-----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, TCAlZGX/3LMykrXAp44/4yEvvTYwgGiiE/Gt+zNFEQTf2g3s0Bbz4CHj4Uc7CfYf lLq7+ZWUrjb9rmP0q2f9Lg== 0000950134-02-013693.txt : 20021112 0000950134-02-013693.hdr.sgml : 20021111 20021112080219 ACCESSION NUMBER: 0000950134-02-013693 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANDY BRANDS ACCESSORIES INC CENTRAL INDEX KEY: 0000869487 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 752349915 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18927 FILM NUMBER: 02815018 BUSINESS ADDRESS: STREET 1: 690 E LAMAR BLVD STE 200 CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8172654113 MAIL ADDRESS: STREET 1: 690 E LAMAR BLVD CITY: ARLINGTON STATE: TX ZIP: 76011 10-Q 1 d00972e10vq.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------- FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 COMMISSION FILE NUMBER 0-18927 TANDY BRANDS ACCESSORIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2349915 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 690 EAST LAMAR BOULEVARD, SUITE 200, ARLINGTON, TX 76011 (Address of principal executive offices and zip code) (817) 548-0090 (Registrant's telephone number, including area code) Former name, former address and former fiscal year, if changed since last report: NOT APPLICABLE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Number of shares outstanding Class at November 11, 2002 COMMON STOCK, $1.00 PAR VALUE 5,903,640 ================================================================================ TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2002 ================================================================================ TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION
Item Page No. - ---- -------- 1. Financial Statements 3 - 12 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 16 3. Quantitative and Qualitative Disclosures About Market Risk 17 4. Controls and Procedures 17 PART II -- OTHER INFORMATION Item - ---- 4. Submission of Matters to a Vote of Security Holders 18 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 CERTIFICATIONS 20-21 EXHIBIT INDEX 22-25
2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0 -18927 FORM 10 - Q =============================================================================== CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended September 30 ------------------------------- 2002 2001 ------------ ------------ Net sales $ 60,028 $ 54,106 Cost of goods sold 39,243 35,073 ------------ ------------ Gross margin 20,785 19,033 Selling, general and administrative expenses 15,126 13,310 Depreciation and amortization 1,080 1,387 ------------ ------------ Total operating expenses 16,206 14,697 ------------ ------------ Operating income 4,579 4,336 Interest expense (658) (778) Royalty and other income 1 9 ------------ ------------ Income before provision for income taxes and cumulative effect of accounting change 3,922 3,567 Provision for income taxes 1,527 1,385 ------------ ------------ Net income before cumulative effect of accounting change 2,395 2,182 Cumulative effect of accounting change for SFAS No. 142, net of income taxes of $369,000 (581) -- ------------ ------------ Net income $ 1,814 $ 2,182 ============ ============ Earnings per common share Before cumulative effect of accounting change $ 0.41 $ 0.38 Cumulative effect of accounting change (0.10) -- ------------ ------------ $ 0.31 $ 0.38 ============ ============ Earnings per common share - assuming dilution Before cumulative effect of accounting change $ 0.40 $ 0.38 Cumulative effect of accounting change (0.10) -- ------------ ------------ $ 0.30 $ 0.38 ============ ============ Common shares outstanding 5,888 5,718 ============ ============ Common shares outstanding - assuming dilution 5,984 5,725 ============ ============ Cash dividends per common share None None
The accompanying notes are an integral part of these condensed financial statements. 3 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0 -18927 FORM 10 - Q ================================================================================ CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
September 30, June 30, 2002 2002 ------------- ------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 1,440 $ 6,506 Accounts receivable, net 45,437 33,699 Inventories: Raw materials and work in process 4,643 4,957 Finished goods 48,809 47,861 Other current assets 4,830 4,806 ------------ ------------ Total current assets 105,159 97,829 ------------ ------------ Property and equipment, at cost 30,132 29,441 Accumulated depreciation (15,146) (14,373) ------------ ------------ Net property and equipment 14,986 15,068 ------------ ------------ Other assets: Goodwill, less amortization 11,471 12,467 Intangible assets, less amortization 5,270 5,403 Other assets 2,609 2,670 ------------ ------------ Total other assets 19,350 20,540 ------------ ------------ $ 139,495 $ 133,437 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,174 $ 12,755 Accrued expenses 7,814 6,857 ------------ ------------ Total current liabilities 14,988 19,612 ------------ ------------ Other liabilities: Notes payable 38,352 30,000 Other noncurrent liabilities 3,650 3,161 ------------ ------------ Total other liabilities 42,002 33,161 ------------ ------------ Stockholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $1 par value, 10,000,000 shares authorized, 5,910,703 shares and 5,899,173 shares issued and outstanding as of September 30, 2002 and June 30, 2002, respectively 5,911 5,899 Additional paid-in capital 22,866 22,690 Cumulative other comprehensive income (2,272) (1,706) Retained earnings 56,107 54,293 Treasury stock, at cost (107) (512) ------------ ------------ Total stockholders' equity 82,505 80,664 ------------ ------------ $ 139,495 $ 133,437 ============ ============
The accompanying notes are an integral part of these condensed financial statements. 4 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0 -18927 FORM 10 - Q ================================================================================ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Three Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Cash flows from operating activities: Net income $ 1,814 $ 2,182 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 993 1,049 Amortization 133 383 Cumulative effect of accounting change, net 581 -- Other (243) (46) Change in assets and liabilities: Accounts receivable (11,738) (11,442) Inventories (634) 556 Other assets 393 (162) Accounts payable (5,581) (1,284) Accrued expenses 962 1,866 ------------ ------------ Net cash used for operating activities (13,320) (6,898) ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (691) (149) ------------ ------------ Net cash used for investing activities (691) (149) ------------ ------------ Cash flows from financing activities: Exercise of employee stock options 92 -- Sale of stock to stock purchase program 501 347 Proceeds from borrowings 19,172 29,494 Payments under borrowings (10,820) (21,938) ------------ ------------ Net cash provided by financing activities 8,945 7,903 ------------ ------------ Net increase (decrease) in cash and cash equivalents (5,066) 856 Cash and cash equivalents at beginning of period 6,506 79 ------------ ------------ Cash and cash equivalents at end of period $ 1,440 $ 935 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 603 $ 557 Income taxes 567 11 Noncash activities: None
The accompanying notes are an integral part of these condensed financial statements. 5 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ACCOUNTING PRINCIPLES The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended June 30, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in our 2002 Annual Report. NOTE 2 - IMPACT OF NEW ACCOUNTING STANDARDS Effective July 1, 2002, we adopted Statement of Financial Accounting Standards, commonly referred to as SFAS, No. 142, "Goodwill and Other Intangible Assets." Please refer to Note 6 for information regarding goodwill and other intangible assets and the impact the adoption of this statement had on our condensed consolidated financial statements. In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for fiscal years beginning after June 15, 2002. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We adopted SFAS No. 143 during the first quarter of fiscal 2003. The adoption of this statement did not have a material effect on our consolidated financial position or statements of income, stockholders' equity and cash flows. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," effective for fiscal years beginning after December 15, 2001. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. We adopted SFAS No. 144 during the first quarter of fiscal 2003. The adoption of this statement did not have a material effect on our consolidated financial position or statements of income, stockholders' equity and cash flows. In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities, such as restructurings, terminating employees involuntarily and consolidating facilities. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. We do no not expect the adoption of this statement to have a material effect on our consolidated financial position or statements of income, stockholders' equity and cash flows. 6 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - COMPREHENSIVE INCOME The following table illustrates the components of comprehensive income, net of related tax, for the three months ended September 30, 2002 and 2001 (in thousands).
Three Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Net income $ 1,814 $ 2,182 Foreign currency translation adjustments (269) (61) Change in the fair value of interest rate swap (297) (1,015) ------------ ------------ Comprehensive income $ 1,248 $ 1,106 ============ ============
7 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts).
