the Participant's employment for Disability, then the Participant shall not be entitled to receive severance or other benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company's then existing benefit plans and policies at the time of such death or Disability. 4. Termination Following a Change of Control. Notwithstanding anything to the contrary herein, in the event that a Participant's employment terminates for any reason within the eighteen (18)-month period following a Change of Control, then the Participant shall not be entitled to receive severance or other benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company's then existing benefit plans and policies at the time of such termination. ARTICLE V EMPLOYMENT STATUS; WITHHOLDING 1. Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Company any obligation to retain the Participant as an Employee, to change the status of the Participant's employment, or to change the Company's policies regarding termination of employment. The Participant's employment is and shall continue to be at-will, as defined under applicable law. If the Participant's employment with the Company or a successor entity terminates for any reason, the Participant shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Plan, or as may otherwise be available in accordance with the Company's established employee plans and practices or other agreements with the Company at the time of termination. 2. Taxation of Plan Payments. All amounts paid pursuant to this Plan shall be subject to regular payroll and withholding taxes. 6 ARTICLE VI SUCCESSORS TO COMPANY AND PARTICIPANTS 1. Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and/or assets shall assume the obligations under this Plan and agree expressly to perform the obligations under this Plan by executing a written agreement. For all purposes under this Plan, the term "Company" shall include any successor to the Company's business and/or assets which executes and delivers the assumption agreement described in this subsection or which becomes bound by the terms of this Plan by operation of law. 2. Participant's Successors. All rights of the Participant hereunder shall inure to the benefit of, and be enforceable by, the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. ARTICLE VII DURATION, AMENDMENT AND TERMINATION 1. Duration. This Plan shall terminate on the fifth anniversary of the Effective Date, unless, (a) this Plan is extended by the Board, or (b) the Board terminates the Plan in accordance with this Article. A termination of this Plan pursuant to the preceding sentences shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits earned by a Participant prior to the termination of this Plan. 2. Amendment and Termination. The Board shall have the discretionary authority to amend the Plan in any respect, including as to the removal or addition of Participants, or to terminate the Plan, in either case by resolution adopted by a majority of the Board. ARTICLE VIII CLAIMS PROCESS 1. Right to Appeal. A Participant or former Participant who disagrees with his or her allotment of benefits under this Plan may file a written appeal with the designated Human Resources representative. Any claim relating to this Plan shall be subject to this appeal process. The written appeal must be filed within sixty (60) days of the Participant's termination date. 2. Form of Appeal. The appeal must state the reasons the Participant or former Participant believes he or she is entitled to different benefits under the Plan. The designated Human Resources representative shall review the claim. If the claim is wholly or partially denied, the 7 designated Human Resources representative shall provide the Participant or former Participant a written notice of the denial, specifying the reasons the claim was denied. Such notice shall be provided within ninety (90) days of receiving the written appeal. 3. Right to Review. If the claim is denied, in whole or in part, the Participant may request a review of the denial at any time within ninety (90) days following the date the Participant received written notice of the denial of his or her claim. For purposes of this subsection, any action required or authorized to be taken by the Participant may be taken by a representative authorized in writing by the Participant to represent him or her. The designated Human Resources representative shall afford the Participant a full and fair review of the decision denying the claim and, if so requested, shall: (a) permit the Participant to review any documents that are pertinent to the claim; and (b) permit the Participant to submit to the designated Human Resources representative issues and comments in writing. 4. Decision on Review. The decision on review by the designated Human Resources representative shall be in writing and shall be issued within 60 days following receipt of the request for review. The decision on review shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision of the designated Human Resources representative is based. ARTICLE IX NOTICE 1. General. Notices and all other communications contemplated by this Plan shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Participant, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Senior Vice President, Human Resources. 2. Notice of Termination by the Company. Any termination by the Company of the Participant's employment shall be communicated by a notice of termination to the Participant at least five (5) days prior to the date of such termination (or at least thirty (30) days prior to the date of a termination by reason of the Participant's Disability). Such notice shall indicate the specific termination provision or provisions in this Plan relied upon (if any), shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision or provisions so indicated, and shall specify the termination date. 8 3. Notice by the Participant of Involuntary Termination by the Company. In the event that the Participant determines that an Involuntary Termination has occurred, the Participant shall give written notice to the Company that such Involuntary Termination has occurred. Such notice shall be delivered by the Participant to the Company within ninety (90) days following the date on which such Involuntary Termination occurred, shall indicate the specific provision or provisions in this Plan upon which the Participant relied to make such determination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such determination. The failure by the Participant to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Participant hereunder or preclude the Participant from asserting such fact or circumstance in enforcing his or her rights hereunder. ARTICLE X MISCELLANEOUS PROVISIONS 1. No Duty to Mitigate. The Participant shall not be required to mitigate the amount of any benefits contemplated by this Plan, nor shall any such benefits be reduced by any earnings or benefits that the Participant may receive from any other source. 