-----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, GiK23ruSjYiQqOD1y0jAjuWfmGGDDR0/xsPdRj+mFSQxAOfeFxI2FRjjggaSF1wQ dbM9aMwWFgSdHqLgFKJiOA== 0000093542-96-000004.txt : 19960517 0000093542-96-000004.hdr.sgml : 19960517 ACCESSION NUMBER: 0000093542-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANHOME INC CENTRAL INDEX KEY: 0000093542 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 041864170 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09267 FILM NUMBER: 96565447 BUSINESS ADDRESS: STREET 1: 333 WESTERN AVE CITY: WESTFIELD STATE: MA ZIP: 01085 BUSINESS PHONE: 4135623631 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY HOME PRODUCTS INC DATE OF NAME CHANGE: 19820513 10-Q 1 FORM 10-Q 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 March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________. Commission File Number 0-1349 Stanhome Inc. ___________________________________________________________________________ (Exact name of registrant as specified in its charter) Massachusetts 04-1864170 ____________________________________ _______________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Western Avenue, Westfield, Massachusetts 01085 ___________________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 413-562-3631 ___________________________________________________________________________ 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 [_] March 31, 1996 1995 ____ ____ Shares Outstanding: Common Stock with Associated Rights 18,403,186 18,808,715 Total number of pages contained herein 40 Index to Exhibits is on page 19 -1- PART I. FINANCIAL INFORMATION ------------------------------ STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 1996 and DECEMBER 31, 1995 (Unaudited)
March 31, December 31, 1996 1995 ---- ---- ASSETS CURRENT ASSETS: Cash and certificates of deposit $ 18,386,143 $ 23,053,926 Notes and accounts receivable, net 155,176,985 158,572,959 Inventories 122,869,950 114,294,928 Prepaid advertising 37,082,995 39,665,306 Other prepaid expenses 9,271,693 6,784,465 ------------ ------------ Total current assets 342,787,766 342,371,584 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, at cost 130,692,939 131,795,141 Less - Accumulated depreciation and amortization 70,933,379 70,947,871 ------------ ------------ 59,759,560 60,847,270 ------------ ------------ OTHER ASSETS: Goodwill and other intangibles, net 119,865,243 119,826,382 Other 10,352,710 11,420,987 ------------ ------------ 130,217,953 131,247,369 ------------ ------------ $532,765,279 $534,466,223 ============ ============ The accompanying notes are an integral part of these condensed financial statements.
-2- STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 1996 and DECEMBER 31, 1995 (Unaudited)
March 31, December 31, 1996 1995 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and loans payable $ 91,194,441 $ 74,864,065 Accounts payable 52,977,804 64,880,028 Federal, state and foreign taxes on income 30,877,123 28,758,277 Accrued expenses-- Payroll and commissions 8,516,247 13,658,026 Royalties 7,879,132 8,587,986 Vacation, sick and postretirement benefits 7,726,399 6,979,623 Pensions and profit sharing 5,355,379 8,610,616 Other 36,773,513 36,106,020 ------------ ------------ Total current liabilities 241,300,038 242,444,641 ------------ ------------ LONG-TERM LIABILITIES: Foreign employee severance obligations 12,330,670 12,482,097 Postretirement benefits 12,335,857 12,749,258 ------------ ------------ Total long-term liabilities 24,666,527 25,231,355 ------------ ------------ SHAREHOLDERS' EQUITY: Common stock 3,153,530 3,153,530 Capital in excess of par value 44,419,723 43,098,856 Retained earnings 384,204,976 385,008,394 Cumulative translation adjustments ( 28,219,302) ( 27,409,482) ------------ ------------ 403,558,927 403,851,298 Less - Shares held in treasury, at cost 136,760,213 137,061,071 ------------ ------------ Total shareholders' equity 266,798,714 266,790,227 ------------ ------------ $532,765,279 $534,466,223 ============ ============ The accompanying notes are an integral part of these condensed financial statements.
-3- STANHOME INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- NET SALES $183,039,727 $184,869,162 COST OF SALES 78,092,565 77,425,988 ------------ ------------ GROSS PROFIT 104,947,162 107,443,174 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 94,552,037 93,673,069 ------------ ------------ OPERATING PROFIT 10,395,125 13,770,105 Interest expense ( 1,846,058) ( 1,342,297) Other expense, net ( 799,725) ( 157,467) ------------ ------------ INCOME BEFORE INCOME TAXES 7,749,342 12,270,341 Income taxes 3,679,010 5,820,000 ------------ ------------ NET INCOME 4,070,332 6,450,341 RETAINED EARNINGS, beginning of period 385,008,394 362,946,840 Cash dividends, $.265 per share in 1996 and 1995 ( 4,873,750) ( 5,028,695) ------------ ------------ RETAINED EARNINGS, end of period $384,204,976 $364,368,486 ============ ============ EARNINGS PER COMMON SHARE: Primary and fully diluted $ .22 $ .34 ===== ===== The accompanying notes are an integral part of these condensed financial statements.
-4- STANHOME INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- OPERATING ACTIVITIES: Net cash used by operating activities ($16,555,248) ($16,375,129) ----------- ----------- INVESTING ACTIVITIES: Purchase of property, plant and equipment ( 2,046,210) ( 3,142,870) Proceeds from sales of property, plant and equipment 2,304,153 500,339 Payments for acquisition of businesses, net of cash acquired ( 1,200,000) ( 208,042) Other, principally marketable securities - ( 416,052) ----------- ----------- Net cash used by investing activities ( 942,057) ( 3,266,625) ----------- ----------- FINANCING ACTIVITIES: Cash dividends ( 4,873,750) ( 5,028,695) Exchanges and purchases of common stock - ( 10,301,359) Notes and loans payable 16,044,359 46,537,740 Exercise of stock options 1,429,364 265,299 Other common stock issuance 192,361 239,185 ----------- ----------- Net cash provided by financing activities 12,792,334 31,712,170 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents 37,188 44,638 ----------- ----------- Increase/(decrease) in cash and cash equivalents ( 4,667,783) 12,115,054 Cash and cash equivalents, beginning of year 23,051,926 19,349,839 ----------- ----------- Cash and cash equivalents, end of quarter $18,384,143 $31,464,893 =========== =========== SUPPLEMENTAL CASH FLOW DATA Cash paid for: Interest $ 1,238,572 $ 763,854 Income taxes $ 1,608,128 $12,558,705 The accompanying notes are an integral part of these condensed financial statements.