Three Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Numerator for basic and diluted earnings per share: Net income before cumulative effect of accounting change $ 2,395 $ 2,182 Cumulative effect of accounting change for SFAS No. 142, net of income taxes (581) -- ------------ ------------ Net income $ 1,814 $ 2,182 ============ ============ Denominator: Weighted average shares outstanding 5,872 5,705 Contingently issuable shares 16 13 ------------ ------------ Denominator for basic earnings per share - weighted average shares 5,888 5,718 Effect of dilutive securities: Employee stock options 80 7 Director stock options 16 -- ------------ ------------ Dilutive potential common shares 96 7 Denominator for diluted earnings per share - adjusted weighted - average shares 5,984 5,725 ============ ============ Basic earnings per share: Before cumulative effect of accounting change $ 0.41 $ 0.38 Cumulative effect of accounting change (0.10) 0.00 ------------ ------------ $ 0.31 $ 0.38 ============ ============ Diluted earnings per share: Before cumulative effect of accounting change $ 0.40 $ 0.38 Cumulative effect of accounting change (0.10) 0.00 ------------ ------------ $ 0.30 $ 0.38 ============ ============
8 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION We sell our products to a variety of retail outlets, including mass merchants, national chain stores, major department stores, men's and women's specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores and the retail exchange operations of the United States military. To facilitate our internal operations as well as our customer relationships, we organize our products along men's and women's product lines. As a result, we have two reportable segments: men's accessories, consisting of belts, wallets, suspenders and other small leather goods and women's accessories, consisting of belts, wallets, handbags, socks, scarves, hats and hair accessories. We allocate general corporate expenses to each segment based on the respective segment's asset base. We allocate depreciation and amortization expense related to assets recorded on our corporate accounting records to each segment as described above. We measure profit or loss on each segment based on income or loss before taxes utilizing the accounting policies consistent in all material respects with those described in Note 1 of our 2002 Annual Report. No inter-segment revenue is recorded. The following table sets forth information regarding operations and assets by reportable segment (in thousands).
Three Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Revenue from external customers: Men's accessories $ 30,243 $ 27,143 Women's accessories 29,785 26,963 ------------ ------------ $ 60,028 $ 54,106 ============ ============ Operating income (1): Men's accessories 2,404 2,266 Women's accessories 2,175 2,070 ------------ ------------ $ 4,579 $ 4,336 ============ ============ Interest expense (658) (778) Other income (2) 1 9 ------------ ------------ Income before income taxes and cumulative effect of accounting change $ 3,922 $ 3,567 ============ ============ Depreciation and amortization expense: Men's accessories $ 611 $ 846 Women's accessories 469 541 ------------ ------------ $ 1,080 $ 1,387 ============ ============ Capital expenditures: Men's accessories $ 156 $ -- Women's accessories 112 141 Corporate 423 8 ------------ ------------ $ 691 $ 149 ============ ============
(1) Operating income consists of net sales less cost of sales and specifically identifiable selling, general and administrative expenses. (2) Other income includes royalty income on corporate tradenames and other income not specifically identifiable to a segment. 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS Effective July 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." This statement changed the accounting for goodwill and indefinite-lived intangible assets from an amortization approach to an impairment-only approach. The SFAS No. 142 goodwill impairment model is a two-step process. The first step compares the fair value of a reporting unit that has goodwill assigned to it, to its carrying value. We estimate the fair value of a reporting unit using discounted cash flow analysis. If the fair value of the reporting unit is determined to be less than its carrying value, a second step is performed to compute the amount of goodwill impairment, if any. Step two allocates the fair value of the reporting unit to the reporting unit's net assets other than goodwill. The excess of the fair value of the reporting unit over the amounts assigned to its net assets other than goodwill is considered the implied fair value of the reporting unit's goodwill. The implied fair value of the reporting unit's goodwill is then compared to the carrying value of its goodwill. Any shortfall represents the amount of goodwill impairment. Using the SFAS No. 142 approach described above, we recorded a transitional goodwill impairment charge during the first quarter of fiscal 2003 of $950,000 ($581,000 net of tax), presented as a cumulative effect of accounting change. This charge related to our women's segment of products. The transitional impairment charge resulted from application of the new impairment methodology introduced by SFAS No. 142. Previous accounting rules incorporated a comparison of carrying value to undiscounted cash flows, whereas new rules require a comparison of carrying value to fair value, which are lower. Under previous requirements, no goodwill impairment would have been recorded on July 1, 2002. Pursuant to SFAS No. 142, goodwill and indefinite-lived intangible assets must be tested for impairment annually at the same time every year, and in between annual testing dates if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. In conjunction with the adoption of SFAS No. 142, we reassessed the useful lives and the classification of our finite-lived acquired intangible assets and determined that no revisions were necessary. The following table illustrates the gross carrying amount and accumulated amortization of our acquired intangible assets as of September 30, 2002 and June 30, 2002 (in thousands).
September 30, June 30, 2002 2002 ------------ ------------ Amortized intangible assets (various, principally tradenames): Gross carrying amount $ 8,774 $ 8,774 ============ ============ Accumulated Amortization $ (3,504) $ (3,371) ============ ============ Net Amortized Intangible Assets $ 5,270 $ 5,403 ============ ============
10 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) Amortization expense for acquired finite-lived intangible assets during the three months ended September 30, 2002 was $133,000. The following table illustrates our estimated amortization expense for the remainder of fiscal 2003 through June 30, 2007. Estimated amortization expense : Fiscal year ending 6/30/03 $ 372,000 Fiscal year ending 6/30/04 394,000 Fiscal year ending 6/30/05 361,000 Fiscal year ending 6/30/06 361,000 Fiscal year ending 6/30/07 361,000
The following table reconciles net income, earnings per common share and earnings per share, assuming dilution, adjusted to exclude amortization expense recognized in such periods related to goodwill (in thousands except per share amounts).
Three Months Ended September 30, ------------------------------ 2002 2001 ------------ ------------ Reported net income before cumulative effect of accounting change $ 2,395 $ 2,182 Add back after-tax amounts: Goodwill amortization -- 156 ------------ ------------ Adjusted net income before cumulative effect of accounting change $ 2,395 $ 2,338 ============ ============ Earnings per common share before accounting change: Reported net income $ 0.41 $ 0.38 Goodwill amortization -- 0.03 ------------ ------------ Adjusted basic earnings per common share before accounting change $ 0.41 $ 0.41 ============ ============ Earnings per share - assuming dilution before accounting change: Reported net income $ 0.40 $ 0.38 Goodwill amortization -- 0.03 ------------ ------------ Adjusted earnings per share -assuming dilution before accounting change $ 0.40 $ 0.41 ============ ============
11 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) The following table illustrates the changes in the carrying amount of goodwill by reportable segment for the three months ended September 30, 2002.
June 30, Impairment September 30, 2002 Losses Other(1) 2002 ------------ ------------ ------------ ------------- Men's accessories $ 9,733 $ -- $ (46) $ 9,687 Women's accessories 2,734 (950) -- 1,784 ------------ ------------ ------------ ------------ Total $ 12,467 $ (950) $ (46) $ 11,471 ============ ============ ============ ============
(1) Difference due to foreign currency translation adjustments. 12 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We are a leading designer, manufacturer and marketer of branded men's, women's and children's accessories, including belts and small leather goods such as wallets. Our product line also includes handbags, socks, scarves, gloves, hats, hair accessories, suspenders, cold weather accessories and sporting goods accessories. We market our merchandise under a broad portfolio of nationally recognized licensed and proprietary brand names, including DOCKERS(R), LEVI'S(R), JONES NEW YORK(R), PERRY ELLIS(R), ROLFS(R), HAGGAR(R), WOOLRICH(R), JORDACHE(R), INDIAN MOTORCYCLE(R), BUGLE BOY(R), CANTERBURY(R), PRINCE GARDNER(R), PRINCESS GARDNER(R), AMITY(R), DON LOPER(R), ACCESSORY DESIGN GROUP(R), TEX TAN(R) and TIGER(R), as well as private brands for major retail customers. We sell our products to a variety of retail outlets, including mass merchants, national chain stores, major department stores, men's and women's specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores and the retail exchange operations of the United States military. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001 NET SALES AND GROSS MARGINS The following table illustrates sales and gross margin data from our reportable segments for the three months ended September 30, 2002 compared to the same period last year.