2. Severability. The invalidity or unenforceability of any provision or provisions of this Plan shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 3. No Assignment of Benefits. The rights of any person to payments or benefits under this Plan shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection shall be void. 4. Assignment by Company. The Company may assign its rights under this Plan to an affiliate, and an affiliate may assign its rights under this Plan to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment; provided, further, that the Company shall guarantee all benefits payable hereunder. In the case of any such assignment, the term "Company" when used in this Plan shall mean the corporation that actually employs the Participant. 9 ARTICLE XI ERISA REQUIRED INFORMATION 1. Plan Sponsor. The Plan sponsor and administrator is: The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 2. Designated Agent. Designated agent for service of process: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 3. Plan Records. Plan records are kept on a fiscal year basis. 4. Plan Funding. The Plan is funded from the Company's general assets. 10 THE GYMBOREE CORPORATION MANAGEMENT SEVERANCE PLAN NOTICE OF PARTICIPATION [CEO] TO: [PARTICIPANT'S NAME] DATE: The Board has designated you as a Participant in the Plan, a copy of which is attached hereto. The terms and conditions of your participation in the Plan are as set forth in the Plan and herein. The terms defined in the Plan shall have the same defined meanings in this Notice of Participation. As a condition to receiving benefits under the Plan you agree to sign a general waiver and release in the form provided by the Company. In the event that you are entitled to a Severance Payment under the Plan, you will receive a single, lump-sum payment, less applicable tax withholding, equal to 200% of your Base Compensation. If you agree to participate in the Plan on these terms and conditions, please acknowledge your acceptance by signing below. Please return the signed copy of this Notice of Participation within ten (10) days of the date set forth above to: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 Your failure to timely remit this signed Notice of Participation will result in your removal from the Plan. Please retain a copy of this Notice of Participation, along with the Plan, for your records. Date: Signature: ------------------------------ ------------------------------- 11 THE GYMBOREE CORPORATION MANAGEMENT SEVERANCE PLAN NOTICE OF PARTICIPATION [SR. VP] TO: [PARTICIPANT'S NAME] DATE: The Board has designated you as a Participant in the Plan, a copy of which is attached hereto. The terms and conditions of your participation in the Plan are as set forth in the Plan and herein. The terms defined in the Plan shall have the same defined meanings in this Notice of Participation. As a condition to receiving benefits under the Plan you agree to sign a general waiver and release in the form provided by the Company. In the event that you are entitled to a Severance Payment under the Plan, you will receive a single, lump-sum payment, less applicable tax withholding, equal to 100% of your Base Compensation. If you agree to participate in the Plan on these terms and conditions, please acknowledge your acceptance by signing below. Please return the signed copy of this Notice of Participation within ten (10) days of the date set forth above to: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 Your failure to timely remit this signed Notice of Participation will result in your removal from the Plan. Please retain a copy of this Notice of Participation, along with the Plan, for your records. Date: Signature: ------------------------------ ------------------------------- 12 THE GYMBOREE CORPORATION MANAGEMENT SEVERANCE PLAN NOTICE OF PARTICIPATION [VP] TO: [PARTICIPANT'S NAME] DATE: The Board has designated you as a Participant in the Plan, a copy of which is attached hereto. The terms and conditions of your participation in the Plan are as set forth in the Plan and herein. The terms defined in the Plan shall have the same defined meanings in this Notice of Participation. As a condition to receiving benefits under the Plan you agree to sign a general waiver and release in the form provided by the Company. In the event that you are entitled to a Severance Payment under the Plan, you will receive a single, lump-sum payment, less applicable tax withholding, equal to 50% of your Base Compensation. If you agree to participate in the Plan on these terms and conditions, please acknowledge your acceptance by signing below. Please return the signed copy of this Notice of Participation within ten (10) days of the date set forth above to: Ken Meyers, Senior Vice President Human Resources The Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, California 94010 Your failure to timely remit this signed Notice of Participation will result in your removal from the Plan. Please retain a copy of this Notice of Participation, along with the Plan, for your records. Date: Signature: ------------------------------ ------------------------------- EX-11 4 COMPUTATION OF NET INCOME (LOSS) PER SHARE 1 EXHIBIT 11 THE GYMBOREE CORPORATION COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
13 Weeks Ended 39 Weeks Ended --------------------------- -------------------------- October 31, November 1, October 31, November 1, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (273) $10,865 $ 3,044 $24,040 ======= ======= ======= ======= Weighted average number of shares outstanding during the period: Common Stock 24,172 24,570 24,148 24,589 Add incremental shares from assumed exercise of stock options -- 288 62 350 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 24,172 24,858 24,210 24,939 ======= ======= ======= ======= BASIC NET INCOME (LOSS) PER SHARE $ (0.01) $ 0.44 $ 0.13 $ 0.98 ======= ======= ======= ======= DILUTED NET INCOME (LOSS) PER SHARE $ (0.01) $ 0.44 $ 0.13 $ 0.96 ======= ======= ======= =======
No potential common shares were included in the computation of diluted per-share amounts for the periods presented during which a loss from operations was recorded. 1 EX-27 5 FINANCIAL DATA SCHEDULE
5 3-MOS JAN-31-1999 AUG-02-1998 OCT-31-1998 2,170 0 11,095 0 95,037 114,516 171,978 (42,038) 248,320 54,549 0 0 0 25,115 138,320 248,320 113,991 113,991 72,897 115,029 0 0 0 (429) 156 (273) 0 0 0 (273) (.01) (.01)
-----END PRIVACY-ENHANCED MESSAGE-----