-----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, QgeRkcdRQG17942+UaSbJEgMbYDFHqPdQIKuI5WwGkQAY2OBR4DxuMizIFd8zhPX QLz6NnSk0wIsX8lbwFM2iA== 0001047469-99-038445.txt : 19991018 0001047469-99-038445.hdr.sgml : 19991018 ACCESSION NUMBER: 0001047469-99-038445 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990828 FILED AS OF DATE: 19991012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAUNS FASHIONS CORP CENTRAL INDEX KEY: 0000883943 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 061195422 STATE OF INCORPORATION: DE FISCAL YEAR END: 0302 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19972 FILM NUMBER: 99726454 BUSINESS ADDRESS: STREET 1: 2400 XENIUM LANE NORTH CITY: PLYMOUTH STATE: MN ZIP: 55441-3626 BUSINESS PHONE: 6125515000 MAIL ADDRESS: STREET 1: 2400 XENIUM LN NORTH CITY: PLYMOUTH STATE: MN ZIP: 55441-3626 10-Q 1 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 28, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________. Commission File No. 0-19972 BRAUN'S FASHIONS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06 - 1195422 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 2400 XENIUM LANE NORTH, PLYMOUTH, MINNESOTA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 55441 (ZIP CODE) (612) 551-5000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO ---- ---- As of September 24, 1999, 4,395,890 shares of the registrant's common stock were outstanding. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BRAUN'S FASHIONS CORPORATION FORM 10-Q QUARTERLY REPORT INDEX
PART I FINANCIAL INFORMATION Item 1. Consolidated Condensed Financial Statements: Page ---- Consolidated Condensed Balance Sheet As of August 28, 1999 and February 27, 1999............................................................ 3 Consolidated Condensed Income Statement For the Quarters Ended August 28, 1999 and August 29, 1998............................................. 4 Consolidated Condensed Income Statement For the Two Quarters Ended August 28, 1999 and August 29, 1998......................................... 5 Consolidated Condensed Statement of Cash Flows For the Two Quarters Ended August 28, 1999 and August 29, 1998......................................... 6 Notes to Consolidated Condensed Financial Statements................................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................................................................12 PART II OTHER INFORMATION Item 1. Legal Proceedings......................................................................................12 Item 2. Changes in Securities and Use of Proceeds..............................................................12 Item 3. Defaults Upon Senior Securities........................................................................12 Item 4. Submission of Matters to a Vote of Security Holders....................................................12 Item 5. Other Information......................................................................................13 Item 6. Exhibits and Reports on Form 8-K.......................................................................13 Signatures.............................................................................................14
2 BRAUN'S FASHIONS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET
AUGUST 28, FEBRUARY 27, ASSETS 1999 1999 (Unaudited) (Audited) -------------- --------------- Current assets: Cash and cash equivalents................................................. $ 7,101,236 $ 12,587,719 Accounts receivable....................................................... 1,342,568 1,397,502 Merchandise inventory..................................................... 12,855,215 10,799,046 Prepaid expenses.......................................................... 1,189,169 547,947 Prepaid income taxes...................................................... 346,823 -- Current deferred tax asset................................................ 275,493 275,493 -------------- --------------- Total current assets................................................ 23,110,504 25,607,707 Equipment and improvements, net............................................ 15,961,031 12,954,964 Other assets: Long-term deferred tax asset.............................................. 1,468,101 1,468,101 Other .................................................................... 155,901 28,844 -------------- --------------- Total other assets................................................... 1,624,002 1,496,945 -------------- --------------- Total assets......................................................... $ 40,695,537 $ 40,059,616 -------------- --------------- -------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................................... $ 2,227,144 $ 2,893,317 Accrued liabilities....................................................... 4,743,762 5,471,811 Current maturities of long-term debt...................................... 283,370 271,592 Income taxes payable...................................................... -- 546,936 -------------- --------------- Total current liabilities............................................ 7,254,276 9,183,656 Long-term liabilities: Long-term debt............................................................ 5,002,936 5,073,604 Accrued rent obligation................................................... 1,091,326 1,072,590 -------------- --------------- Total long-term liabilities.......................................... 6,094,262 6,146,194 Stockholders' equity: Preferred stock-$0.01 par value, 1,000,000 shares authorized; none outstanding..................................................... -- -- Common stock-$0.01 par value, 14,000,000 shares authorized; 4,391,957 and 4,349,761 shares issued and outstanding at August 28, 1999 and February 27, 1999, respectively............................. 47,600 47,178 Additional paid-in capital................................................ 29,464,302 29,304,648 Retained earnings (accumulated deficit)................................... 910,058 (1,447,099) -------------- --------------- 30,421,960 27,904,727 Common stock held in treasury, at cost (368,000 shares)................... (2,999,961) (2,999,961) Common stock subscriptions receivable..................................... (75,000) (175,000) -------------- --------------- Total stockholders' equity........................................... 27,346,999 24,729,766 -------------- --------------- Total liabilities and stockholders' equity........................... $ 40,695,537 $ 40,059,616 -------------- --------------- -------------- ---------------
See accompanying notes to consolidated condensed financial statements. 3 BRAUN'S FASHIONS CORPORATION CONSOLIDATED CONDENSED INCOME STATEMENT (Unaudited)
QUARTER ENDED ---------------------------------- AUGUST 28, AUGUST 29, 1999 1998 -------------- --------------- Net sales....................................................................... $ 29,207,456 $ 22,942,157 Cost of sales: Merchandise, buying and occupancy.......................................... 19,606,685 15,388,209 -------------- --------------- Gross profit............................................................... 9,600,771 7,553,948 Selling, general and administrative expenses.................................... 7,360,751 5,973,893 Depreciation ................................................................... 810,224 663,512 -------------- --------------- Operating income........................................................... 1,429,796 916,543 Interest, net................................................................... 69,479 103,412 -------------- --------------- Income before income taxes ............................................... 1,360,317 813,131 Income tax provision ........................................................... 523,722 308,990 -------------- --------------- Net income ................................................................ $ 836,595 $ 504,141 -------------- --------------- -------------- --------------- Basic earnings per common share: Net income................................................................. $ 0.19 $ 0.11 -------------- --------------- -------------- --------------- Basic shares outstanding................................................... 4,377,069 4,555,294 -------------- --------------- -------------- --------------- Diluted earnings per common share: Net income ................................................................ $ 0.18 $ 0.10 -------------- --------------- -------------- --------------- Diluted shares outstanding................................................. 4,663,961 4,866,221 -------------- --------------- -------------- ---------------