Three Months Ended September 30, ------------------------------- 2002 2001 ------------ ------------ Net sales: Men's accessories $ 30,243 $ 27,143 Women's accessories 29,785 26,963 ------------ ------------ Total net sales $ 60,028 $ 54,106 ============ ============ Gross margin: Men's accessories $ 11,079 $ 10,148 Women's accessories 9,706 8,885 ------------ ------------ Total gross margin $ 20,785 $ 19,033 ============ ============ Gross margin as a percentage of sales: Men's accessories 36.6% 37.4% Women's accessories 32.6% 33.0% Total 34.6% 35.2%
13 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ For the three month period ended September 30, 2002, net sales increased 10.9% to $60,028,000 compared to net sales of $54,106,000 for the same period last year. Net sales of men's accessories increased 11.4% for the three month period ended September 30, 2002 compared to the same period last year. We attribute the increase in net sales of men's accessories to a greater number of mass merchant store orders than originally expected. Similarly, the net sales of women's accessories increased 10.5% for the three month period ended September 30, 2002 compared to the same period last year. We attribute the increase in net sales of women's accessories to increased sales of our Rolfs(R) handbags, licensed small leather goods and belts such as LEVI'S(R) and DOCKERS(R) as well as increased sales of women's mass merchant accessories. Gross margins increased by $1,752,000 for the three month period ended September 30, 2002, or 9.2% compared to the same period last year. As a percentage of sales, gross margins decreased 0.6% for the three month period ended September 30, 2002 compared to the same period last year. The overall decrease was due to a greater sales mix weighted towards mass merchant accessories and an initial direct sales shipment of women's accessories to Payless Shoes. OPERATING EXPENSES Selling, general and administrative expenses as a percentage of net sales for the three months ended September 30, 2002 increased 0.6% compared to the same period last year. The increase resulted from higher salary expense due to nonrecurring costs associated with the implementation of distribution software in our Dallas, Texas distribution center totaling $290,000, as well as severance costs totaling $430,000. Depreciation and amortization expenses as a percentage of net sales for the three months ended September 30, 2002 decreased 0.8% to $1,080,000, compared to $1,387,000 in the same period of the prior year. We attribute this decrease primarily to the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets," in which goodwill is no longer amortized (see note 6). Goodwill amortization expense for the same three month period in the prior year was approximately $256,000. Interest expense for the three month period ended September 30, 2002 decreased $120,000 compared to the same period last year. This decrease primarily relates to lower interest rates as well as lower debt levels compared to the same period last year. The effective tax rate for the three months ended September 30, 2002 was 38.9%, which is consistent with the same period last year. Net income, before the cumulative effect of accounting change resulting from the adoption of SFAS No. 142, for the three month period ended September 30, 2002 increased 9.8% to $2,395,000, or $.40 per diluted share, compared to net income of $2,182,000, or $.38 per diluted share, for the same period last year. In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed annually for impairment. Separable intangible assets that do not have an indefinite life will continue to be amortized over their useful lives. As discussed in our 2002 Annual Report, the required adoption of SFAS No. 142 is considered a change in accounting principle and the cumulative effect of adopting this standard resulted in a non-cash after-tax charge in the first quarter of fiscal 2003 of $581,000, or $(0.10) per diluted share. This amount does not affect our on-going operations. The adoption of the new accounting standard will result in a reduction in amortization expense of approximately $1 million. Net income, after the cumulative effect of accounting change resulting from the adoption of SFAS No. 142, for the three month period ended September 30, 2002 was $1,814,000, or $.30 per diluted share, compared to net income of $2,182,000, or $.38 per diluted share, for the same period last year. 14 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ LIQUIDITY AND CAPITAL RESOURCES For the three months ended September 30, 2002, our operating activities used cash of $13,320,000 compared to $6,898,000 for the same period last year. We attribute this increase in the use of cash to the timing of disbursements related to fall season inventory procurement. Additionally, during fiscal 2002, improved inventory control measures were introduced which reduced our use of cash as compared to the same period in fiscal 2001. Capital expenditures totaled $691,000 for the three months ended September 30, 2002, an increase of $542,000 from the same period last year. We attribute this increase to the implementation of a distribution software application during the first quarter of fiscal 2003. We anticipate that our capital expenditures for fiscal 2003 will approximate our capital investments of property and equipment for fiscal 2002. Capital commitments for fiscal 2003 include additional equipment for our distribution facility in Dallas, Texas, as well as additional hardware and software applications. We expect to fund our fiscal 2003 capital commitments through cash flows from operations and drawing on our existing credit facility. Generally, our primary sources of liquidity are cash flows from operations and our line of credit. We have an $80,000,000 committed secured revolving credit facility, which can be used for seasonal borrowings and letters of credit. This credit facility is secured by substantially all of our assets along with our subsidiaries' assets and requires us to maintain certain financial covenants which, if not maintained, could adversely impact our liquidity position. Our borrowings under our credit facility were $38,352,000 as of September 30, 2002 and $54,956,000 as of September 30, 2001. As of September 30, 2002, we had approximately $33,816,000 of credit available to us under our credit facility. We have never paid a cash dividend on our common stock. We currently intend to retain earnings for the foreseeable future to provide funds for the expansion of our business and the reduction of debt. Our existing credit facility restricts our ability to pay dividends. We believe we have adequate financial resources and access to sufficient credit lines to satisfy our future working capital needs. OFF BALANCE SHEET ARRANGEMENTS We do not have transactions, arrangements or relationships with "special purpose" entities, nor do we have any off balance sheet debt. CRITICAL ACCOUNTING POLICIES The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for our conclusions. We continually evaluate the information used to make these estimates as the business and economic environment changes. Actual results may differ from these estimates under different assumptions or conditions. The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered most critical are as follows: REVENUES We recognize revenue when merchandise is shipped to customers and title to the goods has passed to the customer. We record sales returns and allowances at the time we can reasonably estimate the amounts. We perform periodic credit evaluations of our customers' financial conditions and generally do not require collateral. Credit losses have historically been within our expectations. 15 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ INVENTORIES Inventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. Cost includes materials, direct and indirect labor and factory overhead. Market, with respect to raw materials, is replacement cost; and for work-in-process and finished goods, it is net realizable value. If circumstances arise in which the market value of items in inventory decline below cost, an inventory markdown would be estimated and charged to expense in the period identified. We closely monitor fashion trend items and anticipate additional inventory markdowns if market indications in fashion trends justify further reserves. GOODWILL We adopted the provisions of SFAS No. 142, effective July 1, 2002. This statement changed the accounting for goodwill and indefinite-lived intangible assets from an amortization approach to an impairment-only approach. The SFAS No. 142 goodwill impairment model is a two-step process. The first step compares the fair value of a reporting unit that has goodwill assigned to it, to its carrying value. We estimate the fair value of a reporting unit using discounted cash flow analysis. If the fair value of the reporting unit is determined to be less than its carrying value, a second step is performed to compute the amount of goodwill impairment, if any. Step two allocates the fair value of the reporting unit to the reporting unit's net assets other than goodwill. The excess of the fair value of the reporting unit over the amounts assigned to its net assets other than goodwill is considered the implied fair value of the reporting unit's goodwill. The implied fair value of the reporting unit's goodwill is then compared to the carrying value of its goodwill. Any shortfall represents the amount of goodwill impairment. We continually evaluate whether events and circumstances have occurred that indicate the remaining balance of goodwill may not be recoverable. In evaluating impairment, we estimate the sum of the expected future cash flows derived from such goodwill. Such evaluations for impairment are significantly impacted by estimates of future revenues, costs and expenses and other factors. DERIVATIVES Our risk management policy as it relates to derivative investments is to mitigate, subject to market conditions, against interest rate risk. We do not enter into any derivative investments for the purpose of speculative investment. We reevaluate our overall risk management philosophy as business conditions arise. SEASONALITY Our quarterly sales, net income and use of cash results are fairly consistent throughout the fiscal year, with a seasonal increase during the second quarter. INFLATION Although our operations are