0000950134-01-506408.txt : 20011008 0000950134-01-506408.hdr.sgml : 20011008 ACCESSION NUMBER: 0000950134-01-506408 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010804 FILED AS OF DATE: 20010918 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GADZOOKS INC CENTRAL INDEX KEY: 0000924140 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 742261048 STATE OF INCORPORATION: TX FISCAL YEAR END: 0127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26732 FILM NUMBER: 1739273 BUSINESS ADDRESS: STREET 1: 4121 INTERNATIONAL PKWY CITY: CARROLLTON STATE: TX ZIP: 75007 BUSINESS PHONE: 9723075555 MAIL ADDRESS: STREET 1: 4121 INTERNTIONAL PKWY CITY: CARROLLTON STATE: TX ZIP: 75007 10-Q 1 d90700e10-q.txt FORM 10-Q FOR QUARTER ENDED AUGUST 4, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 -------------------------------------------------------------------------------- FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 4, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-26732 GADZOOKS, INC. -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) TEXAS 74-2261048 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4121 International Parkway Carrollton, TX 75007 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 972-307-5555 -------------------------------------------------------------------------------- (Former name, former address and fiscal year, if changed since last report.) 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 ( ) As of September 14, 2001, the number of shares outstanding of the registrant's common stock is 9,115,602. 2 GADZOOKS, INC. FORM 10-Q For the Quarter Ended August 4, 2001 INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Condensed Consolidated Balance Sheets as of 3 August 4, 2001 and February 3, 2001 Condensed Consolidated Statements of Operations 4 for the Second Quarter and Six Months Ended August 4, 2001 and July 29, 2000 Condensed Consolidated Statements of Cash Flows for 5 the Six Months Ended August 4, 2001 and July 29, 2000 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis 8-10 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures 11 About Market Risk PART II. OTHER INFORMATION 12 SIGNATURE PAGE 13 INDEX TO EXHIBITS 14-16
2 3 PART 1-- FINANCIAL INFORMATION GADZOOKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- (IN THOUSANDS) (UNAUDITED)
August 4, February 3, 2001 2001 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 13,347 $ 20,284 Accounts receivable 3,897 3,126 Inventory 57,524 55,942 Other current assets 2,508 1,956 ------------ ------------ 77,276 81,308 Leaseholds, fixtures and equipment, net 38,409 36,026 Deferred tax assets 1,460 1,460 ------------ ------------ $ 117,145 $ 118,794 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 26,974 25,233 Accrued expenses and other current liabilities 5,451 7,548 Income taxes payable -- 3,541 ------------ ------------ 32,425 36,322 ------------ ------------ Accrued rent 3,259 3,084 ------------ ------------ Shareholders' equity: Common stock 91 90 Additional paid-in capital 44,008 43,043 Retained earnings 37,762 36,699 Treasury stock (400) (444) ------------ ------------ 81,461 79,388 ------------ ------------ $ 117,145 $ 118,794 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 GADZOOKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Second Quarter Ended Six Months Ended --------------------------- ---------------------------- August 4, July 29, August 4, July 29, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Net sales $ 72,553 $ 64,223 $ 143,390 $ 127,178 Cost of goods sold including buying, distribution and occupancy costs 58,268 47,422 109,180 92,497 ----------- ----------- ----------- ----------- Gross profit 14,285 16,801 34,210 34,681 Selling, general and administrative expenses 16,414 14,553 32,804 28,686 ----------- ----------- ----------- ----------- Operating income (loss) (2,129) 2,248 1,406 5,995 Interest income, net 60 211 279 456 ----------- ----------- ----------- ----------- Income (loss) before income taxes (2,069) 2,459 1,685 6,451 Provision (benefit) for income taxes (767) 922 622 2,419 ----------- ----------- ----------- ----------- Net income (loss) $ (1,302) $ 1,537 $ 1,063 $ 4,032 =========== =========== =========== =========== Net income (loss) per share Basic $ (0.14) $ 0.17 $ 0.12 $ 0.45 =========== =========== =========== =========== Diluted $ (0.14) $ 0.17 $ 0.11 $ 0.43 =========== =========== =========== =========== Weighted average shares outstanding Basic 9,057 8,915 9,007 8,921 =========== =========== =========== =========== Diluted 9,057 9,215 9,357 9,298 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements 4 5 GADZOOKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW -------------------------------------------------------------------------------- (IN THOUSANDS) (UNAUDITED)