-5- STANHOME INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The consolidated condensed financial statements and related notes included herein have been prepared by the Company, without audit except for the December 31, 1995 condensed balance sheet, which was derived from the Annual Report on Form 10-K, 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, although the Company believes that the disclosures are adequate to make the information presented not misleading. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods. It is suggested that these condensed financial statements be read in conjunction with the financial statements and related notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 1. ACCOUNTING POLICIES: The Company's financial statements for the three months ended March 31, 1996 have been prepared in accordance with the accounting policies described in Note 1 to the December 31, 1995 consolidated financial statements included in the Company's 1995 Annual Report on Form 10-K. The Company considers all highly liquid securities, including certificates of deposit with maturities of three months or less, when purchased, to be cash -6- equivalents. Notes and accounts receivable were net of reserves for uncollectible accounts, returns and allowances of $20,903,000 at March 31, 1996 and $20,741,000 at December 31, 1995. The Company recognizes revenue as merchandise is turned over to the shipper and a provision for anticipated merchandise returns and allowances is recorded based upon historical experience. Amounts billed to customers for shipping and handling orders are netted against the associated costs. 2. INVENTORY CLASSES: The major classes of inventories at March and December 3l were as follows (in thousands): March 31, December 31, 1996 1995 ---- ---- Raw materials and supplies $ 7,358 $ 7,312 Work in process 693 1,237 Finished goods in transit 14,372 16,215 Finished goods 100,447 89,531 -------- -------- $122,870 $114,295 ======== ======== 3. OTHER EXPENSE, NET: Other expense, net for the three months ended March 31, 1996 and 1995 consists of the following (in thousands): 1996 1995 ---- ---- Interest income $ 493 $ 745 Amortization of other assets ( 1,153) ( 1,009) Other, net ( 140) 106 ------ ------ ($ 800) ($ 158) ====== ====== -7- 4. EARNINGS PER COMMON SHARE (BASIS OF CALCULATION): Earnings per common share are based on the average number of common shares outstanding and common share equivalents for the period covered. For both years, there was no difference in earnings per share between primary and fully diluted earnings per share computations. For the first quarter fully diluted computation, the average number of shares utilized was 18,479,861 and 19,033,574 shares for 1996 and 1995, respectively, including common share equivalents of 122,818 in 1996 and 19,174 in 1995. The lower average number of shares for 1996 primarily resulted from the repurchase of shares in the latter part of 1995 as part of the Company's repurchase program. 5. FINANCIAL INSTRUMENTS: The Company enters into various short-term foreign exchange agreements during the year, all of which are held for purposes other than trading. The purpose of the Company's foreign currency hedging activities is to protect the Company from risk that the eventual settlement of foreign currency transactions will be adversely affected by changes in exchange rates. The Company's various subsidiaries import products in foreign currencies and from time to time will enter into agreements or build foreign currency deposits as a partial hedge against currency fluctuations on inventory purchases. Gains and losses on these agreements are deferred and recorded as a component of cost of sales when the related inventory is sold. At March 31, 1996, there were no open inventory purchase agreements and deferred amounts were not material. The Company makes short-term foreign currency intercompany loans to various international subsidiaries -8- and utilizes agreements to fully hedge these transactions against currency fluctuations. The cost of these agreements is included in the interest charged to the subsidiaries and expensed monthly as the interest is accrued. The intercompany interest eliminates upon consolidation and any gains and losses on the agreements are recorded as a component of other income. All of the outstanding agreements as of March 31, 1996 are to hedge intercompany loans. The Company receives dividends, technical service fees, royalties and other payments from its subsidiaries and licensees. From time to time, the Company will enter into foreign currency forward agreements as a partial hedge against currency fluctuations on these current receivables. Gains and losses are recognized or the credit or debit offsets the foreign currency payables. As of March 31, 1996, net deferred amounts on outstanding agreements were not material. The outstanding agreement amounts (notional value) at March 31, 1996, are as follows (in thousands): Canada $ 6,621 Germany 4,070 U.S. 875 ------- Total $11,566 ======= -9- STANHOME INC. THREE MONTHS ENDED MARCH 31, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS SEGMENTS of the Company's operations are summarized on Page 16. A discussion and analysis of the segments follows: GIFTWARE Giftware Group sales decreased 6% in the first quarter from lower sales in the United States and in international markets due principally to soft retail environments. International sales represented 16% of total 1996 first quarter sales compared to 17% in 1995. The Precious Moments line represented 42% of total 1996 sales compared to 48% in 1995 and the Cherished Teddies line represented 16% of total sales in 1996 compared to 13% in 1995. Operating profit as a percentage of sales was 8% in 1996 compared to 10.9% in 1995. The decrease was due to higher cost of sales (approximately 2%) from an unfavorable product mix with less sales of collectible lines and to a higher percentage of selling, general and administrative expenses resulting from the impact of lower sales on fixed expenses. DIRECT RESPONSE Direct Response Group sales increased 15%, in a very competitive market, due to unit volume growth from increased product offerings primarily in the figural categories. Doll sales decreased to 19% of 1996 sales compared to 31% in 1995 and plate sales decreased to 36% of 1996 -10- sales compared to 48% in 1995. International sales decreased and operating losses increased. International sales represented 7% of total 1996 first quarter Group sales compared to 10% in 1995. The Precious Moments line represented 13% of 1996 sales compared to 10% in 1995 and the Cherished Teddies line represented 12% of 1996 sales compared to 13% in 1995. Operating profit improved to 1.9% of sales compared to a slight loss in 1995 due principally to a lower percentage of advertising expense to sales in 1996 of 47% compared to 51% in 1995. The lower advertising percent benefited from a more favorable product mix and a higher percentage of sales from existing customer lists. Partially offsetting the improved advertising ratio was a higher cost of sales due to product mix and a higher level of selling, general and administrative expenses. DIRECT SELLING European sales for the first quarter increased 1% and represented 90% of total 1996 Direct Selling sales. European operating profit increased 3% and represented 98% of total 1996 Direct Selling operating profit. Operating profit benefited from a lower cost of sales due to a more favorable product mix. The Italian government has introduced new social benefit taxes that are planned to become effective during the second quarter of 1996. This additional tax burden is expected to unfavorably impact the Italian subsidiary's independent Dealer force and its ability to recruit and retain Dealers. European local currency sales and operating profit translated at 1995 average exchange rates would have resulted in a 3% sales decrease and a 2% operating profit decrease. Sales in the first quarter for the Mexican and Venezuelan Group decreased 7% and -11- operating profit decreased 81% due to the Mexican peso and Venezuelan bolivar currency devaluations and the resulting unfavorable local economic impacts. UNALLOCATED EXPENSES increased in the first quarter due to higher compensation, benefits and general expenses consistent with the Company's programs. Unallocated expenses are corporate expenses and other items not directly related to the operations of the Groups. INTERNATIONAL ECONOMIES AND CURRENCY The Latin American operations in Mexico and Venezuela have experienced highly inflationary economies with rapidly changing prices in local currencies. These conditions, with the resulting adverse impact on local economies, have made it difficult for operations in these locations to achieve adequate operating margins. In addition, the strengthening of the dollar versus Latin American currencies has resulted in lower U.S. dollar results for these operations. European operations were favorably impacted by higher currency translation rates in 1996 compared to 1995. The value of the U.S. dollar versus international currencies where the Company conducts business will continue to impact the future results of these businesses. In addition to the currency risks, the Company's international operations, including sources of imported products, are subject to other risks of doing business abroad, including import