affected by general economic trends, we do not believe inflation has had a material effect on our results of operations. FORWARD-LOOKING STATEMENTS This Form 10-Q contains forward looking statements that are based on current expectations, estimates and projections about the industry in which we operate, management's beliefs, and assumptions made by management. In addition, other written or oral statements which constitute forward-looking statements may be made by or on our behalf. Words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," or variations of such words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 16 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to interest rate risk on our long-term debt. We manage our exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition, we have hedged our exposure to changes in interest rates on a portion of our variable debt by entering into an interest rate swap agreement to lock in a fixed interest rate for a portion of these borrowings. At September 30, 2002, our borrowings under our credit facility totaled $38,352,000, bearing a weighted-average interest rate of 4.46%. On July 1, 2001, we entered into a three year interest rate swap agreement with Wells Fargo Bank, N.A., which expires on June 27, 2004, converting $30,000,000 of outstanding indebtedness from a variable to a fixed interest rate. The average receive rate is based on a 90-day LIBOR rate. At September 30, 2002, the receive rates related to the interest rate swap were 1.86% and the pay rates related to interest rate swap were 5.60%. Interest differentials paid or received under the swap agreement are reflected as an adjustment to interest expense when paid. The interest rate swap agreement represents a valid cash flow hedge investment under SFAS No. 133. As such, during fiscal 2003 and 2002, changes in the fair value of the interest rate swap were recognized as other comprehensive income with the fair value at September 30, 2002, approximating ($2,184,000). The potential impact of market conditions on the fair value of our indebtedness is not expected to be material. Given that such lines of credit bear interest at floating market interest rates, the fair value of amounts borrowed thereunder approximates carrying value. Theoretically, we are also exposed to market risk with respect to changes in the global price level of certain commodities used in the production of our products. We routinely purchase leather hides during the year for use in the manufacture of men's belts. We also purchase a substantial amount of leather items from third-party suppliers. An unanticipated material increase in the market price of leather could increase the cost of these products to us and therefore have a negative effect on our results of operations. ITEM 4. CONTROLS AND PROCEDURES Within the 90-day period prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our Exchange Act filings. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out our evaluation. 17 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held our 2002 Annual Meeting of Stockholders on October 16, 2002. The stockholders voted on the following matters at the meeting: 1. The re-election of J.S.B. Jenkins to our board of directors to serve as a Class III director for a three year term expiring at the 2005 annual meeting of stockholders, or until his successor is elected and qualified. The stockholders re-elected Mr. Jenkins to our board of directors. The following table indicates the number of votes cast for, the number of votes withheld and the number of broker non-votes with respect to the election of Mr. Jenkins.
For Withheld Broker Non-Votes --- -------- ---------------- 4,778,580 692,611 -0-
The following directors' terms continued after the 2002 Annual Meeting: Ms. Colombe M. Nicholas Dr. James F. Gaertner Mr. Gene Stallings Mr. Roger R. Hemminghaus Mr. C.A. Rundell, Jr. 2. To adopt and approve the Tandy Brands Accessories, Inc. 2002 Omnibus Plan. The stockholders approved this proposal. The following table indicates the number of votes cast for, the number of votes cast against, the number of abstentions and the number of broker non-votes with respect to this matter.
For Against Abstain Broker Non-Votes --- ------- ------- ---------------- 2,144,936 1,340,204 59,481 1,926,569
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. A list of exhibits filed as part of this report is set forth in the Exhibit Index, which immediately precedes such exhibits and is incorporated herein by reference. (b) Reports on Form 8-K. We filed a Form 8-K on October 17, 2002 to report the issuance of the press release announcing our financial results for the first quarter of fiscal 2003. 18 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ 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. TANDY BRANDS ACCESSORIES, INC. (Registrant) /s/ J.S.B. Jenkins ----------------------------------------- J.S.B. Jenkins President and Chief Executive Officer /s/ Mark J. Flaherty ----------------------------------------- Mark J. Flaherty Chief Financial Officer Date: November 11, 2002 19 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ CERTIFICATION BY CHIEF EXECUTIVE OFFICER I, J.S.B. Jenkins, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 11, 2002 /s/ J.S.B. Jenkins -------------------------- J.S.B. Jenkins Chief Executive Officer 20 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ CERTIFICATION BY CHIEF FINANCIAL OFFICER I, Mark J. Flaherty, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 11, 2002 /s/ Mark J. Flaherty -------------------------- Mark J. Flaherty Chief Financial Officer 21 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) ---------------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit - ---------------------------------------------- ---- ---- -------- ------- (3) Articles of Incorporation and By-laws 3.1 Certificate of Incorporation of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 3.1 3.2 By-laws of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 3.2 3.3 Amendment No. 1 to By-laws of Tandy Brands Accessories, Inc. 10-Q 5/10/02 0-18927 3.3 (4) Instruments defining the rights of security holders, including indentures 4.1 Certificate of Designations, Powers, Preferences, and Rights of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.1 4.2 Form of Common Stock Certificate of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.2 4.3 Form of Preferred Share Purchase Rights Certificate of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.3 4.4 Form of Rights Certificate of Tandy Brands Accessories, Inc. 8-K 11/02/99 0-18927 4.5 4.5 Amended and Restated Rights Agreement dated October 19, 1999, between Tandy Brands Accessories, Inc. and Bank Boston, N.A. 8-K 11/02/99 0-18927 4.6 4.6 Amendment to Rights Agreement dated October 19, 1999, between Tandy Brands Accessories, Inc. and Fleet National Bank (f.k.a. Bank Boston, N.A.) 10-Q 05/10/02 0-18927 4.7 (10) Material Contracts 10.1 Tandy Brands Accessories, Inc. 1991 Stock Option Plan* S-1 11/02/90 33-37588 10.8 10.2 Form of Stock Option Agreement - 1991 Stock Option Plan* S-1 11/02/90 33-37588 10.9
22 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) ---------------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit - ---------------------------------------------- ---- ---- -------- ------- 10.3 Tandy Brands Accessories, Inc. Benefit Restoration Plan and related Trust Agreement and Amendments No. 1 and 2 thereto* 10-K 09/25/97 0-18927 10.14 10.4 Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and each of its Directors and Officers S-1 11/02/90 33-37588 10.15 10.5 Office Lease Agreement dated March 6, 1991, between John Hancock Mutual Life Insurance Co. and Tandy Brands Accessories, Inc. relating to the corporate offices S-1 11/02/90 33-37588 10.16 10.6 Tandy Brands Accessories, Inc. Non- Qualified Formula Stock Option Plan for Non- Employee Directors* S-8 02/10/94 33-75114 28.1 10.7 Tandy Brands Accessories, Inc. 1993 Employee Stock Option Plan and form of Stock Option Agreement thereunder* S-8 02/10/94 33-75114 28.2 10.8 Tandy Brands Accessories, Inc. Non- Qualified Stock Option Plan for Non-Employee Directors* S-8 02/10/94 33-75114 28.3 10.9 Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors* S-8 06/03/96 33-08579 99.1 10.10 Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan* S-8 12/12/97 33-42211 99.2
23 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) ---------------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit - ---------------------------------------------- ---- ---- -------- ------- 10.11 Tandy Brands Accessories, Inc. Employees Investment Plan as Amended and Restated Effective June 1, 2000* 10-K 09/26/00 0-18927 10.39 10.12 Credit Agreement Among Tandy Brands Accessories, Inc. as the Borrower, Wells Fargo HSBC Trade Bank, N.A. as Administrative Agent and as Lender, and certain Financial Institutions, as Lenders and Wells Fargo Bank, N.A. as Arranger as of June 27, 2001 10-K 09/25/01 0-18927 10.42 10.13 ISDA Master Agreement between Tandy Brands Accessories, Inc. and Wells Fargo Bank, N.A. , dated as of June 27, 2001 10-K 09/25/01 0-18927 10.42 10.14 Tandy Brands Accessories, Inc. Stock Purchase Program* S-8 02/12/02 33-55436 99.5 10.15 Limited Consent and Waiver dated November 5, 2001 between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, N.A. as Administrative Agent under the Agreement 10-Q 11/13/01 0-18927 10.43 10.16 Amendment No. 2 to the Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan * 10-Q 5/10/02 0-18927 10.44 10.17 Amendment No. 4 to the Tandy Brands Accessories, Inc. Nonqualified Formula Stock Option Plan For Non-Employee Directors * 10-Q 5/10/02 0-18927 10.44 10.18 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Dr. James F. Gaertner* S-8 5/15/02 33-88276 10.2
24 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) ---------------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit - ---------------------------------------------- ---- ---- -------- ------- 10.19 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Marvin J. Girouard* S-8 5/15/02 33-88276 10.3 10.20 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Gene Stallings* S-8 5/15/02 33-88276 10.4 10.21 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Roger R. Hemminghaus* S-8 5/15/02 33-88276 10.5 10.22 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Colombe M. Nicholas* S-8 5/15/02 33-88276 10.6 10.23 First Amendment to Credit Agreement between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, NA, dated June 28, 2002 10-K 9/27/02 0-18927 10.23 10.24 Tandy Brands Accessories, Inc. 2002 Omnibus Plan*** N/A N/A N/A N/A (99) Other Exhibits 99.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act (Chief Executive Officer)** N/A N/A N/A N/A 99.2 Certification pursuant to Section 906 of Sarbanes-Oxley Act (Chief Financial Officer)** N/A N/A N/A N/A