Six Months Ended ------------------------------- August 4, July 29, 2001 2000 ------------ ------------ Cash flows from operating activities: Net income $ 1,063 $ 4,032 Adjustments to reconcile net income to cash used in operating activities: Depreciation 3,993 3,241 Loss on disposal of assets 109 49 Changes in operating assets and liabilities (6,627) (7,534) ------------ ------------ Net cash used in operating activities (1,462) (212) ------------ ------------ Cash flows from investing activities: Capital expenditures, net (6,485) (5,378) ------------ ------------ Net cash used in investing activities (6,485) (5,378) ------------ ------------ Cash flows from financing activities: Issuance of common stock 910 259 Purchase of treasury stock -- (424) Sale of treasury stock under employee stock purchase plan 100 174 ------------ ------------ Net cash provided by financing activities 1,010 9 ------------ ------------ Net decrease in cash and cash equivalents (6,937) (5,581) Cash and cash equivalents at beginning of period 20,284 18,643 ------------ ------------ Cash and cash equivalents at end of period $ 13,347 $ 13,062 ============ ============
The accompanying notes are an integral part of these consolidated financial statements 5 6 GADZOOKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of August 4, 2001 and February 3, 2001, and the results of operations and cash flows for the second quarter and six months ended August 4, 2001 and July 29, 2000. The results of operations for the second quarter and six months then ended are not necessarily indicative of the results to be expected for the full fiscal year. The condensed consolidated balance sheet as of February 3, 2001 is derived from audited financial statements. The condensed consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2001. Fiscal year: The Company's fiscal year is the 52- or 53-week period that ends on the Saturday closest to the end of January. "Fiscal 2001" is the 52-week period ending February 2, 2002. 2. LONG-TERM OBLIGATIONS On June 1, 2001, the Company renewed and revised its existing credit facility with Wells Fargo Bank. The revised facility provides an unsecured revolving line of credit totaling $15 million. The total amount available to borrow pursuant to the credit agreement is limited to 150% of cash flow (as defined in the credit agreement) for the trailing 12-month period. Amounts borrowed under the revolving line bear interest at the lesser of either the bank's prime rate, or 195 basis points above LIBOR. The Company pays commitment fees of 0.33% on the unused portion of the revolving line of credit. The credit agreement also provides for the issuance of letters of credit that are generally used in connection with international merchandise purchases. Outstanding letters of credit issued by the bank reduce amounts otherwise available for borrowing under the revolving line of credit. The credit facility subjects the Company to various restrictions on the incurrence of additional indebtedness, acquisitions, loans to officers and stock repurchases. The covenants also require the Company to maintain certain tangible net worth, working capital, debt to equity, net income and fixed charge coverage minimums as well as certain other ratios customary in such agreements. Amounts available to borrow under the line of credit, as limited by the cash flow multiple and outstanding letters of credit, totaled $14.0 million at August 4, 2001. No borrowings (excluding letters of credit) were outstanding under the revolving line at August 4, 2001. Any amount borrowed under the revolving line of credit will become due on June 1, 2002, the date the credit agreement matures. 6 7 GADZOOKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- (Unaudited) 3. EARNINGS PER SHARE The following table outlines the Company's calculation of weighted average shares outstanding (in thousands):
Quarter Ended Six Months Ended ------------------------------ ------------------------------ August 4, July 29, August 4, July 29 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Weighted average common shares outstanding (basic) 9,057 8,915 9,007 8,921 Effect of dilutive options -- 300 350 377 ------------ ------------ ------------ ------------ Weighted average common shares outstanding (diluted) 9,057 9,215 9,357 9,298 ============ ============ ============ ============
The treasury stock method is used to determine dilutive potential common shares outstanding related to stock options. Options which, based on their exercise price, would be antidilutive are not considered in the treasury stock method calculation. Options excluded from the earnings per share calculation due to their antidilutive nature totaled 1,288,930 and 139,795 for the quarters ended August 4, 2001 and July 29, 2000, and 327,039 and 83,235 for the six months ended August 4, 2001 and July 29, 2001, respectively. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Gadzooks is a mall-based specialty retailer of casual apparel and related accessories for young men and women principally between the ages of 14 and 18. As of August 4, 2001, the Company had opened 34 new stores and closed one since the beginning of the fiscal year and operated 408 stores in 39 states. The Company's business is subject to seasonal influences with higher sales during the Christmas holiday, back-to-school and spring break seasons. Management's discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes related thereto. RESULTS OF OPERATIONS The second quarter ended August 4, 2001 compared to the second quarter ended July 29, 2000. Net Sales Net sales increased approximately $8.4 million, or 13.1 percent, to $72.6 million during the second quarter of fiscal 2001 from $64.2 million during the comparable quarter of fiscal 2000. The total Company sales increase was due to $14.2 million of sales from the 83 new stores not yet included in the comparable store sales base partially offset by a comparable store sales decrease of $5.8 million. Comparable store sales decreased 8.9 percent for the second quarter of fiscal 2001. The Company experienced comparable store sales decreases in all of its major categories. The comparable store sales decrease was the result of a more promotional retail environment as well as a reduction in customer traffic. The number of transactions in the average store declined by approximately 10 percent, and the average dollar sale increased approximately 1 percent. A store becomes comparable after it has been open for 14 full fiscal months. Gross profit Gross profit decreased approximately $2.5 million to $14.3 million during the second quarter of fiscal 2001 from $16.8 million during the comparable quarter of fiscal 2000. As a percentage of net sales, gross profit decreased 647 basis points to 19.69 percent from 26.16 percent for the comparable quarter of last year. Merchandise margins as a percentage of sales were 474 basis points lower than the prior year. This decrease is primarily attributable to a significant increase in markdowns taken to position inventory for the back to school season. In addition to the decrease in merchandise margins, the Company experienced a 172 basis point increase in occupancy costs as a percentage of sales. Buying and distribution costs, as a percentage of sales, were essentially flat to prior year. The increase in occupancy costs (which are relatively fixed in nature), as a percentage of sales, was primarily due to the comparable store sales decrease. Selling, general and administrative expenses Selling, general and administrative expenses ("SG&A") increased approximately $1.8 million to $16.4 million during the second quarter of 2001 from $14.6 million during the comparable quarter of fiscal 2000. The aggregate increase in SG&A is primarily attributable to additional store expenses as a result of the Company's expanded store base during the past year and an increase in administrative costs to support the larger store chain. As a percentage of net sales, SG&A decreased 4 basis points to 22.62 percent during the second quarter of fiscal 2001 from 22.66 percent during the second quarter of last year. The slight decrease in the SG&A percentage is due primarily to the Company's ability to better manage certain corporate overhead and store costs. 8 9 Interest The Company's net interest income decreased $151,000 to $60,000 during the second quarter of fiscal 2001 from $211,000 in the comparable period of last year due primarily to lower average cash balances, lower market interest rates and the Company's utilization of tax exempt investments that have lower pre-tax yields. The six months ended August 4, 2001 compared to the six months ended July 29, 2000. Net sales Net sales increased approximately $16.2 million, or 12.7 percent, to $143.4 million during the first six months of fiscal 2001 from $127.2 million during fiscal 2000. The total Company sales increase was attributable to new store sales of $24.8 million net of a comparable store sales decrease of $8.6 million, or 6.8 percent for the first six months of fiscal 2001. The Company experienced comparable store sales decreases in all its major categories. The Company's average transaction size remained relatively flat and the number of transactions per average store decreased by approximately 7 percent. Gross profit Gross profit decreased approximately $500,000 to $34.2 million during the first six months of fiscal 2001 from $34.7 million during the comparable six months of fiscal 2000. As a percentage of net sales, gross profit decreased 341 basis points to 23.86 percent from 27.27 percent for the comparable six months of last year. Merchandise margins as a percentage of sales were 176 basis points lower than the prior year. This decrease is primarily attributable to the significant increase in markdowns taken to position inventory for the back to school season. The Company experienced 148 basis point and 17 basis point increases in occupancy and buying and distribution costs as a percentage of sales, respectively. The increases in occupancy and buying and distribution costs (which are relatively fixed in nature) as a percentage of sales were primarily the result of the negative leverage effect