See accompanying notes to consolidated condensed financial statements. 4 BRAUN'S FASHIONS CORPORATION CONSOLIDATED CONDENSED INCOME STATEMENT (Unaudited)
TWO QUARTERS ENDED ---------------------------------- AUGUST 28, AUGUST 29, 1999 1998 -------------- --------------- Net sales....................................................................... $ 58,412,994 $ 47,944,783 Cost of sales: Merchandise, buying and occupancy.......................................... 38,476,015 31,717,528 -------------- --------------- Gross profit............................................................... 19,936,979 16,227,255 Selling, general and administrative expenses.................................... 14,470,119 12,132,581 Depreciation ................................................................... 1,535,130 1,322,670 -------------- --------------- Operating income........................................................... 3,931,730 2,772,004 Interest, net................................................................... 98,955 219,983 -------------- --------------- Income before income taxes................................................. 3,832,775 2,552,021 Income tax provision ........................................................... 1,475,618 969,768 -------------- --------------- Net income ................................................................ $ 2,357,157 $ 1,582,253 -------------- --------------- -------------- --------------- Basic earnings per common share: Net income................................................................. $ 0.54 $ 0.35 -------------- --------------- -------------- --------------- Basic shares outstanding................................................... 4,365,204 4,539,343 -------------- --------------- -------------- --------------- Diluted earnings per common share: Net income ................................................................ $ 0.51 $ 0.32 -------------- --------------- -------------- --------------- Diluted shares outstanding................................................. 4,577,444 4,870,580 -------------- --------------- -------------- ---------------
See accompanying notes to consolidated condensed financial statements. 5 BRAUN'S FASHIONS CORPORATION CONSOLIDATED CONDENSED STATEMENT OF CASHFLOWS (Unaudited)
TWO QUARTERS ENDED ---------------------------------- AUGUST 28, AUGUST 29, 1999 1998 -------------- --------------- Cash flows from operating activities: Net income ................................................................ $ 2,357,157 $ 1,582,253 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.............................................. 1,535,130 1,322,670 (Gain) loss on disposal of equipment, net.................................. 66,840 (1,686) Increase (decrease) in accrued rent obligation............................. 18,736 (14,844) Changes in operating assets and liabilities: Increase in merchandise inventory, prepaid expenses, receivables and other............................... (3,116,337) (1,362,596) Decrease in accounts payable, accrued liabilities and income taxes payable.......................... (1,941,158) (1,329,634) -------------- --------------- Net cash provided by (used in) operating activities................... (1,079,632) 196,163 Cash flows from investing activities: Purchase of equipment and improvements..................................... (4,608,037) (1,906,850) Proceeds from sale of equipment............................................ -- 30,000 -------------- --------------- Net cash used in investing activities................................. (4,608,037) (1,876,850) Cash flows from financing activities: Principal payments on long-term debt....................................... (132,914) (122,095) Interest on 12% Senior Notes added to principal............................ 74,024 145,012 Exercise of stock options.................................................. 160,076 243,501 Common stock subscriptions receivable...................................... 100,000 -- -------------- --------------- Net cash provided by financing activities............................. 201,186 266,418 -------------- --------------- Net decrease in cash and cash equivalents....................................... (5,486,483) (1,414,269) Cash and cash equivalents at beginning of year.................................. 12,587,719 15,848,439 -------------- --------------- Cash and cash equivalents at end of period...................................... $ 7,101,236 $ 14,434,170 -------------- --------------- -------------- ---------------
See accompanying notes to consolidated condensed financial statements. 6 BRAUN'S FASHIONS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1 -- BASIS OF PRESENTATION The financial statements included in this Form 10-Q have been prepared by Braun's Fashions Corporation and its wholly owned subsidiary Braun's Fashions, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1999. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. NOTE 2 -- NET INCOME PER SHARE The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). Under SFAS No. 128, basic earnings per share ("EPS") is computed based on the weighted average number of shares of common stock outstanding during the applicable periods while diluted EPS is computed based on the weighted average number of common and common equivalent shares (dilutive stock options) outstanding. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations:
QUARTER ENDED ------------------------------------------------ AUGUST 28, 1999 AUGUST 29, 1998 --------------------- --------------------- NET NET SHARES INCOME SHARES INCOME --------- -------- --------- -------- Basic EPS 4,377,069 $ 0.19 4,555,294 $ 0.11 Effect of dilutive stock options 286,892 (0.01) 310,927 (0.01) --------- -------- --------- -------- Diluted EPS 4,663,961 $ 0.18 4,866,221 $ 0.10 --------- -------- --------- -------- --------- -------- --------- --------
TWO QUARTERS ENDED ------------------------------------------------ AUGUST 28, 1999 AUGUST 29, 1998 --------------------- --------------------- NET NET SHARES INCOME SHARES INCOME --------- -------- --------- -------- Basic EPS 4,365,204 $ 0.54 4,539,343 $ 0.35 Effect of dilutive stock options 212,240 (0.03) 331,237 (0.03) --------- -------- --------- -------- Diluted EPS 4,577,444 $ 0.51 4,870,580 $ 0.32 --------- -------- --------- -------- --------- -------- --------- --------
NOTE 3 -- ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for fiscal years beginning after June 15, 1999, establishes standards for the recognition and measurement of derivatives and hedging activities. The Company does not currently engage in these types of risk management or investment activities. Therefore, SFAS No. 133 is not anticipated to have any impact on the Company's financial position or results of operations. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Braun's Fashions Corporation is a Minneapolis-based retailer of women's specialty apparel, which operates through its wholly-owned subsidiary, Braun's Fashions, Inc. As of September 24, 1999, the Company operated 212 stores in 24 states, primarily in the northern half of the United States. The Company's stores offer exclusive women's fashions and accessories under the proprietary brand label of Christopher & Banks. During the first two quarters of fiscal 2000, 18 new stores have been opened under the name Christopher & Banks, thereby identifying the store name with the Company's brand name merchandise. Another 15 new stores are expected to open during the third quarter, bringing the total to 33 for the year. During the first six months of its fiscal year, the Company also changed the name of 19 of its existing stores to Christopher & Banks. The Company plans to change the name of seven other existing stores to Christopher & Banks during the remainder of the fiscal year. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the Company's operating statement data expressed as a percentage of net sales.