* Management contract or compensatory plan ** Filed herewith 25 EX-10.24 3 d00972exv10w24.txt 2002 OMNIBUS PLAN EXHIBIT 10.24 TANDY BRANDS ACCESSORIES, INC. 2002 OMNIBUS PLAN The Tandy Brands Accessories, Inc. 2002 Omnibus Plan (hereinafter called the "Plan") was adopted by the Board of Directors of Tandy Brands Accessories, Inc., a Delaware corporation (hereinafter called the "Company"), effective as of September 3, 2002, and was approved by the Company's stockholders on October 16, 2002. ARTICLE 1 PURPOSE The purpose of the Plan is to attract and retain the services of key management Employees of the Company and its Subsidiaries, and Board members (whether an Employee or a Non-employee Director), and to provide such persons with a proprietary interest in the Company through the granting of incentive stock options, non-qualified stock options, performance units, stock appreciation rights, or restricted stock, whether granted singly, or in combination, or in tandem, that will: (a) increase the interest of such persons in the Company's welfare; (b) furnish an incentive to such persons to continue their services for the Company; and (c) provide a means through which the Company may attract able persons as employees. With respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee. ARTICLE 2 DEFINITIONS For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: 2.1 "Award" means the grant of any Incentive Stock Option, Non-qualified Stock Option, Performance Unit, Restricted Stock or SAR, whether granted singly, in combination or in tandem (each individually referred to herein as an "Incentive"). 1 2.2 "Award Agreement" means a written agreement between a Participant and the Company which sets out the terms of the grant of an Award. 2.3 "Award Period" means the period during which one or more Incentives granted under an Award may be exercised. 2.4 "Board" means the board of directors of the Company. 2.5 "Change of Control" means any of the following: (a) any consolidation, merger or share exchange of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a consolidation, merger or share exchange of the Company in which the holders of the Company's Common Stock immediately prior to such transaction have the same proportionate ownership of Common Stock of the surviving corporation immediately after such transaction; (b) any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation) in one transaction or a series of related transactions, of all or substantially all of the assets of the Company; (c) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; (d) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals (the "Continuing Directors") who (x) at the date of this Plan were directors or (y) become directors after the date of this Plan and whose election or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the date of this Plan or whose election or nomination for election was previously so approved; (e) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of an aggregate of 20% of the voting power of the Company's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the 1934 Act) who beneficially owned less than 15% of the voting power of the Company's outstanding voting securities on the date of this Plan, or the acquisition of beneficial ownership of an additional 5% of the voting power of the Company's outstanding voting securities by any person or group who beneficially owned at least 15% of the voting power of the Company's outstanding voting securities on the date of this Plan, provided, however, that notwithstanding the foregoing, an acquisition shall not constitute a Change of Control hereunder if the acquiror is (x) a trustee or other fiduciary holding securities under an employee benefit plan of the Company and acting in such capacity, (y) a Subsidiary of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company or (z) any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; or 2 (f) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7. 2.6 "Code" means the Internal Revenue Code of 1986, as amended. 2.7 "Committee" means the committee appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan. 2.8 "Common Stock" means the common stock, par value $1.00 per share, which the Company is currently authorized to issue or may in the future be authorized to issue. 2.9 "Company" means Tandy Brands Accessories, Inc., a Delaware corporation, and any successor entity. 2.10 "Date of Grant" means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement; provided, however, that solely for purposes of Section 16 of the 1934 Act and the rules and regulations promulgated thereunder, the Date of Grant of an Award shall be the date of stockholder approval of the Plan if such date is later than the effective date of such Award as set forth in the Award Agreement. 2.11 "Employee" means a common law employee (as defined in accordance with the Regulations and Revenue Rulings, as issued by the Internal Revenue Service, then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary of the Company. 2.12 "Fair Market Value" of a share of Common Stock means: (a) If the Common Stock is listed or admitted to trade on a national securities exchange, the average of the high and low prices of the Common Stock as reported by such national securities exchange for the date the Award is granted or, if no sale of the Common Stock shall have been made on that date, the next preceding day on which there was a sale of Common Stock; (b) If the Common Stock is not listed on a national securities exchange, then the average of the high and low prices of the Common Stock as reported for the date the Award is granted or, if no sale of the Common Stock shall have been made on that date, the next preceding day on which there was a sale of Common Stock, on the National Market System of the National Association of Securities Dealers, Inc.; (c) If the Common Stock is not listed to trade on the National Market System, the average between the bid and asked price for the Common Stock on any electronic quotation system on the date the Award is granted; or (d) If the Common Stock is not listed or admitted to trade on a national securities exchange, the National Market System, or any electronic quotation system, the Committee shall establish the Fair Market Value in its good faith judgement. 2.13 "Incentive Stock Option" or "ISO" means an incentive stock option within the meaning of Section 422 of the Code, granted pursuant to this Plan. 3 2.14 "Non-employee Director" means a member of the Board who is not an Employee and who satisfies (a) the requirements of Rule 16b-3(b)(3) promulgated under the 1934 Act or any successor provision, or (b) the requirements of any national securities exchange or other market on which the Common Stock is listed or quoted. 2.15 "Non-qualified Stock Option" or "NQSO" means a non-qualified stock option, granted pursuant to this Plan. 2.16 "Option Price" means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock. 2.17 "Participant" shall mean an Employee or a Non-employee Director to whom an Award is granted under this Plan. 2.18 "Performance Unit" means a unit granted to a Participant which entitles the Participant to receive a payment, in cash, Common Stock, or both, pursuant to Section 6.8 of this Plan which is subject to restrictions or limitations set forth in this Plan and in the related Award Agreement. 2.19 "Plan" means this Tandy Brands Accessories, Inc. 2002 Omnibus Plan, as amended from time to time. 2.20 "Reporting Participant" means a Participant who is subject to the reporting requirements of Section 16 of the 1934 Act. 2.21 "Restricted Stock" means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.6 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement. 2.22 "Retirement" means any Termination of Service solely due to retirement upon attainment of age 65, or permitted early retirement as determined by the Committee. 2.23 "SAR" means the right to receive a payment, in cash and/or Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares. 2.24 "SAR Price" means the Fair Market Value of each share of Common Stock covered by an SAR, determined on the Date of Grant of the SAR. 2.25 "Stock Option" means a Non-qualified Stock Option or an Incentive Stock Option. 2.26 "Subsidiary" means (a) any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (b) any limited partnership, if the Company or any corporation described in item (a) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the 4 removal and replacement of the general partner, and (c) any partnership or limited liability company, if the partners or members thereof are composed only of the Company, any corporation listed in item (a) above or any limited partnership listed in item (b) above. "Subsidiaries" means more than one of any such corporations, limited partnerships, partnerships or limited liability companies. 2.27 "Termination of Service" for a Participant who is an Employee of the Company or any Subsidiary means the date the Employee ceases to serve as an Employee of the Company and its Subsidiaries, for any reason. "Termination of Service" for a Non-employee Director means the date the Non-employee Director ceases to serve as a member of the Board. 2.28 "Total and Permanent Disability" means a Participant is qualified for long-term disability benefits under the Company's disability plan or insurance policy; or, if no such plan or policy is then in existence, that the Participant, because of ill health, physical or mental disability or any other reason beyond his or her control, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee; provided that, with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the Code. ARTICLE 3 ADMINISTRATION 3.1 Appointment of Committee. The Plan shall be administered by a committee appointed by the Board (the "Committee"), which shall consist of two (2) or more members, as determined by the Board. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. Membership on the Committee shall be limited to those members of the Board who are Non-employee Directors and who are "outside directors" under Section 162(m) of the Code. The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. 3.2 Determination of Awards. The Committee shall determine and designate from time to time the eligible persons to whom Awards will be granted and shall set forth in each related Award Agreement the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee, but not inconsistent with the Plan. The Committee shall determine whether an Award shall include one type of Incentive, two or more Incentives granted in combination, or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive). The Committee may from time to time delegate the authority provided for in this Section 3.2 to the president of the Company. 5 3.3 Committee Discretion. The Committee, in its discretion, shall (a) interpret the Plan, (b) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and (c) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer quotation system upon which the Company's securities are listed or quoted, or any other applicable law, rule or restriction (collectively, "Applicable Law"), to the extent that any such restrictions are no longer required by Applicable Law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards. ARTICLE 4 ELIGIBILITY Any Employee (including an Employee who is also a member of the Board or an officer) or Non-employee Director whose judgment, initiative, and efforts contributed or may be expected to contribute to the successful performance of the Company is eligible to participate in the Plan; provided that only Employees shall be eligible to receive Incentive Stock Options. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee or Non-employee Director. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine. Except as required by this Plan, Awards granted at different times need not contain similar provisions. The Committee's determinations under the Plan (including without limitation determinations of which Employees or Non-employee Directors, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Employees and Non-employee Directors who receive, or are eligible to receive, Awards under the Plan. ARTICLE 5 SHARES SUBJECT TO PLAN Subject to adjustment as provided in Articles 13 and 14, the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under the Plan is (a) 398,588 shares; plus (b) shares of Common Stock previously subject to Awards issued under this Plan or any stock option agreements issued under any stock option plan previously maintained by the Company, which are forfeited, terminated, settled in cash in lieu of Common Stock, or exchanged for Awards that do not involve Common Stock, or expired unexercised. 6 Shares to be issued may be made available from authorized but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock purchased by the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserve and keep available the number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan. ARTICLE 6 GRANT OF AWARDS 6.1 In General. The grant of an Award shall be authorized by the Committee and shall be evidenced by an Award Agreement setting forth the Incentive or Incentives being granted, the total number of shares of Common Stock subject to the Incentive(s), the Option Price (if applicable), the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance objectives, as are approved by the Committee, but not inconsistent with the Plan. The Company shall execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. Any Award granted pursuant to this Plan must be granted within ten (10) years of the date of adoption of this Plan. The Plan shall be submitted to the Company's stockholders for approval; however, the Committee may grant Awards under the Plan prior to the time of stockholder approval. Any such Award granted prior to such stockholder approval shall be made subject to such stockholder approval. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, receipt of any other Award under the Plan. If the Committee establishes a purchase price for an Award, the Participant must accept such Award within a period of 30 days (or such shorter period as the Committee may specify) after the Date of Grant by executing the applicable Award Agreement and paying such purchase price. 6.2 Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries) are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan which is designated as an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an Incentive Stock Option, such Stock Option shall be a Non-qualified Stock Option. 6.3 Maximum Individual Grants. No Participant may receive during any fiscal year of the Company Awards covering an aggregate of more than One Hundred Thousand (100,000) shares of Common Stock. 7 6.4 Grant Upon Election or Appointment as a Non-employee Director. When a Non-employee Director is first elected or appointed to the Board, such director will be granted an Award of (a) Five Thousand (5,000) Non-qualified Stock Options, or (b) upon the determination of the Board, an alternative form of Award (other than an Incentive Stock Option) with a value substantially equivalent to the value of Five Thousand (5,000) Non-qualified Stock Options. 6.5 Annual Grants to Non-employee Directors. (a) Concurrently with each regular annual election of the Board, each Non-employee Director (other than the Chairman of the Board) who was previously elected to the Board and who continues to serve in such capacity shall be granted an Award of (i) Two Thousand Five Hundred (2,500) Non-qualified Stock Options, or (ii) upon the determination of the Board, an alternative form of Award (other than an Incentive Stock Option) with a value substantially equivalent to the value of Two Thousand Five Hundred (2,500) Non-qualified Stock Options. (b) Concurrently with each regular annual election of the Board, the Chairman of the Board (if the Chairman was previously elected to the Board and continues to serve as a director) shall be granted an Award of (i) Four Thousand Four Hundred Twenty Five (4,425) Non-qualified Stock Options, or (ii) upon the determination of the Board, an alternative form of Award (other than an Incentive Stock Option) with a value substantially equivalent to the value of Four Thousand Four Hundred Twenty Five (4,425) Non-qualified Stock Options. 6.6 Restricted Stock. (a) In General. If Restricted Stock is granted to a Participant under an Award, the Committee shall set forth in the related Award Agreement: (1) the number of shares of Common Stock awarded, (2) the price, if any, to be paid by the Participant for such Restricted Stock, (3) the time or times within which such Award may be subject to forfeiture, (4) specified performance goals of the Company, a Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, which the Committee determines must be met in order to remove any restrictions (including vesting) on such Award, and (5) all other terms, limitations, restrictions, and conditions of the Restricted Stock, which shall be consistent with this Plan. The provisions of Restricted Stock need not be the same with respect to each Participant. (b) Legend on Shares. Each Participant who is awarded Restricted Stock shall be issued a stock certificate or certificates in respect of such shares of Restricted Stock. Such certificate(s) shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, substantially as provided in Section 17.9 of the Plan. The Committee may require the stock certificates evidencing shares of Restricted Stock be held in custody by the Company until the restrictions thereon shall have lapsed, and that the Participant deliver to the Committee a stock power or stock powers, endorsed in blank, relating to the shares of Restricted Stock. 8 (c) Restrictions and Conditions. Shares of Restricted Stock shall be subject to the following restrictions and conditions: (1) Subject to the other provisions of this Plan and the terms of the particular Award Agreements, during such period as may be determined by the Committee commencing on the Date of Grant (the "Restriction Period"), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock. Except for these limitations, the Committee may in its sole discretion, remove any or all of the restrictions on such Restricted Stock whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Award, such action is appropriate. (2) Except as provided in sub-paragraph (1) above, the Participant shall have, with respect to his or her Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon. Certificates for shares of Common Stock free of restriction under this Plan shall be delivered to the Participant promptly after, and only after, the Restriction Period shall expire without forfeiture in respect of such shares of Common Stock. Certificates for the shares of Common Stock forfeited under the provisions of the Plan and the applicable Award Agreement shall be promptly returned to the Company by the forfeiting Participant. Each Award Agreement shall require that (x) each Participant, by his or her acceptance of Restricted Stock, shall irrevocably grant to the Company a power of attorney to transfer any shares so forfeited to the Company and agrees to execute any documents requested by the Company in connection with such forfeiture and transfer, and (y) such provisions regarding returns and transfers of stock certificates with respect to forfeited shares of Common Stock shall be specifically performable by the Company in a court of equity or law. (3) The Restriction Period of Restricted Stock shall commence on the Date of Grant and, subject to Article 14 of the Plan, unless otherwise established by the Committee in the Award Agreement setting forth the terms of the Restricted Stock, shall expire upon satisfaction of the conditions set forth in the Award Agreement; such conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) other comparable measurements of Company performance, as may be determined by the Committee in its sole discretion. (4) Subject to the provisions of the particular Award Agreement, upon Termination of Service for any reason during the Restriction Period, the nonvested shares of Restricted Stock shall be forfeited by the Participant. In the event a Participant has paid any consideration to the Company for such forfeited Restricted Stock, the Company shall, as soon as practicable after the event causing forfeiture (but in any event within 5 business days), pay to the Participant, in cash, an amount equal to the total consideration paid by the Participant for such 9 forfeited shares. Upon any forfeiture, all rights of a Participant with respect to the forfeited shares of the Restricted Stock shall cease and terminate, without any further obligation on the part of the Company. 