of the comparable store sales decrease. Selling, general and administrative expenses Selling, general and administrative expenses increased approximately $4.1 million to $32.8 million during the first six months of 2001 from $28.7 million during the comparable six months of fiscal 2000. The aggregate increase in SG&A is primarily attributable to additional store expenses, which include pre-opening expenses, as a result of the Company's expanded store base during the past year and an increase in administrative costs to support the larger store chain. As a percentage of net sales, SG&A increased 32 basis points to 22.88 percent during the first six months of fiscal 2001 from 22.56 percent during the comparable six months of last year. The increase in the SG&A percentage is a result of the negative leverage effect of the comparable store sales decrease offset in part by the Company's ability to leverage corporate overhead over a larger store base and manage store payroll costs. Interest The Company's net interest income decreased $177,000 to $279,000 during the first six months of fiscal 2001 from $456,000 in the comparable period of last year due primarily to lower average cash balances, lower market interest rates and the Company's utilization of tax exempt investments that have lower pre-tax yields. 9 10 LIQUIDITY AND CAPITAL RESOURCES General The Company's primary uses of cash are financing new store openings and purchasing merchandise inventories. The Company is currently meeting its cash requirements through cash flow from operations and cash and cash equivalents on-hand. Cash Flows At August 4, 2001, cash and cash equivalents were $13.3 million, a decrease of $6.9 million since February 3, 2001. The primary uses of cash were capital expenditures of $6.5 million for new or remodeled stores and a decrease in income taxes payable of $3.5 million partially offset by an increase in accounts payable of $1.7 million. The Company opened 34 new stores during the first six months of 2001 as compared with 20 new stores in the same period of the prior year. The Company announced on August 16, 2001, that it would test a new mall-based retail concept - "Orchid" -- in four locations for the 2001 holiday season. The Orchid stores will offer a combination of branded and private label innerwear, sleepwear, fragrances and bath/body products catering to the needs of young women between the ages of 14 and 22. These stores are not expected to have a material impact on the operations or capital resources of the Company in fiscal 2001. Credit Facility On June 1, 2001, the Company renewed and revised its existing credit facility with Wells Fargo Bank. The revised facility provides an unsecured revolving line of credit totaling $15 million. The total amount available to borrow pursuant to the credit agreement is limited to 150% of cash flow (as defined in the credit agreement) for the trailing 12-month period. Amounts borrowed under the revolving line bear interest at the lesser of either the bank's prime rate, or 195 basis points above LIBOR. The Company pays commitment fees of 0.33% on the unused portion of the revolving line of credit. The credit agreement also provides for the issuance of letters of credit that are generally used in connection with international merchandise purchases. Outstanding letters of credit issued by the bank reduce amounts otherwise available for borrowing under the revolving line of credit. The credit facility subjects the Company to various restrictions on the incurrence of additional indebtedness, acquisitions, loans to officers and stock repurchases. The covenants also require the Company to maintain certain tangible net worth, working capital, debt to equity, net income and fixed charge coverage minimums as well as certain other ratios customary in such agreements. Amounts available to borrow under the line of credit, as limited by the cash flow multiple and outstanding letters of credit, totaled $14.0 million at August 4, 2001. No borrowings (excluding letters of credit) were outstanding under the revolving line at August 4, 2001. Any amount borrowed under the revolving line of credit will become due on June 1, 2002, the date the credit agreement matures. Capital Expenditures The Company opened 34 new stores during the first six months and anticipates opening an additional 21 Gadzooks stores as well as four Orchid stores during the remainder of the year. Capital expenditures for the remainder of the year are estimated to be approximately $6.0 to $7.0 million to open the remaining stores, update or remodel existing stores and to purchase and/or upgrade information systems. Management believes that the Company's working capital, credit facility and cash flows from operating activities will be sufficient to meet the Company's operating and capital requirements through the end of fiscal 2001. 