QUARTER ENDED TWO QUARTERS ENDED ------------------------ ------------------------ AUGUST 28, AUGUST 29, AUGUST 28, AUGUST 29, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales 100.0% 100.0% 100.0% 100.0% Merchandise, buying and occupancy................................. 67.1 67.1 65.9 66.2 ---------- ---------- ---------- ---------- Gross profit...................................................... 32.9 32.9 34.1 33.8 Selling, general and administrative............................... 25.2 26.0 24.8 25.3 Depreciation and amortization..................................... 2.8 2.9 2.6 2.7 ---------- ---------- ---------- ---------- Operating income ................................................. 4.9 4.0 6.7 5.8 Interest, net..................................................... 0.2 0.5 0.2 0.5 ---------- ---------- ---------- ---------- Income before income taxes........................................ 4.7 3.5 6.5 5.3 Income tax provision.............................................. 1.8 1.3 2.5 2.0 ---------- ---------- ---------- ---------- Net income ....................................................... 2.9% 2.2% 4.0% 3.3% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
QUARTER ENDED AUGUST 28, 1999 COMPARED TO QUARTER ENDED AUGUST 29, 1998. NET SALES. Net sales for the quarter ended August 28, 1999 were $29.2 million, an increase of 27% from $22.9 million for the quarter ended August 29, 1998. The increase in sales was attributable to a 15% increase in same-store sales combined with an increase in the number of stores operated by the Company. The Company operated 210 stores at August 28, 1999 compared to 187 at August 29, 1998. GROSS PROFIT. Gross profit, which is net sales less cost of merchandise, buying and occupancy expenses, was $9.6 million or 32.9% of net sales during the second quarter of fiscal 2000 compared to $7.6 million or 32.9% of net sales during the same period in fiscal 1999. Gross profit as a percent of net sales remained unchanged as an increase in merchandise margin was offset by a slight increase in both freight and occupancy expenses as a percent of net sales. 8 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the second quarter of fiscal 2000 were $7.4 million or 25.2% of net sales compared to $6.0 million or 26.0% of net sales for the second quarter of fiscal 1999. The decrease as a percent of net sales was a result of leveraging associated with increased sales. OPERATING INCOME. Operating income for the quarter ended August 28, 1999, was $1.4 million or 4.9% of net sales compared to operating income of $916,543 or 4.0% of net sales for the quarter ended August 29, 1998. INTEREST, NET. Net interest decreased from $103,412 in the second quarter of fiscal 1999 to $69,479 in the current year's quarter. This decrease was primarily due to a reduction in the Company's long-term debt. In the third quarter of fiscal 1999, the Company repurchased and retired approximately $4.7 million original principal face amount of its Senior Notes due 2005. INCOME TAXES. Income tax expense in the second quarter of fiscal 2000 was $523,722 compared to $308,990 in the second quarter of fiscal 1999. NET INCOME. As a result of the foregoing factors, net income for the quarter ended August 28, 1999 was $836,595 or 2.9% of net sales compared to $504,141 or 2.2% of net sales for the quarter ended August 29, 1998. SIX MONTHS ENDED AUGUST 28, 1999 COMPARED TO SIX MONTHS ENDED AUGUST 29, 1998. NET SALES. Net sales for the six months ended August 28, 1999 were $58.4 million, an increase of 22% from $47.9 million for the six months ended August 29, 1998. The increase in sales was attributable to a 12% increase in same-store sales combined with an increase in the number of stores operated by the Company. The Company operated 210 stores at August 28, 1999 compared to 187 at August 29, 1998. GROSS PROFIT. Gross profit was $19.9 million or 34.1% of net sales during the first six months of fiscal 2000, compared to $16.2 million or 33.8% of net sales during the same period in fiscal 1999. The increase in gross margin as a percent of net sales was a result of improved merchandise margins, primarily resulting from lower pricing obtained from overseas vendors, offset by a slight increase in occupancy and freight expenses as a percent of net sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the first six months of fiscal 2000 were $14.5 million or 24.8% of net sales compared to $12.1 million or 25.3% of net sales for the first six months of fiscal 1999. The decrease as a percent of net sales was a result of leveraging associated with increased sales. OPERATING INCOME. Operating income for the six months ended August 28, 1999 was $3.9 million or 6.7% of net sales compared to operating income of $2.8 million or 5.8% of net sales for the comparable period of fiscal 1999. INTEREST, NET. Net interest decreased from $219,983 for the first six months of fiscal 1999 to $98,955 in the current year's comparable period. This decrease was primarily due to a reduction in the Company's long-term debt. During the third quarter of fiscal 1999, the Company repurchased and retired approximately $4.7 million original principal face amount of its Senior Notes due 2005. INCOME TAXES. Income tax expense in the first six months of fiscal 2000 was $1.5 million compared to $969,763 in the first half of fiscal 1999. NET INCOME. As a result of the foregoing factors, net income for the six months ended August 28, 1999 was $2.4 million or 4.0% of net sales compared to $1.6 million or 3.3% of net sales for the six months ended August 29, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's principal on-going cash requirements are to finance the construction of new stores and the remodeling of certain existing stores, to purchase merchandise inventories and to fund other working capital requirements. Merchandise purchases vary on a seasonal basis, peaking in the fall. As a result, the Company's cash requirements historically reach their peak in October and November. Conversely, cash balances reach their peak in January, after the holiday season is completed. Net cash used by operating activities totaled $1.1 million for the first six months of fiscal 2000. Cash was also used to finance $4.6 million of capital expenditures to open 18 new stores, to substantially complete 10 major store remodelings and for various expenditures at its headquarters facility. During the remainder of the fiscal year the Company intends to 9 spend approximately $3.5 million to open