or export restrictions and changes in economic and political climates. The fluctuations in net sales and operating profit margins from quarter to quarter are partially due to the seasonal characteristics of the Company's business segments. -12- INTEREST EXPENSE AND OTHER INCOME, NET Interest expense increased due to higher interest rates and borrowing levels. Notes and loans payable going into 1996 were approximately $35.9 million higher than at the start of 1995. Other assets amortization of goodwill increased due to the continuing impact from the 1994 acquisitions. The amortization for Giftware in 1996 was $1.0 million compared to $.8 million in 1995 and the amortization for Direct Response was $.2 million in 1996 and $.2 million in 1995. THE EFFECTIVE TAX RATE of 47% was the same as 1995 despite higher non deductible goodwill in 1996. This was due principally to earnings mix with a lower ratio of foreign income to United States income, which has a lower rate. FINANCIAL CONDITION The Company has historically satisfied its capital requirements with internally generated funds and short-term loans. Working capital requirements have seasonal variations during the year and are generally greatest during the third quarter. The major sources of funds from operating activities in the first quarter of 1996 were from net income, depreciation, amortization, lower net accounts receivable (from lower sales) and prepaid expense (from less spending in the media) and higher accrued tax levels (due to timing of payments). The major uses were increased inventories from lower sales and lower accounts payable and accrued expenses due principally to lower sales and to timing and the payment of year end payrolls and benefits. The first quarter 1996 increases in receivables and inventories compared to -13- the first quarter of 1995 reflect timing differences and increases to support higher levels of sales. The major use of cash in investing activities in the first quarter of 1996 was for capital expenditures and the acquisition of a small French giftware company. The acquisition was accounted for using the purchase method with basically all of the purchase pricing allocated to goodwill. The Company has an acquisition program, and may utilize funds for this purpose in the future. Capital expenditure commitments for $19 million are forecasted for 1996. Proceeds from the sale of property, plant and equipment was primarily from the sale of a distribution center in Charlotte, North Carolina. As of March 31, 1996, two other distribution centers in the United States with a book value of $622 thousand remain to be sold. The Italian subsidiary invests excess cash in short-term investments which change from time to time based on availability and rates. The level of changes of marketable securities from period to period principally represents investment alternatives versus certificates of deposit, time deposits, and intercompany loans. The major use of cash in financing activities in the first quarter of 1996 was for dividends to shareholders. The Company has an authorized program to purchase shares of stock for the Company treasury from time to time in the open market, depending on market conditions, and may utilize funds for this purpose in the future. As of March 31, 1996, 1.3 million shares remained available for purchase under the program. The Company's earnings, cash flow, and available debt capacity have made and make stock repurchases, in the Company's view, one of its best investment alternatives. The major source of funds from financing activities was from higher seasonal borrowings. Total stock options outstanding at the -14- exercise price amounted to $77 million at March 31, 1996 and the Company could receive these funds in the future if the options are exercised. Fluctuations in the value of the U.S. dollar versus international currencies affect the U.S. dollar translation value of international currency denominated balance sheet items. The changes in the balance sheet dollar values due to international currency translation fluctuations are recorded as a component of shareholders' equity. International currency fluctuations of $810,000 increased the cumulative translation component which reduced the shareholders' equity increase in the first three months of 1996. The translation adjustments to the March 31, 1996 balance sheet that produced the 1996 change in the cumulative translation component of shareholders' equity were increases in working capital by $520,000; decreases in net property, plant and equipment and other assets by $1,156,000; and increases in long-term liabilities by $174,000. The Company depends upon its international operations to pay dividends and to make other payments to the Company. The Company's international operations are subject to the risks of doing business abroad including currency, economic and political. The Company currently believes that cash from operations and available financing alternatives are adequate to meet anticipated requirements for working capital, dividends, capital expenditures, the stock repurchase program and other needs. No liquidity problems are anticipated. -15- STANHOME INC. SALES AND OPERATING PROFIT BY BUSINESS SEGMENT FOR THE FIRST THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) (In Thousands)
1996 1995 Percent Actual Actual Change ------ ------ ------- Net Sales: Giftware $ 99,612 $105,955 ( 6%) Direct Response 36,687 31,806 15 Direct Selling 47,648 47,759 - Eliminations ( 907) ( 651) -------- -------- Total Net Sales $183,040 $184,869 ( 1%) ======== ======== Operating Profit: Giftware $ 8,010 $ 11,499 (30%) Direct Response 707 ( 16) Direct Selling 4,503 4,749 ( 5) Unallocated Expense ( 2,825) ( 2,462) (15) -------- -------- Total Operating Profit $ 10,395 $ 13,770 (25%) ======== ========
-16- PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Stockholders was held on April 25, 1996. (c) The first matter voted upon at the meeting was the election of Directors. The members of Class I were standing for election to a three-year term expiring at the Annual Meeting in 1999. Upon motion duly made and seconded, it was voted to elect Judith R. Haberkorn, Thomas R. Horton, and H. L. Tower as Class I Directors for a three-year term expiring at the Annual Meeting in 1999 and until their successors are elected and qualified. The votes for each of the candidates were reported as follows: Judith R. Haberkorn For: 14,573,141 Withheld: 267,177 Thomas R. Horton For: 14,550,018 Withheld: 290,300 H. L. Tower For: 14,385,991 Withheld: 454,327 The second matter voted upon at the meeting was the ratification of the Board's appointment of Arthur Andersen LLP as independent accountants for 1996. Upon motion duly made and seconded, it was voted that the appointment by the Board of Directors at its March 6, 1996 meeting of Arthur Andersen LLP, independent certified public accountants, as independent accountants for the Company for its fiscal year ending December 31, 1996 be ratified and approved. The votes for the independent accountants were reported as follows: Arthur Andersen LLP For: 14,709,111 Against: 62,186 Abstain: 69,021 The third matter voted upon at the meeting was the approval of the Stanhome Inc. 1996 Stock Option Plan. Upon motion duly made and seconded, it was voted that the 1996 Stock Option Plan adopted by the Board of Directors at its January 24, 1996 meeting be approved. The votes for the approval of the 1996 Stock Option Plan were reported as follows: 1996 Stock Option Plan For: 8,850,285 Against: 4,197,367 Abstain: 859,481 ITEM 5. OTHER INFORMATION In connection with the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995, the Company is hereby -17- filing cautionary statements identifying some of the important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by or on behalf of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Stanhome Supplemental Investment Savings Plan, as amended and restated through April 23, 1996 - 1996 Stock Option Plan - John J. Dur Severance Arrangement, as amended and restated through May 7, 1996 - Financial Data Schedule - Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the Quarter for which this report is filed. All other items hereunder are omitted because either such item is inapplicable or the response to it is negative. 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. STANHOME INC. (Registrant) Date: May 14, 1996 /s/G. William Seawright _____________________________________ G. William Seawright President and Chief Executive Officer Date: May 14, 1996 /s/Allan G. Keirstead _____________________________________ Allan G. Keirstead Chief Administrative and Financial Officer -18- EXHIBIT INDEX
Reg. S-K Item 601 Exhibit 10-Q Page No. _________ _______ _____________ 10(a) Stanhome Supplemental Investment 20 Savings Plan, as amended and restated through April 23, 1996 10(b) 1996 Stock Option Plan 31 10(c) John J. Dur Severance Arrangement, 38 as amended and restated through May 7, 1996 27 Financial Data Schedule 39 99 Cautionary Statement for Purposes 40 of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995