10 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in trading market risk sensitive instruments and does not purchase as investments, as hedges, or for purposes "other than trading" instruments that are likely to expose the Company to market risk, whether it be from interest rate, foreign currency exchange, commodity price or equity price risk. The Company has issued no debt instruments, entered into no forward or futures contracts, purchased no options and entered into no swaps. The Company's primary market risk exposure is that of interest rate risk. A change in LIBOR, or the Prime Rate as set by Wells Fargo Bank, would affect the rate at which the Company could borrow funds under its credit facility. STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE Certain sections of this Quarterly Report on Form 10-Q, including the preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21F of the Securities Exchange Act of 1934. When used in this report, words such an "anticipate," "believe," "estimate," "expect," "intend," "predict," "project," and similar expressions, as they relate to us or our management, identify forward-looking statements. These forward-looking statements are based on information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to fluctuations in store sales results, changes in economic conditions, fluctuations in quarterly results and other factors described under the "Risk Factors" section of the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2001. Such statements reflect the current views of our management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by this paragraph. 11 12 PART II - OTHER INFORMATION Items 1-3 - None Item 4 - Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of the Company was held on June 14, 2001. (b) Information regarding the Company's directors is contained in the Company's Definitive Proxy Statement, which is attached hereto as Exhibit 22. (c) Robert E.M. Nourse was elected to serve as director until the Company's 2004 annual meeting of shareholders according to the following vote: For: 8,225,044 Against or Withheld: 28,667 The selection of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ending February 2, 2002 was ratified by the shareholders according to the following vote: For: 8,247,785 Against or Withheld: 3,925 Abstention: 2,001 Broker Non-votes: -- (d) None. Item 5 - None Item 6 - Exhibits and Reports on form 8-K. (a) See Index of Exhibits. (b) None. 12 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. GADZOOKS, INC. (Registrant) DATE: September 17, 2001 By: /s/ JAMES A. MOTLEY ---------------------------------------- James A. Motley Vice President / Chief Financial Officer (Chief Accounting Officer and Duly Authorized Officer of the Registrant) 13 14 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 -- Third Restated Articles of Incorporation of the Company (filed as Exhibit 4.1 to the Company's Form S-8 (No. 33-98038) filed with the Commission on October 12, 1995 and incorporated herein by reference). 3.2 -- Amended and Restated Bylaws of the Company (filed as Exhibit 4.2 to the Company's Form S-8 (No. 33-98038) filed with the Commission on October 12, 1995 and incorporated herein by reference). 3.3 -- First Amendment to the Amended and Restated Bylaws of the Company (filed as Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended August 2, 1997 filed with the Commission on September 16, 1997 and incorporated herein by reference). 4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of the Company (filed as Exhibit 4.1 to the Company's Amendment No. 2 to Form S-1 (No. 33-95090) filed with the Commission on September 8, 1995 and incorporated herein by reference). 4.2 -- Rights Agreement dated as of September 3, 1998, between the Company and Mellon Investor Services, L.L.C. (filed as Exhibit 1 to the Company's Form 8-A filed with the Commission on September 4, 1998 and incorporated herein by reference). 10.1 -- Purchase Agreement dated as of January 31, 1992 among the Company, Gerald R. Szczepanski, Lawrence H. Titus, Jr. and the Investors listed therein (filed as Exhibit 10.1 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.2 -- Purchase Agreement dated as of May 26, 1994 among the Company, Gerald R. Szczepanski, Lawrence H. Titus, Jr. and the Investors listed therein (filed as Exhibit 10.2 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.3 -- Credit Agreement dated as of January 30, 1997 between the Company and Wells Fargo Bank (Texas), National Association (filed as Exhibit 10.3 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.4 -- Form of Indemnification Agreement with a schedule of director signatories (filed as Exhibit 10.5 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.5 -- Employment Agreement dated January 31, 1992 between the Company and Gerald R. Szczepanski, as continued by letter agreement (filed as Exhibit 10.6 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.6 -- 1992 Incentive and Nonstatutory Stock Option Plan dated February 26, 1992, and Amendments No. 1 through 3 thereto (filed as Exhibit 10.8 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference).