new stores and to complete store remodels. Management expects its cash on hand combined with cash flow from operations to be sufficient to meet its capital expenditure and working capital requirements and its other needs for liquidity during the remainder of the year. In March 1999, the Company entered into an Amended and Restated Revolving Credit and Security Agreement with Norwest Bank Minnesota, National Association (the "Norwest Revolver"). The Norwest Revolver will expire on June 30, 2002. The Norwest Revolver provides the Company with revolving credit loans and letters of credit up to $12 million, subject to a borrowing base formula tied to inventory levels. Loans under the Norwest Revolver bear interest at Norwest's base rate plus 1/4%. Interest is payable monthly in arrears. The Norwest Revolver carries a facility fee of 1/4% on the unused portion of the Norwest Revolver as defined in the Norwest Revolver. The Norwest Revolver is secured by substantially all of the Company's assets. In September 1999, the Norwest Revolver was amended to include in-transit inventory, as defined in the Norwest Revolver, in the calculation of the borrowing base formula. The borrowing base at September 24, 1999, was $9.5 million. As of September 24, the Company had no borrowings and outstanding letters of credit in the amount of $4.5 million under the Norwest Revolver. Accordingly, the availability of revolving credit loans under the Norwest Revolver was $5.0 million at that date. The Norwest Revolver contains certain restrictive covenants including restrictions on incurring additional indebtedness, limitations on certain types of investments and prohibitions on paying dividends, as well as requiring the maintenance of certain financial ratios. As of August 28, 1999, the most recent measurement date, the Company was in compliance with all covenants of the Norwest Revolver. In January 1997, the Company issued $10,300,200 of debt in the form of 12% Senior Notes (the "Senior Notes") due January 2005, pursuant to an Indenture dated as of December 2, 1996. The principal amount of the Senior Notes bears interest at the rate of 12% per annum. Interest at the rate of 9% per annum on the outstanding principal amount is due monthly. Interest at the rate of 3% per annum on the outstanding principal amount accrues monthly and upon accrual is treated as principal for all purposes, including without limitation, the calculation of all interest payments due thereafter, and is payable in full on January 1, 2005. In fiscal 1999 and fiscal 1998, the Company repurchased $4,676,000 and $1,033,000, respectively, of principal face amount of its Senior Notes at a discount from par. These purchases satisfied all of the annual mandatory redemption requirements through January 1, 2004, leaving no additional mandatory payments due until maturity on January 1, 2005. The Senior Notes are general unsecured senior obligations of the Company. The Indenture for the Senior Notes ("the Indenture") contains certain covenants which, among other things, limit the ability of the Company to incur liens and additional indebtedness. As of August 28, 1999, the most recent measurement date, the Company was in compliance with all covenants of the Indenture. In November 1998, the noteholders consented to the elimination of a restrictive covenant under the Indenture which, among other things, prohibited the Company from repurchasing its equity securities and paying dividends. The Company is unaware of any environmental liability that would have a material adverse effect on the financial position or the results of operations of the Company. The Company anticipates that approximately 55% of its merchandise purchased in fiscal 2000 will be directly from overseas vendors. Since the Company purchases this merchandise using letters of credit denominated in U.S. dollars, primarily from vendors in countries whose currency is pegged to the U.S. dollar, management does not believe the Company will be materially affected by foreign currency fluctuations. SEASONALITY The Company's sales reflect seasonal variation as sales in the third and fourth quarters, which include the fall and holiday season, generally have been higher than sales in the first and second quarters. Sales generated during the fall and holiday season have a significant impact on the Company's annual results of operations. Quarterly results may fluctuate significantly depending on a number of factors including adverse weather conditions, shifts in the timing of certain holidays and promotional events, timing of new store openings, and customer response to the Company's seasonal merchandise mix. 10 INFLATION Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the quarters ended August 28, 1999, and August 29, 1998. YEAR 2000 MATTERS The year 2000 issue results from computer programs being written using two digits rather than four to define the applicable year. Certain of the Company's computer information systems and their associated software ("IT Systems") and other equipment using microchips or embedded technology ("Non-IT Systems") may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions of operations including, but not limited to, a temporary inability to process transactions or to engage in similar business activities. READINESS FOR YEAR 2000. The Company has been in the process of addressing the year 2000 issue with regard to its IT and Non-IT Systems since the beginning of calendar 1998. In connection with a general upgrade of its IT Systems, the Company completed the installation of new merchandise and financial system software packages in February 1999. The Company began using these systems in March 1999. In addition to being year 2000 compliant, management believes the new merchandise systems allow for improved merchandise planning, sales tracking and trend analysis. Further, the Company also expects these systems will allow for improved distribution center processing and more flexible allocations of merchandise to the Company's stores. The Company has employed a consultant to upgrade the Company's point-of-sale systems to be year 2000 compliant. The final stages of this project, including testing, were completed in August 1999 and the Company determined that these systems are year 2000 compliant. The Company has also evaluated its Non-IT Systems and determined that all Non-IT Systems that are critical to the Company's operations have been addressed regarding year 2000 compliance. COSTS TO ADDRESS YEAR 2000 ISSUES. In February 