-19- EX-10 2 EXHIBIT 10(A) EXHIBIT 10(a) STANHOME SUPPLEMENTAL INVESTMENT SAVINGS PLAN AS AMENDED AND RESTATED THROUGH APRIL 23, 1996 WHEREAS, Stanhome Inc., a Massachusetts corporation ( the "Company"), has for many years maintained the Stanhome Investment Savings Plan (the "Qualified Plan") for the benefit of its employees and employees of certain of its subsidiaries which have, with the consent of the Company, elected to participate in the Qualified Plan (the "Employers"); WHEREAS, section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code") limits the amount of annual compensation which may be taken into account under the Qualified Plan to $150,000 (as adjusted for increases in the cost of living) (the "Compensation Limit"); WHEREAS, section 402(g) of the Code limits the contributions to a participant's Salary Reduction Contribution Account under the Qualified Plan to $7,000 (adjusted for increases in the cost of living) (the "Dollar Limit"); WHEREAS, section 401(k) of the Code (the "Before-Tax Contribution Limit") may limit the amount of contributions which may be allocated to the Salary Reduction Contribution Accounts of certain highly compensated participants under the Qualified Plan; WHEREAS, section 415 of the Code requires that allocations to participants' accounts under the Qualified Plan generally be limited to the lesser of $30,000 (adjusted for increases in the cost of living) and 25% of a participant's compensation in certain other respects (the "Section 415 Limit"); and WHEREAS, the Company and the Employers desire to adopt an "excess benefit plan" within the meaning of section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and to provide benefits to "a select group of management or highly compensated employees," within the meaning of ERISA equal to the contributions which, but for sections 401(a)(17), 401(k), 402(g) and 415 of the Code, would be provided to such participants under the Qualified Plan. NOW, THEREFORE, the Company and the Employers hereby agree as follows: 1. Definitions. All capitalized terms used herein shall have the respective meanings assigned to such terms by the Qualified Plan, except as otherwise set forth in the preamble to or text of this Plan or below: (a) Plan. This Stanhome Supplemental Investment Savings Plan, as from time to time amended. (b) Key Associate. For any Plan Year, an employee of the Company or an Employer who is a Participant in the Qualified Plan for a Plan Year and who either is (i) an officer of the Company or any Employer, or (ii) is classified by the Committee as a "key associate" who shall elect to participate in this Plan for a calendar year. An election to participate in this Plan for a calendar year shall be made (i) for the calendar year in which the Plan is adopted, or for the calendar year in which an employee first becomes designated as eligible to participate in the Plan, within 30 days after such adoption or designation, as the case may be, and (ii) for each subsequent calendar year, by December 31 of the preceding calendar year. A person shall cease to be Key Associate upon the complete distribution of his or her Accounts under the Plan. (c) Account. An account established on behalf of a Key Associate pursuant to the Plan. (d) Valuation Date. The date as of which earnings (or losses) are credited to an Account pursuant to paragraph 3 of the Plan. (e) Trust. A trust entered into between the Company, the Employers and the trustee for the purpose of administering assets of the Company to be used for the purpose of satisfying the obligations of the Company and the Employers under the Plan. Any such trust shall be established in such manner so as to be a "grantor trust" of which the Company and the Employers are the grantors, within the meaning of section 671 et. seq. of the Code. 2. Accounts. (a) Credits with Respect to Employee Contributions. There shall be established on the books of the Company and of each Employer an Employee Account in the name and on behalf of each employee thereof who is a Key Associate and who, during any Plan Year beginning after December 31, 1993, would have been entitled, based on the election made by such Key Associate under Section 3.2 of the Qualified Plan as in effect on the first day of such Plan Year (or in the case of the first Plan Year for which an employee is eligible to participate in this Plan based on a separate written election pursuant to this Plan to defer a percentage of pay earned after the date of such election, to make contributions to his or her Salary Reduction Contribution Account in excess of the amount that would have been so allocated but for the application of: (a) The penultimate three sentences of subdivision (12) of Article 2 of the Qualified Plan, relating to the Compensation Limit; (b) Section 4.2 of the Qualified Plan, relating to the Dollar Limit; (c) Section 4.4 of the Qualified Plan, relating to the Before- Tax Contribution Limit; and (d) Section 7.5 of the Qualified Plan relating to the Section 415 Limit. In lieu of the election provided for above, Key Associates may elect to defer their compensation for such year pursuant to this Plan in lieu of periodic salary reduction contributions pursuant to Section 4.1 of the Qualified Plan. Notwithstanding the foregoing, an election pursuant to the preceding sentence shall be deemed to be an election under Section 4.1 of the Qualified Plan for the maximum contribution allowable thereunder for such calendar year in respect of the compensation deferred pursuant to this Plan for such year. The compensation otherwise payable by the Company or an Employer to such Key Associate shall be reduced, and each Employee Account shall be credited with, such amounts, and at such time and in such manner, as shall be necessary so that the wages subject to withholding under section 3402 of the Code of such Key Associate shall not be greater than if the contributions to his or her Salary Reduction Contribution Account were not subject to any of the above-described limits. Notwithstanding anything herein to the contrary, the amount to be credited by the Company or an Employer to the Employee Account of each such Key Associate for any Plan Year shall not exceed the elected percentage of the Key Associate's Compensation for such Plan Year (determined without regard to the Compensation Limit) in effect under Section 4.1(a) of the Qualified Plan on the first day of such Plan Year (or, in the case of an election pursuant to the second paragraph of this Section 2(a) or the first year for which a Key Associate is eligible to participate in this Plan, the maximum such percentage allowed under Section 4.1(a) of the Qualified Plan, less the amount contributed on behalf of such Key Associate for such Plan Year pursuant to Section 4.1 (a) of the Qualified Plan. (b) Matching Credits. There shall be established an Employer Account on behalf of each Key Associate for whom an Employer Account is established pursuant to Section 2(a). As of each date on which matching contributions pursuant to Section 4.3 are delivered to the trustee under the Qualified Plan, the Employer Account of each Key Associate shall be credited with an amount equal to any matching contributions that would have been made as of such date pursuant to Section 4.3 of the Qualified Plan if the amounts credited to the Key Associate's Employee Account pursuant to Section 2(a) for the period to which such matching contributions relate had been made under Section 4.1 of the Qualified Plan. (c) Transfers to Qualified Plan. As soon as practicable following the end of a calendar year for which elections were made pursuant to the second paragraph of Section 2(a), the Company shall determine the maximum amount of contributions that could have been made under Section 4.1 of the Qualified Plan for such calendar year (after taking into account the limitations contained in Section 4.4) on behalf of each Key Associate who made such an election (the "Maximum Qualified Elective Contribution"). As soon as is practicable thereafter (i) the Employee Account of each such Key Associate shall be debited and reduced by an amount equal to the lesser of the Maximum Qualified Elective Contribution and the amount credited to such account (reduced by any losses charged thereto pursuant to Section 3) for such year pursuant to Section 2(a) and the Company shall contribute to the Qualified Plan cash in an amount equal to such debit, and (ii) the Employer Account shall be debited and reduced by the amount of matching contributions made pursuant to Section 4.3 of the Qualified Plan for such calendar on account of the contributions made pursuant to clause (i) of this sentence. 3. Earnings on Accounts. As of the close of each business day, the Company and each Employer shall credit to or charge against, as the case may be, each Account established on its books pursuant to paragraph 2 of this Plan, an amount representing investment gains or losses in respect of the balance of such Account. The amount of such gains or losses in respect of the Account of any Participant shall be determined by the Committee to be equal to the net gain or loss that would have been earned on an amount equal to the balance of such Participant's Account as of the close of the preceding business day, as adjusted for any credits, withdrawals or distributions, based on the hypothetical investment elections made by the Key Associate, as described below. Each Key Associate shall be entitled to elect to have the earnings in respect of his or her Plan Account determined as if an amount equal to the balance thereof were invested among the investment funds available from time to time under the Qualified Plan except the Stanhome Stock Fund and the Putnam Stable Value Fund. Such elections shall be subject to the same provisions regarding the time, manner and portion of the account subject to such election as are applicable from time to time under the Qualified Plan. 4. Vesting. Amounts credited to a Key Associate's Account pursuant to the terms of this Plan shall be fully vested and not subject to forfeiture for any reason. 