14 15 10.7 -- 1994 Incentive and Nonstatutory Stock Option Plan for Key Employees dated September 30, 1994 (filed as Exhibit 10.9 to the Company's Form S-1 (No. 33-95090) filed with the Commission on July 28, 1995 and incorporated herein by reference). 10.8 -- 1995 Non-Employee Director Stock Option Plan (filed as Exhibit 10.10 to the Company's Form S-1 (No.333-00196) filed with the Commission on January 9, 1996 and incorporated herein by reference). 10.9 -- Gadzooks, Inc. Employees' Savings Plan, as amended and revised (filed as Exhibit 4.5 to the Company's Form S-8 (No. 333-68205) filed with the Commission on December 1, 1998 and incorporated herein by reference). 10.10 -- Severance Protection Agreement dated September 1, 1998 between the Company and Gerald R. Szczepanski (filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q filed with the Commission on December 15, 1998 and incorporated herein by reference). 10.11 -- Form of Severance Agreement with a schedule of executive officer signatories (filed as Exhibit 10.11 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.12 -- Amendment No. 4 to the Gadzooks, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 10.14 to the Company's Amendment No. 3 to Form S-1 (No. 33-95090) filed with the Commission on September 27, 1995 and incorporated herein by reference). 10.13 -- Amendment No. 5 to the Gadzooks, Inc. 1992 Incentive and Nonstatutory Stock Option Plan dated September 12, 1996 (filed as Exhibit 10.13 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.14 -- Amendment No. 1 to the 1994 Incentive and Nonstatutory Stock Option Plan for Key Employees dated September 12, 1996 (filed as Exhibit 10.14 to the Company's 1996 Annual Report on Form 10-K filed with the Commission on April 23, 1997 and incorporated herein by reference). 10.15 -- Gadzooks, Inc. Employee Stock Purchase Plan (filed as Exhibit 4.5 to the Company's Form S-8 (No. 333-50639) filed with the Commission on April 21, 1998 and incorporated herein by reference). 10.16 -- Lease Agreement between Gadzooks, Inc. (Lessee) and CB Midway International, LTD. (Lessor) dated August 23, 1996 (filed as Exhibit 10.17 to the Company's 1997 Annual Report on Form 10-K filed with the Commission on April 27, 1998 and incorporated herein by reference). 10.17 -- Gadzooks, Inc. 401(k) Plan and Profit Sharing Plan Adoption Agreement (filed as Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q filed with the Commission on June 9, 1998, and incorporated herein by reference). 10.18 -- Amendment No. 1 to the Credit Agreement between the Company and Wells Fargo Bank (Texas), National Association, dated June 11, 1998 (filed as Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q filed with the Commission on September 15, 1998, and incorporated herein by reference).