1999, the Company installed new year 2000 compliant software packages. These software packages and related hardware improvements, which the Company previously planned to install irrespective of any year 2000 considerations, cost approximately $1.0 million, of which approximately $50,000 was expensed and the remainder was capitalized. In addition, the Company intends to spend approximately $300,000 over the next twelve to eighteen months for hardware costs related to the new software packages. Other internal costs associated with the year 2000 issues, which are not separately tracked by the Company, consist primarily of payroll and related expenses for the Company's Management Information Systems department. All costs related to year 2000 compliant issues have been, or will be funded through cash flows from operations. RISKS OF YEAR 2000 ISSUES. The Company expects to implement all changes necessary to address the year 2000 issue by December 1999. The Company presently believes that, with the conversions to new software and modifications to existing IT and Non-IT Systems, the year 2000 issue will not pose significant operational problems for the Company's IT and Non-IT Systems and thus will not have a material adverse effect on the Company's operations. However, the year 2000 issue is pervasive and complex and can potentially affect any computer process. Accordingly, no assurance can be given that year 2000 compliance can be achieved without additional unanticipated expenditures and uncertainties that might affect future financial results. Additionally, in its normal course of operations the Company relies upon vendors, government agencies, customs agents, utility companies, telecommunications companies, shipping companies, suppliers and other third party service providers over which it can assert little control. The Company's ability to conduct its business is dependent upon the ability of these third parties to avoid year 2000 related disruptions. The Company has contacted and will continue to contact its key suppliers and other third party service providers to inquire as to their year 2000 readiness. If these parties do not adequately address their year 2000 issues the Company's business may be affected, which could result in a material adverse effect on the results of operations and financial position of the Company. CONTINGENCY PLANS. In addition to the above plans, the Company's contingency plans involve addressing operational issues that may arise due to the failure of the Company's or third parties' IT and Non-IT Systems. The Company is currently assessing such issues and estimates these plans will be completed by December 1999. FORWARD LOOKING INFORMATION Information contained in this Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. There are certain important factors that could cause results to differ materially from those 11 anticipated by some of these forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The factors, among others, that could cause actual results to differ materially include: consumers' spending and debt levels; the Company's ability to execute its business plan; the acceptance of the Company's merchandising strategies by its target customers; the ability of the Company to anticipate marketing trends and consumer needs; continuity of a relationship with or purchases from major vendors, particularly those from whom the Company imports merchandise; competitive pressures on sales and pricing; increases in other costs which cannot be recovered through improved pricing of merchandise; and the adverse effect of weather conditions from time to time on consumers' ability or desire to purchase new clothing. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. PART II. ITEM 1. LEGAL PROCEEDINGS There are no material legal proceedings pending against the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS There have been no material modifications to the Company's registered securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There has been no default with respect to any indebtedness of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of shareholders on July 28, 1999, in Minneapolis, Minnesota. The Company solicited proxies and filed definitive proxy statements with the Commission pursuant to Regulation 14A. The matters voted upon and the votes cast at the meeting were as follows: Item 1. Election of two Class 2 directors to serve on the Board of Directors for a term of three years and to ratify the appointment of one Class 3 director:
Vote ---------------------------------------------------------------- For Withheld --------- -------- Class 2 - Larry C. Barenbaum 3,339,718 173,822 Class 2 - Donald D. Beeler 3,339,786 173,754 Class 3 - William J. Prange 3,340,738 172,802
Other individuals whose term of office as a director continued after the meeting included Marc C. Ostrow, James J. Fuld, Jr., and Nicholas H. Cook. 12 Item 2. Proposal to increase the number of shares of Common Stock reserved for issuance under the Company's 1997 Stock Incentive Plan from 450,000 to 675,000 shares:
Vote ------------------------------------------------------ For Against Abstain Broker Non-Vote --------- -------- ------- --------------- 1,280,942 707,236 14,434 1,510,928
Item 3. To approve an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of the Company's capital stock from 10,000,000 to 15,000,000:
Vote ------------------------------------------------------ For Against Abstain Broker Non-Vote --------- -------- ------- --------------- 3,223,679 277,612 12,249 0
Item 4. Proposal to ratify the appointment of PricewaterhouseCoopers, LLP as the Company's independent auditors for the Company's current fiscal year:
Vote ------------------------------------------------------ For Against Abstain Broker Non-Vote --------- -------- ------- --------------- 3,500,231 2,165 11,144 0
ITEM 5. OTHER INFORMATION In September 1999, the Company appointed Joseph Pennington, the Company's Chief Operating Officer, to the additional position of President. Mr. Pennington was also appointed to the Company's Board of Directors. William Prange remains the Company's Chairman and Chief Executive Officer. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -------- 10.26 -- Certificate of Amendment of the Company's Restated Certificate of Incorporation dated as of August 16, 1999. 10.27 -- First Amendment to Amended and Restated Revolving Credit and Security Agreement dated as of September 17, 1999. 10.28 -- Second Amendment to the Company's 1997 Stock Incentive Plan dated as of July 28, 1999. 10.29 -- Braun's Fashions Corporation 1999 Executive Loan Program dated as of July 28, 1999. 27 -- Financial Data Schedules (submitted for SEC use only)