5. Hardship Withdrawals. If a Key Associate experiences an "unforeseeable financial emergency," as defined below, he or she may request the Committee to (i) suspend any further reductions in compensation pursuant to Section 2 above, (ii) receive a complete or partial distribution of the Key Associate's Accounts under the Plan or (iii) do both (i) and (ii) above. The amount of any distribution pursuant to this Section 5 shall not exceed the lesser of (i) the balance of the Key Associate's Accounts under the Plan, determined as of the Valuation Date next following the date of such request, and (ii) the amount reasonably necessary to satisfy such unforeseeable financial emergency. For purposes of this Section 5, "unforeseeable financial emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Key Associate resulting from (i) a sudden and unexpected illness or accident of the Key Associate or a dependent of the Key Associate, (ii) a loss of the Key Associate's property due to casualty or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Key Associate, all as determined in the sole discretion of the Committee. 6. Distributions. The distribution of a Key Associate's Accounts under this Plan shall be made at the same time and in the same manner as distributions are made to the Key Associate under the Qualified Plan. Such distribution shall be based on the balance of the Key Associate's Accounts as of the Valuation Date coinciding with or next following the valuation date used to determine the amount to be distributed to or on behalf of the Key Associate under the Qualified Plan. 7. Beneficiaries. If a Key Associate shall die while any amount remains credited to the Accounts established on his behalf pursuant to paragraph 2 of this Plan, such amount shall be distributed as provided in paragraph 6 of this Plan to the beneficiary or beneficiaries as the Key Associate may, from time to time, designate in writing delivered to the Committee. A Key Associate may revoke or change his or her beneficiary designation at any time in writing delivered to the Committee. If a Key Associate does not designate a beneficiary under this Plan, or if no designated beneficiary survives the Key Associate, the balance of his or her Account shall be distributed to the person or persons entitled to his or her account under Section 8.5 of the Qualified Plan (or who would be so entitled if there were then an amount remaining unpaid under the Qualified Plan). 8. Amendment and Termination. This Plan shall be subject to the same reserved powers of amendment and termination as the Qualified Plan (without regard to any limitations imposed on such powers by the Code or ERISA), except that no such amendment or termination shall reduce or otherwise adversely affect the rights of Key Associates or Beneficiaries in respect of amounts credited to their Accounts as of the date of such amendment or termination. 9. Application of ERISA. This Plan is intended to be an "excess benefit plan" within the meaning of section 3(36) of ERISA and an unfunded plan maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and Department of Labor Regulation 2520.104-23. This Plan shall not be a funded plan, and the Company and the Employers shall be under no obligation to set aside any funds for the purpose of making payments under this Plan. Any payments hereunder shall be made out of the general assets of the Company and the Employers. 10. Administration. The Committee shall be charged with the administration of this Plan and shall have the same powers and duties, and shall be subject to the same limitations, as are described in the Qualified Plan. The provisions of Article 10 of the Qualified Plan (other than Section 10.3, relating to qualified domestic relations orders) are hereby incorporated herein by reference, and shall be applicable as if such provisions were set forth herein. 11. Nonassignment of Benefits. Notwithstanding anything contained in the Qualified Plan to the contrary, it shall be a condition of the payment of benefits under this Plan that neither such benefits nor any portion thereof shall be assigned, alienated or transferred to any person voluntarily or by operation of any law, including any assignment, division or awarding of property under state domestic relations law (including community property law). If any person shall endeavor or purport to make any such assignment, alienation or transfer, the amount otherwise provided hereunder which is the subject of such assignment, alienation or transfer shall cease to be payable to any person. 12. No Guaranty of Employment. Nothing contained in this Plan shall be construed as a contract of employment between any Employer and any employee or as conferring a right on any employee to be continued in the employment of any Employer. 13. Adoption By Employers. Any corporation which is or becomes an "Employer" under the Qualified Plan may, with the consent of the Company, become an Employer in this Plan by delivery to the Company of a resolution of its board of directors or duly authorized committee to such effect, which resolution shall specify the first Plan Year under the Qualified Plan for which this Plan shall be effective in respect of the employees of such corporation. 14. Trust. The Company (and the Employers) shall establish the Trust and shall at least annually contribute to the Trust such assets as the Committee determines, in its sole discretion, are necessary to provide for the Employers' future liabilities created with respect to the amounts credited to the Accounts established hereunder. The existence of the Trust shall not relieve the Employers of their liabilities under the Plan, but the Employers' obligations under the Plan shall be deemed satisfied to the extent paid from the Trust. 15. Miscellaneous. (a) Certain Qualified Plan Provisions. Except as otherwise provided herein, the miscellaneous provisions contained in Sections 13.6 (relating to gender and plurals), 13.7 (relating to applicable law) and 13.8 (relating to severability) are hereby incorporated herein by reference, and shall be applicable as if such provisions were set forth herein. (b) Expenses. All costs and expenses incurred in administering the Plan, including the expenses of the Committee, the fees of counsel and any agents of the Committee and other administrative expenses shall be charged against the Accounts in such amounts and at such time and in such manner as the Committee, in its sole discretion, shall determine. (c) FICA Taxes. For each calendar year in which a Key Associate's compensation is reduced pursuant to this Plan, his or her employer shall withhold from that portion of the Key Associate's payments of compensation the taxes imposed upon the Key Associate pursuant to section 3121 of the Code in respect of the amount by which the Key Associate's compensation is reduced. (d) Successors and Assigns. The provisions of this Plan shall bind and inure to the benefit of each Employer and its successors and assigns, as well as each Key Associate and his or her beneficiaries and successors. EX-10 3 EXHIBIT 10(B) EXHIBIT 10(b) STANHOME INC. 1996 Stock Option Plan 1. Purpose. The purpose of this 1996 Stock Option Plan (the "Plan") is to advance the interests of Stanhome Inc. (the "Company") by encouraging key management employees of the Company and its subsidiaries and non- employee directors of the Company to acquire a proprietary interest in the Company through ownership of common stock of the Company. Such ownership will encourage the optionees to remain with the Company and will help attract other qualified persons to become employees and directors. 2. Administration. The Plan shall be administered by the Compensation and Stock Option Committee of the Board of Directors (the "Committee") which shall be composed of not less than three directors of the Company elected or to be elected as members of the Committee from time to time by the Board of Directors of the Company. Each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b- 3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Subject to the provisions of the Plan and the approval of the Board of Directors of the Company, except that the Board of Directors shall have no discretion with respect to the selection of officers within the meaning of Rule 16a-1(f), directors or 10% or more shareholders ("Insiders") for participation and decisions concerning the timing, pricing and amount of a grant or award to such "Insiders", the Committee is authorized to grant options under the Plan and to interpret the Plan and such options, to prescribe, amend and rescind rules and regulations relating to the Plan and the options, and to make other determinations necessary or advisable for the administration of the Plan, all of which determinations shall be conclusive. The Committee shall act pursuant to a majority vote or by unanimous written consent. 