15 16 10.19 -- Amendment No. 2 to the Credit Agreement between the Company and Wells Fargo Bank (Texas) National Association, dated May 14, 1999 (filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q filed with the Commission on June 15, 1999 and incorporated herein by reference). 10.20 -- Amendment No. 6 to the Gadzooks, Inc. 1992 Incentive and Non-Statutory Stock Option Plan dated June 18, 1998 (filed as Exhibit 4.8 to the Company's Form S-8 (No. 333-60869) filed with the Commission on August 7, 1998 and incorporated herein by reference). 10.21 -- Amendment No. 1 to the Gadzooks, Inc. 1995 Non-Employee Director Stock Option Plan dated June 18, 1998 (filed as Exhibit 4.10 to the Company's Form S-8 (No. 333-60869) filed with the Commission on August 7, 1998 and incorporated herein by reference). 10.22 -- Severance Protection Agreement dated January 5, 1998 between the Company and James F. Wimpress (filed as Exhibit 10.22 to the Company's 1999 Annual Report on Form 10-K filed with the Commission on April 26, 2000 and incorporated herein by reference). 10.23 -- Amendment No. 3 to the Credit Agreement between the Company and Wells Fargo Bank (Texas) National Association dated June 1, 2000 (filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q filed with the Commission on June 13, 2000 and incorporated herein by reference). 10.24 -- Management Services Agreement by and between Gadzooks Management, L.P. and Gadzooks, Inc. dated June 28, 2000 (filed as Exhibit 10.25 in the Company's Quarterly Report on Form 10-Q filed with the Commission on September 12, 2000 and incorporated herein by reference). 10.25 -- Lease and Occupancy Agreement between Gadzooks, Inc. and Gadzooks Management, L.P. dated June 28, 2000 (filed as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q filed with the Commission on September 12, 2000 and incorporated herein by reference). 10.26 -- Amendment No. 7 to the Gadzooks, Inc. 1992 Incentive and Nonstatutory Stock Option Plan dated as of March 30, 2000 (filed as Exhibit 4.9 to the Company's Form S-8 (No. 333-48350) filed with the Commission on October 20, 2000 and incorporated herein by reference). 10.27 -- Amendment No. 1 to the Gadzooks, Inc. Employee Stock Purchase Plan dated as of March 30, 2000 (filed as Exhibit 4.11 to the Company's Form S-8 (No. 333-48350) filed with the Commission on October 20, 2000 and incorporated herein by reference). 10.28 -- Amendment No. 4 to the Credit Agreement between the Company and Wells Fargo Bank (Texas) National Association, dated June 1, 2001 (filed as Exhibit 10.28 to the Company's Quarterly Report on Form 10Q filed with the Commission on June 18, 2001 and incorporated herein by reference). 10.29* -- Executive Retirement Agreement between Gadzooks Management, L.P. and Gerald R. Szczepanski dated July 31, 2001. 22 -- Definitive Proxy Statement pursuant to Section 14 (a) of the Securities Exchange Act of 1934 (filed with the Commission on May 14, 2001 and incorporated herein by reference).