(b) Reports on Form 8-K None 13 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. Dated: October 8, 1999 BRAUN'S FASHIONS CORPORATION By /s/ ANDREW K. MOLLER ------------------------------------- Andrew K. Moller Senior Vice President and Chief Financial Officer Signing on behalf of the registrant and as principal financial officer. 14 EX-10.26 2 EXHIBIT 10.26 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF BRAUN'S FASHIONS CORPORATION The undersigned, being the Chief Executive Officer and President of Braun's Fashions Corporation, a Delaware corporation (the "Corporation"), certifies that the following resolution was duly adopted by the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote at the July 28, 1999 Annual Meeting of the Shareholders of the Corporation, pursuant to Section 242 of the Delaware Business Corporation Law. RESOLVED: Article Four of the Corporation's Restated Certificate of Incorporation is amended to read as follows: "FOURTH: THE TOTAL NUMBER OF SHARES OF ALL CLASSES OF CAPITAL STOCK THAT THE CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS FIFTEEN MILLION (15,000,000) SHARES, OF WHICH (a) ONE MILLION (1,000,000) SHARES SHALL BE UNDESIGNATED PREFERRED STOCK HAVING A PAR VALUE OF $0.01 PER SHARE (THE "PREFERRED STOCK"), AND (b) FOURTEEN MILLION (14,000,000) shares shall be common stock with the par value of $0.01 per share (the "Common Stock")." RESOLVED FURTHER: The officers of the Corporation be and they hereby are authorized and directed to do such acts and things as they may deem necessary or desirable to give effect to this amendment and to carry out the intent and purpose of this resolution. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment this 16th day of August, 1999. BRAUN'S FASHIONS CORPORATION /s/ William J. Prange ------------------------------------- William J. Prange Chief Executive Officer and President Attest: /s/ Andrew K. Moller - -------------------------- Andrew K. Moller Senior Vice President and Chief Financial Officer EX-10.27 3 EXHIBIT 10.27 FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT This First Amendment to Amended and Restated Credit and Security Agreement ("Amendment"), dated as of September ___, 1999, is made by and among BRAUN'S FASHIONS, INC., a Minnesota corporation ("Borrower"), BRAUN'S FASHIONS CORPORATION, a Delaware corporation ("Guarantor"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Lender"). RECITALS FIRST: The Borrower and the Lender have entered into that Amended and Restated Revolving Credit and Security Agreement dated as of March 15, 1999 ("Credit Agreement"). Capitalized terms used in this Amendment have the meanings given to them in the Credit Agreement unless otherwise specified. SECOND: The Borrower has requested certain amendments to the Credit Agreement which Lender is willing to accept pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, it is agreed as follows: 1. DEFINITION OF BORROWING BASE. The definition of Borrowing Base shall be deleted in its entirety and replaced with the following: "Borrowing Base" means, at any time the lessor of: (a) the Maximum Line; or (b) subject to change from time to time in the Lender's sole discretion with prior written or telefacsimile notice to the Borrower, the sum of: (i) either (A) between June 1 and August 31 in any year, and so long as there are no outstanding Advances, 80% of the Eligible Apparel Inventory, or (B) at all other times, 70% of Eligible Apparel Inventory; and (ii) 30% of Eligible Accessories Inventory; and (iii) 50% of Eligible In-Transit Inventory. 2. DEFINITION OF ELIGIBLE INVENTORY. The definition of "Eligible Inventory" shall be deleted in its entirety and replaced with the following: "Eligible Inventory" means all Inventory of the Borrower, at the lower of cost or market value as determined in accordance with GAAP; provided, however, that the following shall not in any event be deemed Eligible Inventory: (a) Inventory that is: in-transit (except for Eligible In-Transit Inventory); located at any warehouse, job site or other premises not approved by the Lender in writing; located outside of the states, or localities, as applicable, in which the Lender has filed financing statements to perfect a first priority security interest in such Inventory; covered by any negotiable or non-negotiable warehouse receipt, bill of lading or other document of title; on consignment from any Person; on consignment to any Person or subject to any bailment unless such consignee or bailee has executed an agreement with the Lender; (b) Supplies, packaging, parts or sample Inventory; (c) Work-in-process Inventory; (d) Inventory that is damaged, obsolete, slow moving (that is, over four months old) or not currently saleable in the normal course of the Borrower's operations; (e) Inventory that the Borrower has returned, has attempted to return, is in the process of returning or intends to return to the vendor thereof; (f) Inventory that is perishable or live; (g) Inventory manufactured by the Borrower pursuant to a license unless the applicable licensor has agreed in writing to permit the Lender to exercise its rights and remedies against such Inventory; (h) Inventory that is subject to a security interest in favor of any Person other than the Lender; and (i) Inventory otherwise deemed ineligible by the Lender in its sole discretion. 3. 2 DEFINITION OF ELIGIBLE IN-TRANSIT INVENTORY. A definition of "Eligible In-Transit Inventory" shall be added to the Credit Agreement as follows: "Eligible In-Transit Inventory" means Eligible Inventory that is in-transit and backed by a documentary Letter of Credit issued by the Lender. 4. REPORTING REQUIREMENTS. Paragraph 6.1(c) shall be deleted in its entirety and replaced with the following: (c) within 20 days after the end of each month or more frequently if the Lender so requires, agings of the Borrower's accounts receivable and its accounts payable, and within 15 days after the end of each month an inventory certification report, and a calculation of the Borrower's Accounts, Eligible Accounts, Inventory, Eligible Inventory, and Eligible In-Transit Inventory as of the end of each month or more frequently as the Lender requires. 