6.7 SAR. An SAR shall entitle the Participant at his election to surrender to the Company the SAR, or portion thereof, as the Participant shall choose, and to receive from the Company in exchange therefor cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) per share over the SAR Price per share specified in such SAR, multiplied by the total number of shares of the SAR being surrendered. In the discretion of the Committee, the Company may satisfy its obligation upon exercise of an SAR by the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash. 6.8 Performance Unit. If a Performance Unit is granted to a Participant under an Award, the Committee shall set forth in the related Award Agreement: (a) the Date of Grant, (b) the number of Performance Units awarded, (c) the Award Value of the units, (d) the period during which the Performance Unit shall vest, (e) the period during which the Performance Unit shall be convertible, and (f) all other terms, limitations, restrictions and conditions of the Performance Units, which shall be consistent with this Plan. 6.9 Tandem Awards. The Committee may grant two or more Incentives in one Award in the form of a "tandem award," so that the right of the Participant to exercise one Incentive shall be canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option and an SAR are issued in a tandem Award, and the Participant exercises the SAR with respect to 100 shares of Common Stock, the right of the Participant to exercise the related Stock Option shall be canceled to the extent of 100 shares of Common Stock. ARTICLE 7 OPTION PRICE The Option Price for any share of Common Stock which may be purchased under a Stock Option and the SAR Price for any share of Common Stock subject to an SAR shall be at least One Hundred Percent (100%) of the Fair Market Value of the share on the Date of Grant. If an Incentive Stock Option is granted to an Employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary), the Option Price shall be at least 110% of the Fair Market Value of the Common Stock on the Date of Grant. 10 ARTICLE 8 AWARD PERIOD; VESTING 8.1 Award Period. Subject to the other provisions of this Plan, the Committee may, in its discretion, provide that an Incentive may not be exercised in whole or in part for any period or periods of time or beyond any date specified in the Award Agreement. Except as provided in the Award Agreement, an Incentive may be exercised in whole or in part at any time during its term. The Award Period for an Incentive shall be reduced or terminated upon Termination of Service in accordance with this Article 8 and Article 9. No Incentive granted under the Plan may be exercised at any time after the end of its Award Period. No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date of Grant. However, if an Employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option is granted to such Employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant. 8.2 Vesting. The Committee, in its sole discretion, may determine that an Incentive will be immediately exercisable, in whole or in part, or that all or any portion may not be exercised until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events, subject in any case to the terms of the Plan. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Incentive may be exercised. ARTICLE 9 TERMINATION OF SERVICE In the event of Termination of Service of a Participant, an Incentive may only be exercised as determined by the Committee and provided in the Award Agreement. ARTICLE 10 EXERCISE OF INCENTIVE 10.1 In General. A vested Incentive may be exercised during its Award Period, subject to limitations and restrictions set forth therein and in Article 9. A vested Incentive may be exercised at such times and in such amounts as provided in this Plan and the applicable Award Agreement, subject to the terms, conditions, and restrictions of the Plan. In no event may an Incentive be exercised or shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of the shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration under state or federal securities laws required under the circumstances has not been accomplished. No Incentive may be exercised for a fractional share of Common Stock. The granting of an Incentive shall impose no obligation upon the Participant to exercise that Incentive. 11 10.2 Stock Options. Subject to such administrative regulations as the Committee may from time to time adopt, a Stock Option may be exercised by the delivery (including by fax) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised and the date of exercise thereof (the "Exercise Date") which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the Exercise Date, the Participant shall deliver to the Company consideration with a value equal to the total Option Price of the shares to be purchased, payable as follows: (1) cash, check, bank draft, or money order payable to the order of the Company, (2) Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, (3) by delivery (including by fax) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price, and/or (4) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted Stock so submitted. Upon payment of all amounts due from the Participant, the Company shall cause certificates for the Common Stock then being purchased to be delivered as directed by the Participant (or the person exercising the Participant's Stock Option in the event of his death) at its principal business office promptly after the Exercise Date; provided that if the Participant has exercised an Incentive Stock Option, the Company may at its option retain physical possession of the certificate evidencing the shares acquired upon exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. The obligation of the Company to deliver shares of Common Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. If the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, the Participant's right to purchase such Common Stock may be terminated by the Company. 12 10.3 SARs. Subject to the conditions of this Section 10.3 and such administrative regulations as the Committee may from time to time adopt, an SAR may be exercised by the delivery (including by fax) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the date of exercise thereof (the "Exercise Date") which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the Exercise Date, the Participant shall receive from the Company in exchange therefor cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) per share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered. In the discretion of the Committee, the Company may satisfy its obligation upon exercise of an SAR by the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash. 10.4 Performance Units. Subject to the conditions of this Section 10.4 and such administrative regulations as the Committee may from time to time adopt, a Performance Unit may be exercised by the delivery (including by fax) of written notice to the Committee setting forth the number of units of the Participant's Performance Units to be exercised and the date of exercise thereof (the "Exercise Date") which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the Exercise Date, the Participant shall be entitled to receive an amount of cash equal to: (a) the aggregate Fair Market Value of the units exercised on the Exercise Date less (b) the aggregate Award Value of the units exercised (the "Conversion Gain"). In the discretion of the Committee, the Company may satisfy its obligation upon exercise of Performance Units by the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the Exercise Date) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash. 10.5 Disqualifying Disposition of ISO. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code. 13 ARTICLE 11 AMENDMENT OR DISCONTINUANCE Subject to the limitations set forth in this Article 11, the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that no amendment which results in material changes to the Plan shall be effective unless such amendment shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the committee, be applicable to any outstanding Incentives theretofore granted under the Plan, notwithstanding any contrary provisions contained in any stock option agreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless required by law, no action contemplated or permitted by this Article 11 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without the consent of the affected Participant. ARTICLE 12 TERM The Plan shall be effective from the date that this Plan is approved by the Board. Unless sooner terminated by action of the Board, the Plan will terminate on October 16, 2012, but Incentives granted before that date will continue to be effective in accordance with their terms and conditions. ARTICLE 13 CAPITAL ADJUSTMENTS If at any time while the Plan is in effect, or Incentives are outstanding, there shall be any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from (1) the declaration or payment of a stock dividend, (2) any recapitalization resulting in a stock split-up, combination, or exchange of shares of Common Stock, or (3) other increase or decrease in such shares of Common Stock effected without receipt of consideration by the Company, then and in such event: (a) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under the Plan and in the maximum number of shares of Common Stock that may be awarded to a Participant to the end that the same proportion of the Company's issued and outstanding shares of Common Stock shall continue to be subject to being so awarded. 