3. Types of Options. Options granted pursuant to the Plan may be either incentive stock options under Section 422 of the Code ("Incentive Stock Options") or options not qualifying under that section of the Code ("Non-qualified Stock Options"). It is the intent of the Company that Non- qualified Stock Options granted under the Plan not be classified as Incentive Stock Options, that the Incentive Stock Options granted under the Plan be consistent with and contain or be deemed to contain all provisions required under Section 422 and the other appropriate provisions of the Code and any implementing regulations (and any successor provisions thereof), and that any ambiguities in construction shall be interpreted in order to effectuate such intent. 4. Eligibility. Options shall be granted under the Plan to such selected key full-time salaried and commissioned employees (including officers and directors if they are employees) of the Company or any of its subsidiaries as the Committee shall determine from time to time. Options shall also be granted under the Plan to the non-employee directors of the Company (the "Non-employee Directors") pursuant to Section 9 hereof. 5. Stock Subject to Options. The aggregate number of shares which may be issued or sold under options granted pursuant to the Plan (the "Shares") shall not exceed 1,500,000 shares of the Company's common stock $0.125 par value each. Such Shares shall be either authorized but unissued shares of said common stock or issued shares of said common stock which shall have been reacquired by the Company. Such aggregate number of Shares may be adjusted under Sections 9 and 10 below. If any outstanding option under the Plan expires or is terminated for any reason, the Shares allocated to the unexercised portion of such option may again be subjected to an option or options under the Plan. 6. Allotment of Shares. Except as provided under Section 9 hereof, the Committee shall determine the total number of Shares to be offered to each optionee under the Plan; provided, however, that no optionee may be granted options which exceed 300,000 Shares under the Plan. 7. Option Price. The Shares shall be offered from time to time under the Plan at a price which shall be not less than the greater of (i) 100 percent of the Fair Market Value of the Company's common stock on the date the option is granted, or (ii) the par value of the Company's common stock subject to the option; provided, however, that the price shall be not less than 110 percent of such Fair Market Value in the case of Shares offered under any Incentive Stock Option granted to an individual who, at the time the option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of its subsidiaries. 8. Terms and Conditions of Options. The Committee shall have power, subject to the limitations contained in the Plan, to prescribe the terms and conditions of any option granted hereunder. Each such option shall be evidenced by a certificate in such form as the Committee shall from time to time determine, which certificate shall prescribe the following terms and conditions and such other terms and conditions as the Committee may deem necessary or advisable: (a) Duration of Options. Except as hereinafter otherwise provided, options granted under the Plan shall be exercisable for such period of time as the Committee shall determine. An Incentive Stock Option shall not be exercisable after the expiration of ten years from the date it is granted; provided, however, that any Incentive Stock Option granted to an individual who, at the time the option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of its subsidiaries shall by its terms not be exercisable after the expiration of five years from the date of grant. (b) Exercise of Options. Except as hereinafter otherwise provided, each option granted under the Plan may be exercised only after six months of continued employment by the Company or one of its subsidiaries immediately following the date the option is granted, or the date of Stockholder approval under Section 11 below if later, and only during the continuance of the optionee's employment with the Company or one of its subsidiaries and such additional period as may be provided in subsection (e) below. No option shall be exercised for less than 10 Shares except as a result of an adjustment under Sections 9 or 10 below. Subject to the foregoing and to the limitations set forth under subsection 8(e) below, each option granted under the provisions of this Section 8 may be exercised at any time after six months from the date the option is granted or, if later, six months after the date of approval of the Plan by the Stockholders of the Company,(1) as to 50% of the Shares subject to the option if the Fair Market Value of the common stock is at or above 125% of the Option Price on each of at least ten consecutive Trading Days, (2) as to the remaining 50% of the Shares subject to the option if, at any time at or after the initial 50% of said Shares becomes exercisable, the Fair Market Value of the common stock is at or above 150% of the Option Price on each of at least ten consecutive Trading Days, or (3) after the eighth anniversary of the date the option is granted. (c) Payment. The purchase price of each Share purchased upon the exercise of any option granted hereunder shall be paid in full at the time of such purchase, and a stock certificate representing Shares so purchased shall be delivered to the person entitled thereto. Until the stock certificate for such Shares is issued in the optionee's name, he or she shall have none of the rights of a stockholder. Payment may be made in whole or in part in (i) cash or (ii) whole shares of the Company's common stock acquired at least six months previously by the optionee, for which the optionee has good title, free and clear of all liens and encumbrances, and evidenced by negotiable certificates, valued at their Fair Market Value on the date preceding the date the option is exercised. If certificates representing shares of common stock are used to pay all or part of the purchase price of an option, separate certificates shall be delivered by the Company representing the same number of shares as each certificate so used and an additional certificate shall be delivered representing the additional shares to which the option holder is entitled as a result of exercise of the option. It shall be a condition to the performance of the Company's obligation to issue or transfer Shares upon exercise of an option or options that the optionee pay, or make provision satisfactory to the Company for the payment of, any taxes (other than stock transfer taxes) which the Company is obligated to collect with respect to the issue or transfer upon such exercise. With respect to the exercise of Non-qualified Stock Options granted pursuant to this Section 8, optionees may elect to have the Company withhold a designated number of Shares otherwise issuable upon the exercise of such stock options, or, in the case of "Insider" optionees, to commit irrevocably at a time acceptable under the provisions of Section 16 of the Exchange Act to have the Company withhold whole shares of common stock to cover Federal and State tax obligations incident to such exercise, or such other maximum amounts as may be determined by the Committee. (d) Nontransferability of Options. No option shall be transferable by the optionee otherwise than (1) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Committee, (2) as otherwise permitted under Rule 16b-3 under the Exchange Act from time to time and allowed by the Committee, or (3) pursuant to a qualified domestic relations order as defined in Section 414(p) of the Code. Except to the extent permitted by the foregoing sentence, each option shall be exercisable, during his or her lifetime, only by the optionee or his or her guardian or legal representative(s). (e) Termination of Options. (i) Disability, Retirement at or after age 55, Termination without Substantial Cause, or Death. If the optionee's employment with the Company terminates by reason of Disability, retirement at or after age 55, termination by the Company without Substantial Cause, death, or for any other reason not set forth under clauses (ii) and (iii) below, if not sooner terminated pursuant to their terms and subject to subsections (a) and (b) above, all outstanding options then held by the optionee shall be exercisable during the three year period following any such termination of employment by the optionee or his or her guardian or legal representative(s), except further that in the case of Incentive Stock Options the period for such exercise following such termination shall be limited to three months, or, in the case of a termination of employment by reason of disability, to twelve months; (ii) Termination by Voluntary Resignation or Retirement before reaching age 55. If the optionee's employment with the Company is terminated either by voluntary resignation or retirement before reaching age 55, all outstanding options then held by the optionee shall be exercisable during the three month period following any such termination of employment by the optionee or his or her guardian or legal representative(s); (iii) Termination for Substantial Cause. If the optionee's employment with the Company is terminated for Substantial Cause, all outstanding options then held by the optionee shall thereupon be forfeited by the optionee and canceled by the Company; and (iv) Termination within Six Months of Grant. Notwithstanding the foregoing, upon