5. STOCK PURCHASE LOANS. Paragraph 7.4(a)(iii) shall be deleted in its entirety and replaced with the following: (iii) Stock Purchase Loans in an amount not to exceed the sum of $500,000 to any one Person, and $2,500,000 in the aggregate at any one time. 6. NO OTHER CHANGES. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit herein. 7. CONDITIONS PRECEDENT. This Amendment shall be effective when the Lender shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Lender in its sole discretion: (a) The Agreement, duly executed by the Borrower. (b) The Acknowledgment and Agreement of Guarantor set forth at the end of this Amendment, duly executed by the Guarantor. (c) A Certificate of Authority of the Borrower setting forth the sample signatures of each of the officers and agents of the Borrower authorized to execute and deliver this Amendment and all other documents, agreements and certificates on behalf of the Borrower, and setting forth (i) the resolutions of the board of directors of the Borrower approving the execution and delivery of this Amendment and (ii) the fact that the articles of incorporation and bylaws of the Borrower, which were certified and delivered to the Lender in connection with the execution and delivery of the Credit Agreement continue in full force and effect and have not been amended or otherwise modified except as set forth in the Certificate of Authority to be delivered. 3 (d) Such other matters as the Lender may require. 8. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lender as follows: (a) The Borrower has all requisite power and authority to execute this Amendment and to perform all of its obligations hereunder, and this Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms except as may be limited by bankruptcy, insolvency or other laws affecting the rights of creditors generally. (b) The execution, delivery and performance by the Borrower of this Amendment has been duly authorized by all necessary corporate actions and does not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or bylaws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in Section 5 of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 9. NO WAIVER. The execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Loan Document or other document held by the Lender, whether or not known to the Lender and whether or not existing on the date of this Amendment. 10. RELEASE. The Borrower, and the Guarantor by signing the Acknowledgment and Agreement of Guarantor set forth below, each hereby absolutely and unconditionally releases and forever discharges the Lender, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower or Guarantor has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 11. COSTS AND EXPENSES. The Borrower hereby reaffirms its agreement under the 4 Credit Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the Lender in connection with the Credit Agreement, the Loan Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, upon receipt of an accounting for costs and expenses the Borrower specifically agrees to pay all reasonable fees and disbursements of counsel to the Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses. 12. MISCELLANEOUS. This Amendment and the Acknowledgment and Agreement of Guarantor may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. NORWEST BANK MINNESOTA, NATIONAL BRAUN'S FASHIONS, INC. ASSOCIATION By: By: Name: Name: ------------------------------- ------------------------------- Its: Its: ------------------------------- ------------------------------- 5 ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR The undersigned, a guarantor of the indebtedness of BRAUN'S FASHIONS, INC. ("Borrower") to NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Lender") pursuant to a Guaranty dated as of March 15, 1999 ("Guaranty"), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms and execution of this Amendment by the Borrower; (iii) reaffirms its obligations to the Lender pursuant to the terms of its Guaranty; (iv) reaffirms the security interest of Lender and its assets granted to Lender pursuant to that Security Agreement dated as of December 2, 1996 ("Security Agreement"); and (v) acknowledges that Lender may amend, restate, extend, renew or otherwise modify the agreement and any indebtedness or agreement of Borrower, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under the Guaranty and Security Agreement for all of the Borrower's present and future indebtedness to the Lender. BRAUN'S FASHIONS CORPORATION By: Name: Title: 6 EX-10.28 4 EXHIBIT 10.28 SECOND AMENDMENT TO THE BRAUN'S FASHIONS CORPORATION 1997 STOCK INCENTIVE PLAN July 28, 1999 RECITALS: A. The Braun's Fashions Corporation 1997 Stock Incentive Plan (the "Plan") was adopted by the Board of Directors of Braun's Fashions Corporation (the "Company") and was approved by the shareholders of the Company on July 17, 1997 and amended on July 22, 1998. The Plan is now in full force and effect. B. The Company desires to amend the Plan to increase the number of shares of common stock available for issuance under the Plan. AMENDMENT: THEREFORE, the Plan is hereby amended as follows: 1. The first sentence of paragraph 4 of the Plan is hereby amended to read as follows: "4. STOCK SUBJECT TO THE PLAN. THE AGGREGATE NUMBER OF SHARES SUBJECT TO THE PLAN SHALL BE SIX HUNDRED SEVENTY-FIFTY THOUSAND (675,000) SHARES OF THE COMMON STOCK OF THE COMPANY, $.01 PAR VALUE PER SHARE." 2. The foregoing amendment shall be effective as of July 28, 1999, the date the shareholders of the Company approved this amendment at the Company's Annual Meeting of Shareholders. 3. Except as modified hereby, the Plan shall continue in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer as of July 28, 1999. BRAUN'S FASHIONS CORPORATION By: /s/ William J. Prange --------------------------------------- William J. Prange President and Chief Executive Officer EX-10.29 5 EXHIBIT 10.29 BRAUNS FASHIONS CORPORATION 1999 EXECUTIVE LOAN PROGRAM Brauns Fashions Corporation, a Delaware corporation (the "Company") hereby adopts the following Executive Loan Program (the "Program") effective this 28th day of July, 1999. ARTICLE I PURPOSE The purpose of the Program is to provide loans to certain executive officers of the Company. It is the general intention of the Board of Directors of the Company that loans under the Program be made to create an incentive for executive officers of the Company to exercise Company stock options, thereby aligning management's interests with that of the shareholders. The proceeds of a loan made hereunder may only be used in connection with the exercise