14 (b) Appropriate adjustments shall be made in the number of shares of Common Stock and the Option Price thereof then subject to purchase pursuant to each such Stock Option previously granted and unexercised, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Price. (c) Appropriate adjustments shall be made in the number of SARs and the SAR Price thereof then subject to exercise pursuant to each such SAR previously granted and unexercised, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price. (d) Appropriate adjustments shall be made in the number of outstanding shares of Restricted Stock with respect to which restrictions have not yet lapsed prior to any such change. (e) Appropriate adjustments shall be made in the number of Performance Units thereof then subject to exercise pursuant to each such Performance Unit previously granted and unexercised, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each such instance shall remain subject to exercise. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to (i) the number of or Option Price of shares of Common Stock then subject to outstanding Stock Options granted under the Plan, (ii) the number of or SAR Price of SARs then subject to outstanding SARs granted under the Plan, (iii) the number of outstanding shares of Restricted Stock, or (iv) the number of Performance Units then subject to outstanding Performance Units granted under the Plan. Upon the occurrence of each event requiring an adjustment with respect to any Incentive, the Company shall mail to each affected Participant its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant. ARTICLE 14 RECAPITALIZATION, MERGER AND CONSOLIDATION; CHANGE OF CONTROL (a) The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or 15 authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company's capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger, consolidation or share exchange, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) to which a holder of the number of shares of Common Stock subject to the Incentive would have been entitled. (c) In the event of any merger, consolidation or share exchange pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of such outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving, resulting or consolidated company which were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to be thereafter exercisable for such stock, securities, cash, or property in accordance with their terms. Notwithstanding the foregoing, however, all such Incentives may be canceled by the Company as of the effective date of any such reorganization, merger, consolidation, share exchange or any dissolution or liquidation of the Company by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the purchase during the thirty (30) day period next preceding such effective date of all of the shares of Common Stock subject to such outstanding Incentives. (d) In the event of a Change of Control, then, notwithstanding any other provision in this Plan to the contrary, all unmatured installments of Incentives outstanding shall thereupon automatically be accelerated and exercisable in full and all Restriction Periods applicable to Awards of Restricted Stock shall automatically expire. The determination of the Committee that any of the foregoing conditions has been met shall be binding and conclusive on all parties. ARTICLE 15 LIQUIDATION OR DISSOLUTION In case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall be thereafter entitled to receive, in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive under the Incentive, the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding 16 up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) then in such event the Option Prices or SAR Prices then in effect with respect to each Stock Option or SAR shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company's Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution. ARTICLE 16 INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS Incentives may be granted under the Plan from time to time in substitution for similar instruments held by employees of a corporation who become or are about to become management Employees of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of stock of the employing corporation. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the Incentives in substitution for which they are granted. ARTICLE 17 MISCELLANEOUS PROVISIONS 17.1 Investment Intent. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution. 17.2 No Right to Continued Employment. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary. 17.3 Indemnification of Board and Committee. No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation. 17 17.4 Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein. 17.5 Compliance With Other Laws and Regulations. Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell or issue shares of Common Stock under any Incentive if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority or any national securities exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted or traded (including without limitation Section 16 of the 1934 Act and Section 162(m) of the Code); and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. 17.6 Tax Requirements. The Company shall have the right to deduct from all amounts hereunder paid in cash or other form, any Federal, state, or local taxes required by law to be withheld with respect to such payments. The Participant receiving shares of Common Stock issued under the Plan shall be required to pay the Company the amount of any taxes which the Company is required to withhold with respect to such shares of Common Stock. Notwithstanding the foregoing, in the event of an assignment of a Non-qualified Stock Option or SAR pursuant to Section 17.7, the Participant who assigns the Non-qualified Stock Option or SAR shall remain subject to withholding taxes upon exercise of the Non-qualified Stock Option or SAR by the transferee to the extent required by the Code or the rules and regulations promulgated thereunder. Such payments shall be required to be made prior to the delivery of any certificate representing such shares of Common Stock. Such payment may be made in cash, by check, or through the delivery of shares of Common Stock owned by the Participant (which may be effected by the actual delivery of shares of Common Stock by the Participant or by the Company's withholding a number of shares to be issued upon the exercise of a Stock Option, if applicable), which shares have an aggregate Fair Market Value equal to the required minimum withholding payment, or any combination thereof. 17.7 Assignability. Incentive Stock Options and Performance Units may not be transferred or assigned other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant's legally authorized representative, and each Award Agreement in respect of an Incentive Stock Option or Performance Unit shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in the preceding sentences of this Section 17.7 that is not required for compliance with Section 422 of the Code. 18 The Committee may, in its discretion, authorize all or a portion of a Non-qualified Stock Option or SAR to be granted to a Participant to be on terms which permit transfer by such Participant to (i) the spouse, children or grandchildren of the Participant ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision, provided that (x) there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to which such Non-qualified Stock Option or SAR is granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Non-qualified Stock Options or SARs shall be prohibited except those by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended. Following transfer, any such Non-qualified Stock Option and SAR shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 10, 11, 13, 15 and 17 hereof the term "Participant" shall be deemed to include the transferee. The events of Termination of Service shall continue to be applied with respect to the original Participant, following which the Non-qualified Stock Options and SARs shall be exercisable by the transferee only to the extent and for the periods specified in the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of a Non-qualified Stock Option or SAR of any expiration, termination, lapse or acceleration of such Option. The Company shall have no obligation to register with any federal or state securities commission or agency any Common Stock issuable or issued under a Non-qualified Stock Option or SAR that has been transferred by a Participant under this Section 17.7. 17.8 Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company. 17.9 Legend. Each certificate representing shares of Restricted Stock issued to a Participant shall bear the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed): On the face of the certificate: "Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate." On the reverse: "The shares of stock evidenced by this certificate are subject to and transferable only in accordance with that certain Tandy Brands Accessories, Inc. 2002 Omnibus Plan, a copy of which is on file at the principal office of the 19 Company in Arlington, Texas. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan. By acceptance of this certificate, any holder, transferee or pledgee hereof agrees to be bound by all of the provisions of said Plan." The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws: "Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company." A copy of this Plan shall be kept on file in the principal office of the Company in Arlington, Texas. IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of October 16, 2002, by its duly authorized officer pursuant to prior action taken by the Board. TANDY BRANDS ACCESSORIES, INC. By: /s/ J.S.B. Jenkins -------------------------------------------- Name: J.S.B. Jenkins -------------------------------------- Title: President and Chief Executive Officer ------------------------------------- 20 EX-99.1 4 d00972exv99w1.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT (99.1) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, the undersigned President and Chief Executive Officer of Tandy Brands Accessories, Inc. (the "Company") hereby certifies: 1. that the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ J.S.B. Jenkins - ------------------------------------- J.S.B. Jenkins President and Chief Executive Officer November 11, 2002 EX-99.2 5 d00972exv99w2.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT (99.2) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, the undersigned Chief Financial Officer of Tandy Brands Accessories, Inc. (the "Company") hereby certifies: 1. that the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark J. Flaherty - ------------------------------- Mark J. Flaherty Chief Financial Officer November 11, 2002 -----END PRIVACY-ENHANCED MESSAGE-----