the optionee's employment with the Company or any subsidiary terminating at any time for any reason, all outstanding options granted within the last six months prior to the optionee's termination shall thereupon be forfeited by the optionee and canceled by the Company. Cessation of any corporation's relationship with the Company as a subsidiary shall constitute a "termination without Substantial Cause" hereunder as to individuals employed by that corporation, and options held by such individuals shall be terminated in accordance with paragraph (i) above. For purposes of this subsection, the meaning of the word "disability" shall be determined under the provisions of Section 422(c)(7) of the Code or any successor provisions thereof. (f) Fair Market Value. Fair Market Value shall mean the closing transaction price of a share of common stock as reported in the New York Stock Exchange Composite Transactions on the date as of which such value is being determined, or, if the common stock is not listed on the New York Stock Exchange, the closing transaction price of a share of common stock on the principal national stock exchange on which the common stock is traded on the date as of which such value is being determined; or, if there shall be no reported transaction for such date, on the next preceding date for which a transaction was reported; provided, however, that if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its sole discretion, shall at such time deem appropriate. (g) "Trading Day". A Trading Day shall be a day on which the Company's common stock may be traded on a stock exchange or, if the Company's common stock is not listed on any exchange, in the Over The Counter market. (h) "Substantial Cause". Substantial Cause shall mean (1) the willful and continued failure by optionee to perform substantially the optionee's duties with the Company or a subsidiary (other than any such failure resulting from the optionee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the optionee by the Board, which demand specifically identifies the manner in which the Board believes that the optionee has not substantially performed the optionee's duties or (2) the willful engagement by the optionee in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (1) and (2) of this definition, no act or failure to act by a optionee shall be deemed "willful" unless done, or omitted to be done, by the optionee not in good faith and without reasonable belief that the optionee's act or failure to act was in the best interests of the Company. 9. Non-employee Directors' Options. The Committee shall not have any discretion with respect to the options granted to the Non-employee Directors under the provisions of this Section 9. Except as hereinafter otherwise provided, options granted pursuant to this Section 9 shall be subject to the terms and conditions set forth in Section 8. (a) Grant of Options. On the day following each of the 1996 through and including the 1998 annual stockholders' meetings, each person who is a Non-employee Director immediately after such meeting shall automatically be granted an option to purchase 1,500 Shares. The maximum number of Shares for which options may be granted to any Non-employee Director under the Plan shall be 4,500. All such options shall be Non-qualified Stock Options. The price at which each Share covered by such options shall be purchased shall be the greater of (i) 100 percent of the Fair Market Value of the Company's common stock on the date the option is granted, or (ii) the par value of the Company's common stock subject to the option. (b) Exercise of Options. (i) Except as hereinafter otherwise provided, an option granted to the Non-employee Director may be exercised only after six months of continued service as a Director of the Company following the date the option is granted, or the date of Stockholder approval under Section 11 below if later, and only during the continuance of the optionee serving on the Board of Directors and such additional period as is provided for below. The option may be exercised by the Non- employee Director or his or her guardian or legal representative(s) during the period that the Non-employee Director remains a member of the Board of Directors and for a period of three years thereafter, subject to subsection 8(a) and the conditions of exercise set forth below in this subsection 9(b) and, provided further, that in no event shall the option be exercisable more than ten years after the date of grant. Subject to the foregoing, each option granted to the Non-employee Directors under the provisions of this Section 9 may be exercised at any time after six months from the date the option is granted or, if later, six months after the date of approval of the Plan by the Stockholders of the Company, (1) as to 50% of the Shares subject to the option if the Fair Market Value of the common stock is at or above 125% of the Option Price on each of at least ten consecutive Trading Days, (2) as to the remaining 50% of the Shares subject to the option if, at any time at or after the initial 50% of said Shares becomes exercisable, the Fair Market Value of the common stock is at or above 150% of the Option Price on each of at least ten consecutive Trading Days, or (3) after the eighth anniversary of the date the option is granted; and (ii) Notwithstanding the foregoing, upon the Non-employee Director's service as a Director of the Company terminating at any time for any reason, all outstanding options granted within the last six months prior to the Non-employee Director's termination shall thereupon be forfeited by the Non-employee Director and canceled by the Company. (c) Payment. An option granted to the Non-employee Director shall be exercisable only upon payment to the Company in accordance with the provisions of Section 8(c) of the full purchase price of the Shares with respect to which the option is being exercised. (d) Adjustment of Options. In the event of a stock dividend, split- up or combination of shares, recapitalization, reclassification or merger in which the Company is the surviving corporation, or other similar capital or corporate structure change, the number of Shares at the time of such change remaining subject to any option granted or to be granted pursuant to the provisions of this Section 9 shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of common stock of the Company by reason of such change in corporate structure, provided that the number of Shares shall always be a whole number with any fractional Shares being deleted therefrom, and the purchase price per Share of any outstanding options shall, in the case of an increase in the number of Shares, be proportionately decreased, and in the case of a decrease in the number of Shares, be proportionately increased. In the event of a consolidation or merger in which the Company is not the surviving corporation or of a "Change in Control" as defined in Section 10, including, but not limited to, "Changes in Control" in which the Company is the surviving corporation, and notwithstanding the preceding sentence, each option outstanding under the provisions of this Section 9 shall thereupon terminate, provided that within ten days of the effective date of any such consolidation, merger, or "Change in Control", the Company shall pay in cash the difference between the exercise price of the unpurchased Shares under the options and the value of consideration receivable in the transaction by a holder of the number of shares of common stock equal to the number subject to the options. 10. Changes in Stock. In the event of a stock dividend, split-up or combination of shares, recapitalization, reclassification or merger in which the Company is the surviving corporation, or other similar capital or corporate structure change, the number and kind of Shares at the time of such change remaining subject to the Plan and to any option granted or to be granted pursuant to the Plan, except for options granted or to be granted pursuant to Section 9, the option price and any other relevant provisions shall be appropriately adjusted by the Board of Directors of the Company, whose determination shall be binding on all persons. In the event of a consolidation or merger in which the Company is not the surviving corporation, (i) each option outstanding hereunder that is held by an "Insider" optionee and that is not outstanding under the provisions of Section 9 shall become immediately exercisable and (ii) each option outstanding hereunder that is held by an optionee who is not an "Insider" shall terminate, provided that at least twenty days prior to the effective date of any such consolidation or merger, the Board of Directors of the Company shall do one of the following with respect to options held by optionees who are not "Insiders": (1) make such options immediately exercisable, (2) arrange to have the surviving or consolidated corporation grant replacement options to the optionees involved, or (3) pay in cash the difference between the exercise price of the unpurchased Shares under the options and the value of consideration receivable in the transaction by a holder of the number of shares of common stock equal to the number subject to the options. No adjustment provided for in this Section 10 shall require the Company to issue or sell a fractional share under any option hereunder and any fractional share resulting from