of stock options granted by the Company to the executive officers. ARTICLE I ELIGIBILITY Those executive officers identified by the Compensation Committee of the Board of Directors from time to time are eligible to participate in the Program. ARTICLE III LOAN No more than two million two hundred thousand dollars ($2,200,000) principal amount of loans in the aggregate may be outstanding to all participants under this Program at any time. An executive officer of the Company may borrow from the Company up to five hundred thousand dollars ($500,000). The loan shall mature upon the earlier of (i) borrower's termination of employment or (ii) the sale by borrower of shares acquired pursuant to the loan. For purposes of the Program, a borrower's employment shall terminate on account of resignation, discharge, retirement, death or the indefinite suspension of employment duties on account of disability. To the extent a borrower sells less than all of the shares acquired under the loan, the loan shall not mature until such time as all of the shares are sold provided that borrower use the proceeds of the sale to reduce the principal and accrued interest on the loan. Upon maturity, the loan shall be repaid to the Company upon the Company's demand. Each loan shall be a full recourse loan and shall bear interest at the then minimum interest rate ("Designated Rate") required to avoid the imputation of income under (i) the below-market loan rules, (ii) the imputed interest and original issue discount rules, and (iii) any other similar provision contained in the Internal Revenue Code, as amended, or in state or local tax laws or regulations. Interest will accrue on the unpaid principal at the Designated Rate for each month during the term of the loan. Interest shall be due and payable semi-annually, on June 30 and December 31 of each year. In the event the borrower's employment relationship with the Company is terminated, borrower shall repay the loan within [thirty (30)] days after the date the employment relationship is terminated, unless otherwise extended by a separate written agreement approved by the Board. The Company shall obtain a first perfected lien against the collateral pursuant to the terms of that Pledge and Security Agreement which borrower shall execute and deliver to the Company on the date the loan is made, together with all stock certificates evidencing such collateral and appropriate stock powers. ARTICLE IV LOAN CONDITIONS In order to obtain a loan under the Program, a borrower must execute all loan documents the Company requires (e.g., promissory notes and security agreements). Collateral consisting of the Company stock purchased with the proceeds of the loan must be pledged to secure each loan. ARTICLE V PROCEDURE TO OBTAIN LOAN Any borrower desiring a loan pursuant to the provisions of this Program shall submit a written request for such loan (the "Proposal") to the Company at its principal business office, specifying the amount of the loan desired and the number of shares to be acquired pursuant to Company stock options. ARTICLE VI ADMINISTRATION The Compensation Committee of the Board of Directors will administer the Program. The Company's Chief Financial Officer will provide a report to the Compensation Committee periodically on the participants, amount of loans outstanding, and activity under the Program. ARTICLE VII NOTICES All notices and other communications of any kind which the Company or a borrower may be required or may desire to serve on the other party in connection with the Program shall be in writing and may be delivered by personal service or by registered or certified mail, return receipt requested, deposited in the United States mail with postage thereon fully prepaid, addressed to the other party at the addresses indicated in the Pledge and Security Agreement or as otherwise provided below. Service of any such notice or other communication so made by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt 2 or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either the Company or a borrower may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or other communications are thereafter to be addressed or delivered. ARTICLE VIII TERMINATION Loans may be made under this Program at any time and from time to time prior to [December 31, 2000], on which date this Program will expire. ARTICLE IX EFFECTIVE DATE OF PROGRAM This Program shall become effective upon its adoption by the Board. ARTICLE X MISCELLANEOUS PROVISIONS The Program shall be administered by the plan administrator, which shall be the Company acting through its Chief Financial Officer. The plan administrator shall have the power to adopt forms of loan documents, to exercise all rights and powers allocated to the Company under this Program and to do anything else which is helpful or necessary to the proper operation of the Program. The Company reserves the right at any time to amend, modify or terminate the Program; provided that no such amendment, modification or termination shall in any manner require additional collateral, accelerate the maturity date, impose an increase in the Designated Rate or otherwise alter the terms of any outstanding loans in a manner adverse to the borrowers under such loans, except as may be required to comply with applicable law. The Company reserves the right at any time to discontinue making new loans or to cancel any outstanding loan by forgiving it. The Program is strictly a voluntary undertaking on the part of the Company and shall not constitute a contract between the Company and any individual, or consideration for, or an inducement or condition of, the employment of an individual. Nothing contained in the Program shall give any individual the right to be retained in the service of the Company or to interfere with or restrict the right of the Company, which is hereby expressly reserved, to discharge or retire any individual at any time for any reason not prohibited by statute, without the Company being required to show cause for the termination. [END OF PAGE] 3 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S 10Q FOR THE QUARTER ENDED AUGUST 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS FEB-26-2000 FEB-28-1999 AUG-28-1999 7,101,236 0 1,342,568 0 12,855,215 23,110,504 30,011,151 14,050,120 40,695,537 7,254,276 4,904,194 0 0 47,600 27,299,399 40,695,537 29,207,456 29,207,456 19,606,685 19,606,685 8,170,975 0 69,479 1,360,317 523,722 836,595 0 0 0 836,595 0.19 0.18
-----END PRIVACY-ENHANCED MESSAGE-----