* Filed herewith (unless otherwise indicated, exhibits are previously filed). 16 EX-10.29 3 d90700ex10-29.txt EXECUTIVE RETIREMENT AGREEMENT 1 EXHIBIT 10.29 EXECUTIVE RETIREMENT AGREEMENT Agreement made on July 31, 2001, between Gadzooks Management, L.P., a Texas limited partnership (the "COMPANY"), and Gerald R. Szczepanski ("EXECUTIVE"). RECITALS A. Executive is currently employed by the Company. B. The Company and Executive desire to enter into certain agreements providing for certain events upon the Executive's retirement from the Company. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Eligibility. The Executive or his estate, devisees or heirs, as the case may be, shall be eligible to receive the benefits provided for in this Agreement so long as he is an officer of the Company at or above the level of vice president (an "EXECUTIVE OFFICER") on the termination date of the Executive's employment with the Company as a result of either (i) the Executive's death, (ii) the Company's termination, without Cause (as defined herein), of the Executive's employment with the Company, or (iii) the Executive's retirement from employment with the Company (each, the "RETIREMENT DATE"). The Executive shall cease to be eligible for the benefits provided for in this Agreement if his employment with the Company is terminated by the Company for Cause, and this Agreement shall automatically terminate and be of no further force or effect upon the date of such termination. The Company shall have the right to terminate the Executive's employment at any time for any of the following reasons, each of which is referred to herein as "Cause": (i) any act of fraud or dishonesty with respect to any aspect of the Company's or any affiliate's business; (ii) continued use of illegal drugs; (iii) as a result of the Executive's gross negligence or willful misconduct, the Executive shall violate, or cause the Company to violate, any applicable federal or state securities or banking law or regulation and as a result of such violation, shall become, or shall cause the Company or any affiliate to become the subject of any legal action or administrative proceeding seeking an injunction from further violations or a suspension of any right or privilege; (iv) as a result of the Executive's gross negligence or willful misconduct, the Executive shall commit any act that causes, or shall knowingly fail to take reasonable and appropriate action to prevent, any material injury to the financial condition or business reputation of the Company or any affiliate; (v) substantial failure of performance, repeated or continued after written notice of such failure and explanation of such failure of performance, which is reasonably determined by the Board of Directors to be materially injurious to the business or interests of the Company or any affiliate; or (vi) conviction of a felony or of a crime involving moral turpitude. 2. Insurance Coverage. After the Retirement Date and until the death of the Executive or the Executive's spouse, whichever is later, the Company will continue to provide to the Executive (and the Executive's spouse, if applicable), and pay for, all medical, dental and life 2 insurance coverage provided to the Executive (and the Executive's spouse, if applicable) by the Company on the Retirement Date (the "INSURANCE COVERAGE"); provided, however, once the Executive or his spouse becomes eligible for Medicare coverage, the Insurance Coverage will automatically be reduced with respect to such person by the amount of Medicare coverage, irrespective of whether the Executive or his spouse actually obtains such coverage, and thereafter the Insurance Coverage with respect to such person will only be supplemental to Medicare coverage. The Insurance Coverage may be modified by the Company at any time subsequent to the Retirement Date as long as such modifications are pursuant to and to the same extent as any modifications to the Company's insurance coverage provided to the Executive Officers in office on the date of such modifications and such modifications do not result in a substantial reduction in benefits under the Insurance Coverage. 3. Transitional Consultancy. During the 18 months immediately following the Retirement Date, at the sole discretion of the Company's Board of Directors, the Company may elect to retain the services of the Executive to facilitate an orderly transition of the Executive's duties and responsibilities to the Executive's successor(s). If the Company's Board of Directors so elects, the Company and the Executive will negotiate in good faith to enter into a mutually acceptable consulting relationship under which the Executive would be an independent contractor. 4. Pro Rated Bonus Payment. On the date that the Executive Officers are paid their bonuses for the fiscal year that includes the Retirement Date, the Company will pay to the Executive or his estate, devisees, or heirs, as the case may be, an amount equal to (i) the bonus that the Executive would have received if he was still an Executive Officer on such date multiplied by (ii) a fraction, the numerator of which is equal to the number of days from the first day of the fiscal year that includes the Retirement Date to the Retirement Date, and the denominator of which is equal to 365. 5. Not a Contract of Employment. This Agreement shall not be deemed to constitute an express or implied obligation of the Company to continue to employ the Executive. 6. Successors. The provisions of this Agreement shall be binding upon the Company and its successors and assigns. 7. Governing Law. This Agreement will be construed and enforced according to the laws of the State of Texas. 2 3 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered on the day and year first above written. GADZOOKS MANAGEMENT, L.P. By: Gadzooks, Inc., its general partner By: /s/ JAMES A. MOTLEY ---------------------------------- Name: James A. Motley -------------------------------- Title: Chief Financial Officer ------------------------------- /s/ GERALD R. SZCZEPANSKI ------------------------------------- Gerald R. Szczepanski 3