any such adjustment shall be deleted from the option involved. Notwithstanding anything herein to the contrary, and without regard to subsections 8(e)(iv) and 9(b)(ii) and clauses 1, 2 and 3 of subsections 8(b) and 9(b), in the event of a "Change in Control" as defined below, including certain consolidation or merger events otherwise giving rise to the adjustments or alternatives described in the above paragraph, each option outstanding under this Plan shall thereupon terminate, provided that within ten days of the effective date of such Change in Control, the Company shall pay in cash the difference between the exercise price of the unpurchased Shares under the options and the value of consideration receivable in the transaction by a holder of the number of shares of common stock equal to the number subject to the options. As used herein, "Change in Control" means a Change in Control of a nature that would, in the opinion of the Company counsel, be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided that, without limitation, such a Change in Control shall be deemed to have occurred if: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company or any subsidiary of the Company, any trustee or fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company)) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive years (not including any period prior to the effective date of this Plan), individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute a majority thereof; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires 25% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. With respect to all optionees other than the Non-employee Directors, no Change in Control shall be deemed to have occurred if the optionee is a member of a management group which first announces a proposal which constitutes a Potential Change in Control, unless otherwise determined by a majority of the members of the Board of Directors who are not members of such management group. A "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following subsections shall have been satisfied: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) the Company or any Person publicly announces an intention to take or to consider taking actions, which if consummated, would constitute a Change in Control; (iii) any Person who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities, increases such Person's beneficial ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof; or (iv) the Board of Directors adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control has occurred. 11. Effective Date; Stockholder Approval; Term. The Plan was adopted by the Board of Directors on January 24, 1996 and shall become effective as of January 24, 1996 if the Plan is approved by the holders of a majority of the common stock outstanding and entitled to vote at the Annual Meeting of Stockholders scheduled for April 25, 1996. No option hereunder shall be granted after January 23, 2006 or the earlier suspension or termination of the Plan in accordance with its terms. The Plan shall terminate on January 23, 2006 or on such earlier date as it may be suspended or terminated under the provisions of Section 12 below or as of which all Shares subject to options authorized to be granted under the Plan shall have been acquired by exercise of such options. 12. Amendment or Discontinuance of the Plan. The Board of Directors of the Company may, insofar as permitted by law, at any time or from time to time, suspend or terminate the Plan or revise or amend it in any respect whatsoever except that, without appropriate approval of the stockholders of the common stock, no such revision or amendment shall increase the maximum number of Shares subject to the Plan, change the designation of the class of employees eligible to receive options, decrease the price at which options may be granted or otherwise change the provisions of this Plan to the extent approval of the holders of the common stock of the Company is required under applicable laws, rules or regulations. Notwithstanding the preceding sentence, amendments to change the provisions of Section 9(a) shall not be made more frequently than once every six months other than to comply with the Code or the Employee Retirement Income Security Act. 13. Applicable Laws or Regulations and Notification of Disposition. The Company's obligation to sell and deliver Shares under an option is subject to such compliance as the Company deems necessary or advisable with federal and state laws, rules and regulations applying to the authorization, issuance, listing or sale of securities. The Company may also require in connection with any exercise of an Incentive Stock Option that the optionee agree to notify the Company when making any disposition of the Shares, whether by sale, gift, or otherwise, within two years of the date of grant or within one year of the date of exercise. 14. No Employment Right; No Obligation to Exercise Option. Nothing contained in the Plan, or in any option granted under it, shall confer upon any optionee any right to continued employment by the Company or any of its subsidiaries or to continued membership on the Board of Directors of the Company or limit in any way the right of the Company or any subsidiary to terminate the optionee's employment at any time. The granting of any option hereunder shall impose no obligation upon the optionee to exercise such option. EX-10 4 EXHIBIT 10(C) EXHIBIT 10(c) JOHN J. DUR SEVERANCE ARRANGEMENT AS AMENDED AND RESTATED THROUGH MAY 7, 1996 John J. Dur has an agreement with the Company which provides for the payment of from six months up to twenty-four months of severance, based upon his then current base annual salary, depending upon the particular circumstances of his termination of employment at that time and various subsequent events following the completion or other conclusion of his present assignment. EX-27 5 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 3-MOS DEC-31-1996 MAR-31-1996 18,386,143 0 176,079,899 20,902,914 122,869,950 342,787,766 130,692,939 70,933,379 532,765,279 241,300,038 0 0 0 3,153,530 263,645,184 532,765,279 183,039,727 183,039,727 78,092,565 78,092,565 94,389,720 162,317 1,846,058 7,749,342 3,679,010 4,070,332 0 0 0 4,070,332 .22 .22
EX-99 6 CAUTIONARY STATEMENTS EXHIBIT 99 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 From time to time, the Company and its representatives may make statements about the Company which constitute or contain "forward-looking" information as that term is defined in the Private Securities Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange Commission in its rules, regulations, and releases. Any such forward-looking statements that are made by or on behalf of the Company by a person as referred to in the Act, whether written or oral, are not guarantees of future performance and actual results may differ materially from those contained in the forward-looking statements. The following list contains some of the important factors that could cause actual results of the Company to differ materially from the estimates and other projections contained in the Company's forward-looking statements: the pattern of the Company's sales, including variations in sales volume within periods; the ability of the Company to develop, renew, and maintain competitive product licensing arrangements with third-party artists and other licensors; vigorous competition within the Company's product markets, including pricing, promotions, and other advertising and marketing activities intended to preserve or gain market share; development of new products and the inherent risks associated with new product introductions, including uncertainty of trade and customer acceptance and competitive reaction; development and protection of brand identity and consumer awareness of intellectual property of the Company, including registered trademarks, patents, copyrights, and other proprietary material; the costs and effects of unanticipated legal and administrative proceedings; impacts of domestic federal and state tax changes, including direct response jurisdictional nexus and giftware worker classification issues; impacts of unusual items resulting from ongoing evaluations of business strategies, asset valuations, and organizational structure; the ability of the direct selling operations of the Company to recruit and retain independent dealers in competitive markets; the condition of the industries and overall economies in the countries in which the Company conducts business, including the effects of weather, customer sales volume and profitability in the retail trade, and general consumer demand; and the possibility of one or more international markets in which the Company competes and achieves approximately one third of its sales being impacted by variations in political, economic, or other factors, including fluctuations in currency exchange rates, inflation rates, recessionary or expansive trends, tax changes, legal and regulatory changes, or other external factors over which the Company has no control. The Company undertakes no obligation to release publicly the result of any revisions to such forward-looking statements which may be made from time to time to reflect conditions or circumstances existing after the date thereof or to reflect the subsequent occurrence of unanticipated events. -----END PRIVACY-ENHANCED MESSAGE-----